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spk_0: the day you take you for standing by welcome to the stargate que for full year two thousand twenty two early coffin for at this time operatives depends on a and only mode acid as secrets presentation it will be a question and session
spk_1: through the question answer session
spk_0: to ask a question to answer session you will need to press dar one one are your telephone you will get you an automated message advising your hand is rate to withdraw your question please press storm one one again please be advised that today's topic is the record it i would like to throw the pockets of now tuesday see coming from bush or group please go ahead
spk_2: thanks you operator and that as an enemy one thank you for joining us and put the fourth quarter and year ended plenty plenty to earnings call please not the today polythene web castle recorded on the investor relations section of the companies that website a replay of the last couple of for the available falling to call for your reference accompanying fly the is unsafe call one with a supplemental data sheet have been posted to the investor relations section of the company's website investor that pocket dot com turning me on the call they are as she's already chief executive officer and campbell sell chief financial officer can is prepared remarks have been recorded after witnessing kimball will have lived una before we begin with an item i never learned that are prepared remarks contain follow the and famous and management may make additional forward looking statements including statements regarding our strategy business expenses and results of operations in response to questions these statements do not guarantee future performance and therefore undo alliance should not be placed upon them these statements are based on current at a pace of the company's management and involve inherent risks and uncertainties including love identified in of a theft deception credit most recently filed one ten kill actually that results could differ materially that call also contains time sensitive information that an accurate only as of the data this broadcast march seven twenty twenty three cricket a things no obligation to update any form of production that may be made in today's will be used or call and with that i will now can a call over to a fish
spk_3: thank you see the and welcome everyone a lot of knowledge of rather be a record twenty twenty two to be a much better year for cricket than the results we got to live like and the year we expect you to sell more could actually machines that access to the materials that said we had at one point five million new users and twenty twenty two and mean the year with nearly seven point nine million twitter users in the good platform just shy up on initial expectations of the beginning of the year of beat will end users lucid in part by strong corrected machine filled in queue for twenty one and the first two months or twenty twenty two subscriptions also continue to grow notwithstanding the had been about physical physical products despite my disappointment in our twenty twenty two financial performance i'm extremely proud and grateful for the team's focus and all the accomplish over the past year
spk_4: let me explain why
spk_3: be significantly grew or subscriptions business we ended this year with two point six people bible up twenty percent or twenty twenty one new features and functionality dominic grieve and a passwords or the year a particularly noteworthy highlight that suggests that we're not just converting new users into cricket access but also reclaiming existing users the number of a good users who cut on the platform agree sequentially and queue for as expected a typical holiday season now that he we also saw a significant increase and user interactions like bookmarks and she had projects across the cricket brought from after rolling up multiple new you the touch points an announcement earlier twenty twenty two coming off a high growth pandemic period retailers reset inventory target which put additional pressure on are connected machine and access to the materials revenue we worked diligently with a retail partners to better a just those levels to the new targets and managed out shall inventory or the second half the year as a result we started twenty twenty three in a much healthier position
spk_5: we also move quickly to refocus investments
spk_3: to a higher impact initiative and titan operating expenses delivering our six consecutive year of net income profitability we'll continue to operate the company in a fiscally disciplined way the opportunity for growth and international expansion has never been stronger as we under twenty twenty three we will intensify are focused around new user acquisition and platform expansion in order to drive engagement subscriptions and increase monetization we're all sort of focus to your path to the accelerate growth and access to the materials
spk_5: let me walk through each of these
spk_3: we acquire new users would someone buys a collected machine we believe that we are in the early days of market development and of only penetrated six percent of our serviceable addressable market for my top six markets including the us canada uk france germany and australia this is up from three percent two years ago as cricket has become a more widely recognized global brand and twenty twenty to be locked in five new countries and now partner with a network of distributors it over fifty countries i don't i should go to me the key priority for twenty three as we deploy the same playbook that has gone our business in north america in addition the investments we may today in new user acquisition engagement and modernisation can be leveraged across all markets we believe our focus on industrial design innovation and our platform approach along with are connected integration between designed space content materials are not connected machine positions as well in the market or the past year we conducted numerous recent studies to understand our consumers and aperture journey our research shows that we have a healthy proper funnel today with significant opportunity to drive consumer interest and shorten the path to purchase are several strategic initiatives and progress today to help simplify the journey from discovery to research to purchase our research also shows that we are reaching a broader and more diverse demographic with nearly fifty percent of new users identify as beginner crafters almost double the rate of two thousand and nineteen users
spk_5: and even as we reach less experience crafters the new users are as likely to purchase of high machine and ultimately engage similarly to more xp to more experienced users
spk_3: they're also broadening i reach of the attract more urgency these and millennials going forward we have a plan or design or bachmann use cases to appeal to a broader audience while still providing the tools the right tools and resources for the more advanced user a majority of new users the introduce and interact with cricket and multiple touch points prior to actively researching the brand
spk_5: what about two friends and family and social channels you tube tick tock petrus facebook and instagram continue to play a key role as the initial touch point for nearly eighty percent of our new users
spk_3: earlier than the year we improved our audience targeting last new creative assets and refreshed cricket or continent cricket dot com we continue to expand our influence of partnerships with greater focus around micro influences that have the ability to increase brad presents an impact social engagement across video platform like to talk and you tube
spk_5: beyond the initial touch point we're also focus in a more simpler a simpler more streamlined purchase journey as we continue to rule out several new creative acids and tools that bring relevant information to consumers more quickly across all channels
spk_3: last month we laud improve product compounds and jaws and a developing a new simple quiz to help consumers decide which machine is right for them you're making changes to our website and digital marketing execution to pull you the to the funneled to conversion many of these up a to be rolled out across a retail channeled and global markets we believe the strategy will help bring more users into the final as well as shorten the typical purchasing path for consumers by investing these initiatives now we would position the cricket brown for growth and accelerate the purchase decision for when to do with spend returns wrote a book is an increasing user engagement with stop the moment we acquire use it
spk_5: our data showed that the first few weeks of a new users experience is often indicative of engagement over time
spk_3: thank you for the introduce a new on boarding process the a bit the have been testing a series of lesson plans for explore three and make a three with a small population of our users and are pleased with the initial results
spk_5: we plan to scale are learning expand these initiatives a world war machine and continue to refine our approach
spk_3: once on board it i focus turn to frequency of engagement over half of a user base cut on our platform and for and seventy four percent of users cut a project in twenty twenty two we have embarked on a number of initiatives to help increase user engagement the line with that i'm excited to announce that we have appointed one of our senior leaders to a new role in highly dedicated to you that engagement he previous was responsible for connected machines portfolio and is one of our both season leaders two years ago we took a similar approach to a subscriptions business which resulted in revenue growth and higher tax rates both of the leaders will work in tandem with expanded decision right to drive strategic plans and road roadmaps across several cross functional groups and ultimately responsible for delivering results for engagement and subscriptions
spk_4: inspiration drives engagement
spk_3: i recent studies show that sixteen percent of users get their project inspiration directly from design space and twenty five percent of all other social media this is a significant opportunity decreased traffic soon and the creative process offering you thousands of idea to help inspire and accelerate cutting
spk_5: we believe that i investments and mobile experiences and other platform and a half months will play a crucial role in the strategy
spk_3: in the fourth quarter he saw significant increase in bookmarks a que three we added the year with over a hundred and fifty million total bookmarks an increase of nearly thirty million sequentially making it easier for users to save ideas for later use when they come back subscribers other the most valuable member that our platform and drive increasing easement i quit activities versus non subscribers
spk_5: the end ended the year but two point six million paid subscribers or twenty eight percent increase the year over year
spk_3: this club is a direct result of investments e bay or the past twelve to eighteen months as a better communicate the value proposition to users in more places throughout the trick and experience for example in queue for use your boarding process to optimize messaging around the benefit of cricket access he also added more merchandising touch points within the engagement journey giving us the ability to advertise annual subscription plan more effectively
spk_5: the latter effort is already showing promise promising improvements to the mix of and it was his monthly plan sign up without impacting attach rape we also continued to expand new content and exclusive cricket access features including automatic a mover monogram maker editor of limited expanded collections and more
spk_4: in many cases these robust highly requested features become an important part and good worry users to subscribers
spk_3: we're also see increase engagement for my contributing addis program which has accelerated our efforts to bring new relevant and diverse crowd to duplicate access
spk_5: and other increasingly one source of content for subscribers comes from community projects these are project you those created the with cricket images with sometimes include instructions a list of materials to use and suggestions aren't as i lay out
spk_3: this community project path through quickest qureshi process to ensure authenticity of content and make ability when subscribers by the community project that inspired them ticket instantly personalize it or make it as is saving of the design of scrapped or starting from scratch this is an example of a community adding value to the platform that subscriber benefit from
spk_5: i goal of to make it even easier for cricket users to share their project and hence increase the number of community projects
spk_3: and significantly increase the value proposition for subscribers and finally we are increasing our focus on exactly the material where we believe we have the right to play at and to win they are uniquely positioned to build innovative high quality connected product that integrate with our hardware and software a smart mature that a great example of this
spk_6: this segment has experience headwinds since exiting the pandemic as a result of a few consumer dynamics converging at once
spk_3: including increasing prices devotee slot machine cells and less frequent engagement
spk_5: what we have been increase by sensitivity from users particularly at the current economic situation continues
spk_3: as consumers become more price sensitive shopping habits will material they increasingly shifting from bricks and mortar retail to online though party at places where we have seen and emergence of lower cost nor quality materials and the swamp you started to work with a retail partners to develop differentiated products configurations and promotional strategies by channel to meet the needs of their kind of their customers weather in store or online i'd want us to simplify scuse reengineered agree packing materials and dr greatest pleasure deficiencies to regain healthy margin while competing and driving shaggy and across all channels some of this will take time to execute while the movie is the inventory
spk_5: in the meantime we'll focus on being caught competitive for consumers and take a more deliberate and a little approach to promotional strategies to maximize margin while capturing our share of the market
spk_3: second the pressure of it we've experienced a new machine sales has also affected access to the material segment a portion of i'm a kid of business is generated through the sale of machine bundles which is an effective way to deliver to new users the material they need to quickly thought the journey with cricket good or accessory the materials a segment is influenced by mark how much are you those cut
spk_5: the density of engagement have been lighter since exotic exiting the pandemic
spk_3: the strategies we're building to drive engagement and prescriptions should work in parallel with our efforts to build a more robust online channel with retail thought what will retail partners and together will reignite growth and except you the materials we really all of the things together increase you the engagement combine the new product bundles pricing and costs structure will be a to your journey to the the segment of the business in summary we're creating greater alignment within the organization to drive key priorities
spk_5: acquiring new users globally driving increase engagement and subscriptions and structuring have access them into business for long term success
spk_3: the up in depth knowledge of a user base and have identified multiple opportunities to grow and increase monitors asian over the long term our focus on strengthening every facet of the platform will help a neighbor long term sustainable growth and photo and has a defensible mouth wide good with with recording modernization opportunities that are more characteristic of a platform business although the current macro economic macro environment will impact overall growth in the short term the initiatives we're deploying now the position as well for when could you misspelled return i would now turned the corner what akimbo for the financials
spk_7: take your shoes and welcome everyone although consumers band continue to be soft few for delivered typical fees or strength a connecting machine revenue are growth subscription revenue and user engagement in the fourth quarter we generate revenue a few hundred eighty point eight million dollars or twenty percent decline keeper per year cue for and generated ten point nine million dollars in net income as we continue to invest in a key priorities for your revenue was eight hundred eighty six point three million dollars at thirty two percent decline over twenty twenty one in my much and twenty twenty one reflected unusually high growth due to the pandemic breaking revenue down further revenue from connected machines for the air with during fifty two point six million dollars down fifty four percent or twenty twenty one reflecting soft to consumer spend an extra hm limit tory levels throughout most of the year in mid twenty twenty two retailers began initiating lower him through target level of a preparation for a weaker economy as connected machine revenue doesn't necessarily align with the increasing the user growth over the year
spk_6: in working with a retail partners we prioritize channel imagery and hundred twenty twenty three with healthier alignment between cell and and sell out revenue from accessories and materials for the year was three hundred sixty one point four million dollars down thirty five percent over twenty twenty one similar to connect the machines we entered twenty twenty do with every channel imagery
spk_7: making it have you ever year comparison we continue to see pressure in a classroom materials from the dynamics of she's mentioned earlier which contributed to decline in revenue and arpu our strategy for free exhilaration in the segment is focused on cost reductions over time sam promotional strategies for increase marketshare more machine and material bundles across more diverse channels and driving an overall increase in user engagement subscriptions revenue for the year with your seventy two point three million dollars at thirty two percent increase over twenty twenty one and benefited from target investments in cricket access and expensive improve when we made over the last several quarters a geographic breakdown international revenue was a hundred and forty two point three million dollars compared to one hundred and forty eight point five million dollars into twenty twenty one as a percentage of total revenue international my sixteen percent compared to eleven percent of total revenue and twenty twenty one turning to users engagement i'm pretty sure we ended the year with nearly seven point nine million total users or twenty three percent growth over twenty twenty one despite after consumer spencer out the year the just over eight million total your expectation at the beginning of twenty twenty two we ended the year with over four million users who cut a project on a machine within the last ninety days this is up to six percent from twenty twenty one to put this perspective twenty twenty two and twenty twenty two seventy four percent of total users had a project and last twelve months to the missions a sheesh outlined we have a significant opportunity to reach these users which is three quarters of a user base we ended year with over two point six when he paid subscribers up twenty percent from the end twenty twenty one attach rates for strong as
spk_6: thirty three percent up from thirty two percent last year
spk_7: i prefer subscriptions for the air with thirty eight dollars and nine cents slightly down from thirty dollars and thirty seven cents and twenty twenty one for context three factors generally explain variability in subscription arpu from one prayed to the next one subscribers are growing in the church reach you mean hi timing of finance mix of new vs we subscriptions and the increasing makes of international subscriptions accessories materials are boot was fifty dollars and fifty four cents for the year compared to one hundred and two dollars ninety one sense and twenty twenty one we believe the renewed focus we can with renewed focus we can really accelerate accessories and material revenue over time moving to gross margin told gross margin in the fourth quarter with thirty percent and improvement compared to twenty seven percent a queue for twenty twenty one as a reminder to for has seasonal pressure do to increase revenue contribution to connect the machines breaking gross margin down further gross margin from collective machines was two point eight percent if compares to a negative one point five percent and queue for of last year when we elected to take price reduction an air to in maker units in channel for the four year connected machine margin what three point three percent down from eleven point seven percent and twenty twenty one and was primarily impacted by higher fixed costs as a percentage of revenue in warehousing an operations expense along with increase forty expense and promotional activity looking at twenty twenty three decreasing inventory levels along with fix cars on warehousing and operation expense will continue to put pressure on margins partially offsetting this respect and of like machines weekend a smaller part of machine mix with small incremental improvements to machine margins subscription gross margin for the four year was ninety point three percent had slightly compared to twenty twenty one of eighty nine point three percent gross margin from access your twitter else was impacted by increase from oceans as well as fix operating costs amortized over large volumes both for the quarter and the full year the for your vote margin for accessories materials with twenty six point five percent compared to thirty seven point nine percent and twenty twenty one going forward will continue to be competitive and price turned to operating expenses we continue to operate the business with this little flexibility to navigate current trends in march we began to see consumers been softening and started it repaired ties investments
spk_6: he had result we eliminated fifty million dollars and plants man and investment throughout twenty twenty two and held operating expenses relatively flat year over year
spk_7: total operating expenses for the year with you hundred sixty nine point nine million dollars and included for a point two million dollars in stock based compensation expense it was up less than two percent from hundred sixty five million dollars and twenty twenty one operating income for the air was eighty million dollars or nine percent of revenue reflecting lower revenue compared to twenty twenty one of a hundred ninety two point four million or forty point seven percent of revenue despite the challenges we face and twenty twenty two we continue to prioritize net income and cash twenty twenty do with a sixth consecutive year of net income net income for the year was sixty point seven million dollars or twenty eight cents per diluted share compared to hundred forty point five million dollars or sixty four cents per diluted share and twenty twenty one turning out of the balance sheet cash flow we continue to generate healthy cashflow on an annual basis which finds annual a majority in investment for long term growth for the year we generated a hundred seventeen point seven million dollars in cash from operations and it with the balance of two hundred ninety nine point two million dollars if straight allows for a flexible yep purse purposeful approach to capital allocation including return of returning capital to shareholders during the year we we purchased two point three five million shares of stock at a cost of eighteen point five million dollars we have thirty one point five dollars remaining in the repurchase program in addition on february fifteenth we use seventy seven million dollars to pay a special shareholder dividend have you look ahead to twenty twenty three will continue to see softer consumer spending patterns and others taking a good conservative approach in are planning we will continue to take a prudent and project approach to investments while manage for small incremental operating margin improvements and have the cash generation twenty twenty three and terms of new user growth weeks back to add fewer new years
spk_8: is in twenty twenty three than we did last year
spk_7: for comparative purposes user growth and que one of twenty two benefited from strong machine self and que for and twenty twenty one and early twenty twenty two conversely he won twenty three will see pressure from softer queue for all a sales in addition we started twenty twenty three with softer than expected connected machine sales in january and family yea what we have a positive outlook and subscriptions lower new users will put pressure on our subscriber growth rate and attach right from reminisced that we entered twenty pretty famous help your channel him into a level of revenue should be more directly linked consumer demand in other words and twenty twenty three cricket could sell more connected machines than and twenty twenty two and yet as your new users as reminder you want to twenty twenty three will be a tough year over year comp and we expect to be materially below you want to laugh you are here we're past improve starting in queue to gross margin will continue to to be pressured on physical products hi fixed off as a present revenue and warehousing an auburn a fence will continue to be a factor throughout twenty twenty three accessories and materials will also continue at a similar promotional came through a price competitive and we will likely have eaters for eighty mm tories as it relates to materials particularly and queue to address off with we're back for you your accessories and materials margins will be similar to queue for twenty twenty two results machine gross margins should improve incrementally as machine makeshift more to are newer machines in the second half of the year we remain focused on managing a profitability well investing in areas with the highest impact for twenty twenty three wishes of a small incremental opera margin improvement on an annual basis with small objects in the second half and alarm astronomy seasonality should matter condition conditions worsened we will continue to man with the flexibility to make adjustments as needed just as we demonstrate on twenty twenty two we expected to can usually and healthy cash flow from operations every may committed to our launcher operating margin targets of fifteen to nineteen percent are proven model has demonstrated that when we operated scale and drive toppling growth these margins are achievable with that ultra a operator for questions
spk_0: thank you one moment while we pull not compiled a few and a roster if you have our to ask a question please post album when i your telephone
spk_9: the first question we have is coming from mark auschwitz ladder of beer your line is be
spk_10: good afternoon thank you for taking my question i'm a as we will get a gross margin profile of the machine segment and the accessories and material segment i'm in these rican corners versus a few years ago your how much of the compression it it's structural else weather related to cost inflation or efforts to draw i better affordability are some or temporary factors i guess the of out another way your could use that a rebate he gross margin expectations for those segments medium to longer term app you blew past families them and a temporary factors
spk_7: yeah
spk_11: market should question it this all of a part about machines and occasionally and seventy three our physical products are are being influenced by how the costs of of a pick him a toy and and the cost of our physical plant footprint
spk_12: over small riots and that is any pressure the continues with his to the air
spk_11: i'm going to try twenty three
spk_7: i'm in terms of magnitude that that and and are promotional campaign the bachelor for most australian commercialized his fan i'm ashamed how about it or about equal hum and you know we were less promotional are you a are you or your basis of a shave them were last year
spk_13: but but still at it it's a it's a fairly significant portion of address margin
spk_7: how we expect
spk_11: a machine goes why is to improve incrementally this year as we can have a makeshift more towards our i learn the sheets ah
spk_14: on the excessively purified we will called out that with that we will be more promotional and and that some
spk_7: that to come we weren't you for in particular but we were some we were more philosophy boy work for the four year and we saw share against fun
spk_11: from that in pin it are mass and crap charles where we have data we don't have perfect get every place but that's where we do we we saw that
spk_7: the margins are very pressured for
spk_11: oh
spk_15: twenty twenty three and
spk_5: and and prevalent aren't as we as we got her germline notices materials that yeah well it whereas up there and i'm in followup get a mammogram either but i thought to the bush or this add gimbals point i just wanna go back to the machines and just got a a lot of lowered gimble said
spk_15: a one as you know clearly a lot of a measure of a lot of our margins are compressed because of the existing although legacy machine your well as italy commented y twenty three with a much cleaner portfolio and as a portfolio mix improves right idea that will be positive what our margins so i feel good about that
spk_16: add the second which in a week kind of hinted on and be in the prepared remarks is it of a promotional been in the last probably twelve month even though you've be less promotion and cure for in general the focus a lot and the bottom of the final and got a lot of pos daughters of
spk_10: and he going into twenty twenty three we'll be in a less promotional and reallocate some of those dollars to pop a funnel or in into and the driving awareness i think between at least it especially and machines between the portfolio makes and in a a promotional strategy will see some positive improvement in
spk_17: margins for machines
spk_10: right thank you for all their color and then as she says as he mentioned earlier that you know you really do hundred and i travel tracking and more beginner crafters the platform and i think he said your studies suggest that their as likely to buy a larger machines as well as some things like the joy i guess i'm a little bit surprised by the i thought maybe the joy would all green decks some of those beginner crafters so be if you could expand upon your your learning there and just maybe some of the implication as we think about some of within the mix impacts on machine revenue over time
spk_15: and in kind of are related question but the subscription attachment continues to trend nicely is it fair to think that that could continue the edge higher as more of those beginner crafters enter the platform i would think that some of the benefits of cricket access would be
spk_6: the be potentially higher for those new are crafters that them when otherwise know how to create some of the designs thank you
spk_15: yep some are clear plus while you know as kim as he said we were pretty pleased with the fact that we are added one point five million users or came up to seven point nine billion and that says take less than six percent of six percent of our sam and it does as you pointed out gay go a lot of these a beginner users and jan these and specifically when it comes to begin our users he kind of studied the data and the the a pretty positive a surprise that didn't like food they didn't differ from other cool watch both in terms of engagement as well as incomes
spk_5: off the kind the machine they bought for that as middle of the little bill also they pleasantly surprised that that
spk_3: we we still do think that in our affordability is gonna continue to be key apply user base as so i think products like they could you i will play a role but i think as a hard to draw a correlation that is just the be getting begin to users just with those in of and feet of a machine place point i also think that of the improvement
spk_15: of the made it use of a deathly the celebrates was really important though the you that comes into the category and they basically to enter the got agreed that it has to be a lower price point but as we do a better job in helping people understand and think they are they use cases i think we have an opportunity to continue to improve it out users to get the right product which may or may not be the entry level price point so they'll actually pretty please and excited about that are the results
spk_3: think that you're driving affordability and lower price machines
spk_7: is beneficial to the world category what what they are just a highlight is that we did we gotta have a a little notation in our presentation is it as we're looking at a data a british good percentage of users is that you even beyond our staff so these are people that be would not categorized as people that would have qualified and our sam we have actually really excited about the that the penetration of as import inside our sam and outside a let kimball talk about this discussions and thanks to the question mark what we're really excited about a sufficient business and with the team has done a great job this year in in
spk_11: activating some or he's amazing and grown since the since a business and were in the very early stages of a road map with an average here repairs talk about features like automatic background mover and and will images and and we have a law remember features it will continue to add to the purposes of subscribers
spk_7: the talk about parking trading contributing artist program
spk_18: that is adding some new a diverse content that since getting a lot of traction
spk_7: ah we're doing a better job of merchandise cricket access some throughout the platform and ever see results from that as as we create more touch points example that is were having an uptick in the number of and your subscriptions as with as as opposed to monthly subscriptions and so we think we have a lot of room for improvement as as week you'd better a better there that said it with week called on are prepared remarks that we expect and fewer new users in in twenty twenty three and so had matches in the get pressure on on our attach rate and on our growth rate
spk_11: some has the largest portion of some new subscribers some from and to use of platform but as way and we get traction on some sundays some acquisition initiatives the deceased mentioned
spk_10: and also engagement we think that that well for help us
spk_0: we accelerate growth in in the subscription casual thank you i'll pass it on
spk_19: thank you one moment while we prepare for the next question
spk_20: or next question of become coming from jail silva of city your line of helping
spk_19: hi thank you so much for the details so far i'm separately on machines versus the assessor east ah wouldn't do it sounds like you mentioned january and february were also facing challenging inventory were found in the channel when you can have expect that to be more normalized
spk_11: we're talking another corner
spk_7: or so or center for the around them i'll probably will follow up since it's a gym thanks to the question as actually we entered the year with much helping channel inventory
spk_19: calm and what we're calling out and i prepared remarks as we had our forecasts well respected for the quarter and we saw softer demand then them respect in the quarter but that that's not related to unhealthy elementary loves me a we ended we ended the we have a at target range of forward looking weeks on hand some four channels and we ended in in those range itself so this is more a consumer demand in fact related to an indiscretion spend some more than it was hell inventories his
spk_11: okay that was very useful and so did the clarify sounds like where your channel not now you calculate but we're your channel feedback is that they're also comfortable with the inventory levels the channel creek as the reason i ask is it seems like a channel is walking down inventory to level that pre cold
spk_21: hey maybe or even lower pre pre go with that if you can comment on the feedback you're getting there
spk_6: it's as though so of a the channel is going to focus on him a toy but we are in continuous dialogue with on on on channel inventory plans and were aligned on those plans with a day
spk_19: i didn't regional level of conservatism of but overall a couple said you know the feel good about inventory come to twenty twenty three bad a healthy on plan leagues and had inventory
spk_22: and i think with tip the just a watching the consumer spend money goes in terms of discretionary products but i think the generally a good balance at point overall
spk_15: great the my last question is focused on research and development that you're doing internally there and cricket arm are you kind of keeping same levels and same road map or given the macro uncertainties and you need to do some adjustments
spk_3: yeah so thanks jim of i think couple of comments see i think about six maybe two quarters ago we'd kind of shed two or three quarters ago had shared that we gonna really lean and and doubled down on connected machines right to focus less at least in the short term and accessories but ah
spk_5: really kind of bill not i connected machines portfolio so i think that's a know we take a very long view on that and i will continue to innovate be continue to you know how to exciting things in that category said you'll see some great innovations from us over time
spk_15: the thing that i would say that we have really kind of focusing on his building out the soften the platform you see the benefit of that in subscriptions already
spk_10: i do you will see a number of initiatives around engagement and even more so i would say your the company is really gonna become a black thumb if you are on the platform company but you'll see more and more investment into software platform and we're really excited about that but we didn't have a balanced approach to on our and be and feel that you can streamline or india
spk_23: two when our strategy that our priorities up
spk_0: great thank you so much the colors and can and congratulations and brother details
spk_1: thank you
spk_0: thank you if you would like to ask a question please best star one one i your telephone
spk_9: one moment while we prepare for the next question
spk_24: next question is coming from adrian yeah barclays and i'm open they thank you very much and i say is i wanted to get some more details on kind of garrett target your customer and the you have good data on sort of the target household income
spk_15: it sounds like the the new users are more beginners immortality the that million that maybe get more season here there's or are college coming out of be active user base and then other seventy four percent get hut this year can you tell what proportion of them are heavy users vs or to one time users and for the one time or is there an active method of reaching out to them and being more personalized to engage them more thank you so much
spk_6: yeah as the thanks it into the question is another question that and if i don't get to all of them please feel free to follow up on we can don't have enough not call
spk_5: i think one of the the feel really good above is so early on in the psycho right and even though be added one point five million users and get seven point nine total at the end of the day is less than six present close to six percent violent sam and like you said he'd even gotten outside our sam
spk_3: i would say that the is i don't think of market is shifting i think i'm is expanding right oh and what i mean by that is we're definitely continuing good you attract the big as the advanced class laughter than the edge crafters but we also broadening so if you if the way to think about it as with
spk_15: kind of flat the bell curve if you out by the the the long tail the getting fatter to be think that we're you know as the expand the market which is what our strategy is good i pod as a product become easier to use more affordable and it's still a long way to do that via keeping the current engage customer base were getting to the crafter
spk_6: but also we're getting to a you be a user base that we've always wanted to add like i said you know the good news about attracting big a crafter is that leads at this point we don't see that cool what
spk_5: you know doing anything different for mom would engage coupons
spk_3: so that's gonna buy my overall remark on the opposition peace i think from an engagement perspective oh we have gotten better and better add understanding the various school board so beat me up haven't got up with with that he does not mature enough to to shed outside but the way we look at engagement has been able to differentiate between subscriber the non subscribers were able to go classify people love monthly users and quarterly users occasional in semi annual and don't want the one good thing that when we ask our customer base your even people like book not engage with us for twelve months right who as to what's that experience be the trick and white or what drives them to cricket the see a very high percentage of shed his number the path google close to eighty percent of people really is that lot of these people that actually not used the platform and nine to twelve months and they'll have their own i love using the platform and i think that's a big get into the question say well why didn't you bite and typically would be here is a well i just ran out of time or life got in the way and what the probably saying is that
spk_15: he'll do we we have an opportunity to make the experience even simpler better and as the billion mobile strategy to set for the have an opportunity to attract that to bring back that user
spk_25: having said that and i've been i ended there
spk_24: we've clearly want to go after you think about the folks that are engaged in specific me subscribers or number one focus is on a good subscribers by because these are the people they wanna keep a gave you are keep subscribe having said that we do have an opportunity to go after the folks that are you know if not as engage or not subscribed and we have a number of strategies and place to go after them but i would say into the the pecking order another one focuses let's keep on against black engages and gate and rescue been engaged subscribers engaged and subscribed okay that's super helpful on a couple of follow up against the community aspect of that list you know kind of front and center i think the in the same sales have collapse it that that in terms of the story discussion and just wondering you know content creation you did talk about it can you talk about kind of the community development in that aspect of it on
spk_15: has that is seemingly kind of taken aback the in the mind of the year on is that not the kid and for kimball on
spk_6: if you thought about a junior horizon and and i did make sure that i understand that of of pressure on sale and is that if i got is that correct
spk_3: how are you thinking about managing the cross side of the piano and
spk_15: that
spk_3: so any let me think the first half the question of them are alleged kimball a second half
spk_6: no i think you know it was what drove the category in terms of the network a badge and gun to the community that it they're stronger at the but that's rather them have ever been widely considered to have very high percentage of users coming from friends and family all eighty percent of users come to be or know about could get through some kind of social me
spk_5: the the our friends and family or some kind of demo that somebody did for them so that aspect even outside the platform and then i'll talk about the platform continues to be very healthy and a robust they or nothing has seen from that standpoint
spk_15: as far as the focus and community itself you know i would say and i made this you know common to when it when mark the question but i i actually when i think the urge him a squash be we'll be a building the community right inside the platform right and the community is creating projects that subscribers able to benefit from and that helps them sable the time that we have created other high value add actions were good old people able to follow each other people able to book so all of
spk_26: dad the thing that takes an expanded view of our length and engagement so i would say bit of in in summary
spk_11: both outside our platform and inside our block on community plays a massive role and i think those network effects of continue to drive that ah as a thing as a consumer scanned returns over time we think that we will benefit from the final the the a building and the network effects of were driving
spk_7: but also as i said community the front and center
spk_11: you know pods are black full and i think of a will see the benefit of that in terms of content of the community will generate and contribute to the platform
spk_7: yeah i'm anything sorry mitigation absence of thanks to the question
spk_8: when i talked about two years as mutilation you're talking rally the excesses materials not machines and to like them talk about what we're seeing and what we're doing some as and discipline taxes says for benchmark
spk_11: we're seeing your prices consume were also saying cheaper and fear materials
spk_27: some she'll have the market especially online and so are our strategy there is because confess
spk_12: so over the last year and and you know for the next
spk_7: couple years you'll see as be more promotional and in the short term as because we want to make sure that our our products are affordable consumers and and as imagine that when we are closer prosperity we win our fair share right we were more promotional into for and where we have dated
spk_11: measure we saw them he actually improve their share of resistance
spk_7: yeah over the medium term where to reconfigure a supply chain to drive cars doubt that to help improve our margins even if we're being more promotional and and president and the hell we saw lot of materials through bundle for we still have never seen the bundle of and when we had fewer mid new machine sales and also translate into fuel materials else and and as the work for their with a retail partners
spk_11: you'll see as being leaning into bundles was very right propositions both in birth border and on
spk_12: and then kills their factor is is is is low engagement i even lower the gates chooses or f six percent year over year
spk_24: we're saying since since abandoned people cutting fewer projects or it and so that drives the amount of materials such as is that's where the the days when this is a seamless reference
spk_28: i'm really come into play and and and of this is a space where our materials work seamlessly with our machines and we believe we have a favourite to win and and so ill
spk_0: it's gonna take some time without image whereas we have to work through and and so between supply chain reconfiguration and working for a toy that way we think it's kind of a to your journey but and for a highlight that work we're very focused on as your boss and a responsible and and and we demonstrated that
spk_9: last year with towers once you were to how the your played out for us
spk_10: and we will continue to be flexible based on what we see but overall but the over a business we do expect to improve margins it mentally over the course of the year okay thank you so much that all very helpful detail as what
spk_19: thank you
spk_7: one mama mama take a follow up question
spk_11: never follow up question coming from journalists over of city your line is open
spk_7: hey i have a couple follow questions i believe it was kimball mentioned earth some changes to the supply chain are you referring more to like it was fun but bundles like when gyms of bought a premium on bundle what the machine the first time is that what you mean by reconfiguring the supply chain for those packages are you talking about reconfiguring the supply chain like how you make the machines where you make the machines where you do your distribution centers or what did you refer by changes to your distribution and you are your you're a channel yeah says that so get my comments are most of the other reconfiguration most a directory towards excesses materials
spk_10: and some it it involves everything from looking at how we package how we differentiate across different channels
spk_29: with with configurations a product along with machines
spk_30: i'm enforceable of activities take place so some
spk_11: and it we met we may look at at some near showing different materials
spk_7: over time different how we can serve the market more effectively and and frankly do with less inventory
spk_10: okay and then my second follow up his on cash flow and what your plans are there at sounds like you've mentioned work down inventory still some more is is that correct my arm is so our house with the about your cash flow and what you're going to use
spk_19: as well so
spk_11: we do expect to be flow a creative for the year
spk_7: we are sorry to work through our inventory positions
spk_19: back to the two more be back to pre pandemic levels but it will take some time to get there
spk_28: break my last question is seasonality you know what coveted then after your mark what is normal seasonality but i would assume that you know second half of the are stronger than the first half and probably queue for the strongest the corners is that the seasonality we should expect or all these
spk_9: moving parts something i should be were to calibrate from of bit more correctly for seasonality
spk_15: and what we're expecting normal seasonality as we look to twenty twenty three some i mean what you acknowledge that that she wanted to get a particularly difficult quarter forest if you call last year it was in march we serve as a marked some shift and consumer behavior and so
spk_0: and she well which algae what we expect we expect improve it's starting to do but we think the normal seasonality is how we looking at here
spk_31: thank you so much for the follow up
spk_0: thank you our now like the call back over commands me for closing remarks oh thank you operator thank you for joining us this afternoon i should be at the morning stanley cup as a model and the couldn't vote to see everyone them so thank you again thank you all for doing this evening you all have a great day you may now disconnect the conference who the game shows will begin shortly to raise and lower your hand during una you can dial star one one good where you thank you for standing by welcome to the stargate que for full year
spk_2: two thousand twenty two early coffin for at this time all participants on a list and only mode acid as secrets presentation it will be a question and session through the question answer session to ask a question to answer session you will need to press dar one one are your telephone you will then you an automated message advising your hand is rate to withdraw your question please press storm one one again please be advised that today's topic is the record it i would like to turn the pockets of a now tuesday see funding from bush or group please go ahead thank you operator and that as an enemy one thank you for joining us and put the fourth quarter and year ended plenty plenty to earnings call please note the today polythene left corner on the investor relations section of the companies that site a replay of a couple offer the available falling to call
spk_3: they arrest as a company fly the is unsafe call along with a supplemental data sheet have been posted to the investor relations section of the company's website investor that pocket dot com turning me on the call today i she's our a chief executive officer and campbell sell chief financial officer today's prepared remarks have been recorded after witnessing kimball will have lived una before we begin with an item i never learned that are prepared remarks contain follow the to famous and management may make additional forward looking statements including statements with our in our strategy business expenses and results of operations in response to questions these statements do not guarantee future performance and therefore i'm do alliance should not be placed upon them a statements are based on current at a patients of the company's management and involve inherent risks and uncertainties including love identified in of a theft deception most recently filed point ten kill actual events or results could differ materially that call also contains time sensitive information that an accurate only us of the data this broadcast march seven twenty twenty three cricket a things no obligation to be any form of fucking production that may be made in today's will these are call and with that i want
spk_32: now can a call over to a fish
spk_3: thank you for the and welcome everyone
spk_4: a lot of knowledge of from the beach record twenty twenty two to be a much better year for cricket than the results we discuss would like
spk_3: and during the year we expect you to sell more could actually machine that access to the materials
spk_5: that said he added one point five million new users and twenty twenty two and mean the year with nearly seven point nine million twitter users in the crew platform just shy of on initial expectations of the beginning of the year of it will end users boosted in part by strong corrected machine filled in for twenty one and the first two months
spk_3: twenty twenty two subscriptions also continue to grow notwithstanding the had been about physical physical products despite my disappointment in our twenty twenty two financial performance i'm extremely proud and grateful for the team's focus and all the accomplish over the past year let me explain why be significantly grew up subscriptions business we ended this year with two point six million people fibers up twenty percent or twenty twenty one new features and functionality dominic grieve and a rates or the year a particularly noteworthy highlight that suggested the largest converting new users into cricket access but also reclaiming existing users the number of a good users who cut on the platform agree sequentially and queue for as expected the typical holiday season now that he
spk_5: we also saw a significant increase and user interactions like bookmarks and she had projects across the cricket brought from after rolling up multiple new user touch with an announcement
spk_3: earlier twenty twenty two coming off a high growth pandemic period retailers recent inventory target which put additional pressure on are connected machine and access to the materials revenue we worked diligently with a retail partners to better at just those levels to the new targets and managed out shall inventory over the second half the year as a result we started twenty twenty three in a much healthier position we also move quickly to refocus investments
spk_5: towards higher impact initiatives and tightened operating expenses delivering our six consecutive year of net income profitability
spk_3: we'll continue to operate the company in a fiscally disciplined way the opportunity for growth and international expansion has never been stronger
spk_5: as we enter twenty twenty three be will intensify are focused around new user acquisition and platform expansion in order to drive engagement subscriptions and increase monetization
spk_3: we're all sort of focus to your path to the accelerate growth and access to the materials let me walk through each of these we acquire new users when someone buys a collected machine we believe that we are in the early days of market development and of only penetrated six percent of our serviceable addressable market for my top six markets including the us canada uk france germany and australia
spk_6: this is up from three percent two years ago as cricket has become a more widely recognized global brand
spk_3: than twenty twenty to be locked in five new countries and now partner with a network of distributors in over fifty countries i don't i should go to made the key priority and twenty twenty three as we deploy the same playbook that has gone our business in north america in addition the investments we may today and new user acquisition engagement and modernisation can be leveraged across all markets we believe our focus an industrial design innovation and our platform approach along with are connected integration between designed space concord materials and not connected machine positions as well in the market or the past year we conducted numerous recent studies to understand our consumers and their purchase journey
spk_5: our research shows that we have a healthy proper funnel today with significant opportunity to drive consumer interest and shorten the path to purchase
spk_3: are several strategic initiatives and progress today do help simplify the journey from discovery to research to purchase our research also shows that we're reaching a broader and more diverse demographic with nearly fifty percent of new users identify as beginner crafters almost double the rate of two thousand and nineteen users
spk_5: and even as we reach less experience crafters these new users are as likely to purchase of high and machines
spk_3: and ultimately engage similarly to more exposed to more experienced users they're also broadening i read of we attract more jan these and millennials
spk_5: going forward we have a plan or design or marketing use cases to appeal to a broader audience while still providing the tool the right tools and resources for the more advanced user
spk_3: a majority of new users the introduce and interact with cricket and multiple touch points prior to actively researching the brand what about two friends and family and social channels you tube tick tock princess facebook and instagram continue to play a key role as the initial touch point for nearly eighty percent of our new users earlier than the year we improved our audience targeting last new creative assets and refreshed cricket or continent cricket dot com we continue to expand our influenza partnerships with greater focus around micro influences that have the ability to increase brad presents an impact social engagement across video platform like ticked off and you tube beyond the initial touch point we're also focus on a more simpler a simpler more streamlined purchase journey as we continue to rule out several new creative acids and tools that big relevant information to consumers more quickly across all channels last month we lot improve product compounds and charge and developing a new simple quiz to help consumers decide which machine is right for them
spk_5: you're making changes to our website and visual marketing execution to pull you the through the funneled to conversion
spk_3: many of these updates to be rolled out across a retail channels and global markets
spk_5: we believe the strategy will help bring more users into the final as well as shorten the typical purchasing path for consumers
spk_21: by investing these initiatives now we would position the cricket brand for growth and accelerate the purchase decision for when could you will spend returns
spk_3: wrote a book is an increasing you that engagement with stuff the moment we acquire use it our data showed that the first few weeks of a new users experience is often indicative of that engagement overtime thank you for the introduce a new on boarding process the a bit the have been testing a series of lesson plans for explore three and make a three with a small population of by users and are pleased with the initial results we plan to scale are learning expand these initiatives a world war machine and continue to refine our approach
spk_5: once on board it i focus turned to frequency of engagement over half of a user base cut on our platform and queue for and seventy four percent of users cut a project in twenty twenty two
spk_3: we have embarked on a number of initiatives to help increase you that engagement a line with that i'm excited to announce that we have appointed one of our senior leaders to a new role in highly dedicated to you that engagement he premature the spots of are connected machines portfolio and a verifiable season leaders
spk_5: two years ago we took a similar approach to a subscriptions business which resulted in revenue growth and higher tax rates
spk_3: what are the leaders of work in tandem with expanded decision right to drive strategic plans and road roadmaps across several cross functional groups and ultimately responsible for delivering results for engagement and subscriptions
spk_5: inspiration drives engagement i recent studies show that sixteen percent of users get their project inspiration directly from designed space and twenty five percent of all other social media
spk_3: this gives a significant opportunity to increase traffic soon and the creative process
spk_5: offering you the thousands of idea to help inspire and accelerate cutting we believe that i investments in mobile experiences that other platform enhancements will play a crucial role in the strategy
spk_3: in the fourth quarter we saw significant increase in book matter what you three we added the year with over a hundred and fifty million total bookmark an increase of nearly thirty million sequentially made me easier for users to save ideas for later use where they come back subscribers are the most valuable member than our platform and driving increase engagement i quit activities versus non subscribers the end of the year with two point six million paid subscribers
spk_5: a twenty eight percent increase the year over year the school is a direct result of investment e beta was past twelve to eighteen months as a better communicate the value proposition to you the in more places throughout the trick and experience
spk_3: for example in queue for we use on boarding process to optimize messaging around the benefit of cricket access he also added more merchandising touch points within the engagement journey
spk_5: giving us the ability to advertise annual subscription plan more effectively the latter effort is already showing promise promising improvements to the midst of annual was his monthly plan sign up without impacting attachment
spk_3: we also continue to expand new content and exclusive cricket access features including automatic baghlan mover monogram maker editor limoges expanded collections and more
spk_5: in many cases these robust highly requested features become important part and good worry users to subscribers
spk_3: we're also see increase engagement from are contributing addis program which has accelerated our efforts to bring new relevant and diverse crowd to duplicate access
spk_5: another increasingly one source of content for subscribers comes from community projects
spk_3: the the project users created with cricket images with sometimes include instructions a lift materials to use and suggestions on design layout this community projects path through crickets qureshi process to ensure authenticity of content and make ability
spk_6: when subscribers by the community project that inspired them they can instantly personalize it or make it as is saving that the design title scrapped or starting from scratch
spk_5: this is an example of a community adding value to the platform that subscriber benefit from
spk_6: i go to make it even easier for cricket users to share their projects and hence increase the number of community projects and significantly increase the value proposition for subscribers
spk_3: and finally we are increasing our focus on access to the material where we believe we have the right to play as and to win
spk_5: the are uniquely positioned to be innovative high quality connected products
spk_3: that integrate with our hardware and software a smart man that a great example of this the fragment of experience headwinds since exiting the pandemic as a result of a few consumer dynamics converging at once including increasing prices and devotee slot machine cells or less frequent engagement plus we have been increased by sensitivity from users particularly as a current economic situation continues as consumers become more price sensitive shopping habits were material they increasingly shifting from bricks and mortar retail to online third party back at places where we have seen and emergence of lower cost lower quality materials
spk_5: and a swamp you've started to work with a retail partners to develop differentiated products configurations and promotional strategies by channel
spk_3: to meet the needs of their can of their customers weather in store or online i want to simplify scuse reengineer and repackaged materials and right greatest supplies inefficiencies to regain healthy margin
spk_5: while competing and driving shagging across all channels
spk_3: some of this will take time to execute while the movie to the inventory
spk_5: in the meantime we'll focus on being caught competitive for consumers and take a more deliberate and a little approach to promotional strategies to maximize margin while caption our share of the market
spk_3: second the pressure via we've experienced a new machine sales has also affected access to the material segment a portion of i'm a kid of business is generated through the sale of machine bundles which is an effective way to deliver to new users the material they need to quickly thought the journey with cricket good or accessory the materials segment is influenced by me how much are you those cut
spk_5: the density of engagement have been light of since exotic exiting the pandemic
spk_3: the strategies we're building to drive engagement and subscriptions should work in parallel with our efforts to build a more robust online channel with retail pot what will read partners and together will reignite growth and access to the materials we believe all of the things together increase you the engagement combine the new product bundles pricing and costs structure will be a to your journey to reevaluate the segment of the business in summary we're creating greater alignment within the organization to drive a key priorities
spk_7: a quite a new users globally driving increase engagement and subscriptions and structuring have access to them into business for long term success the up in depth knowledge of a user base and have identified multiple opportunities to grow and increase monitors asian over the long term our focus on strengthening every facet of the platform will help a neighbor long term sustainable growth and photo in has a defensible mouth wide good with recording modernization opportunities that are more characteristic of a black for business although the current mac red rock macro environment will impact overall growth in the short term the initiatives we're deploying now the position as well for when could you misspelled return i will now turned the corner what akimbo for the financials take your shoes and welcome everyone although consumers been continue to be soft few for delivered typical physical strength and connecting machine revenue are growth subscriptions revenue and user engagement in the fourth quarter we generate revenue a few hundred eighty point eight million dollars a twenty percent decline prepare your cue for and generated ten point nine nine dollars in net income as we continue to invest in our key priorities for your revenue was eight hundred eighty six point three million dollars at thirty two percent decline over twenty twenty one keep in mind much and twenty twenty one reflected unusually high growth due to the pandemic breaking remedy down further revenue from connected machines for the air was during fifty two point six million dollars down fifty four percent or twenty twenty one reflecting so after consumer spend and acts hm limit tory levels throughout most of the year in mid twenty twenty two retailers began initiating lower him to target level a preparation for a weaker economy as that's connected machine revenue doesn't necessarily align with the increasing the user growth over the year and working with our retail partners we prioritize channel imagery and hundred twenty twenty three with healthier alignment between cell and and sell out revenue from accessories immaterial for the year with three hundred and sixty one point four million dollars down thirty five percent over twenty twenty one similar to connect the machines we entered twenty twenty do with have each elementary me making a tough year over year comparison we continue to see pressure in a catcher's you materials from the dynamics of she's mentioned earlier which contributed to decline in revenue and arpu our strategy for reek celebration in the segment is focused on cost reductions over time
spk_33: sound promotional strategies for increase marketshare more machine and material bundles across more diverse channels and driving an overall increase in user engagement
spk_7: subscriptions revenue for the year with your seventy two point three million dollars at thirty two percent increase over twenty twenty one and benefited from target investments in cricket access and expansive improvements we've made over the last several quarters and terms a geographic breakdown international revenue was a hundred and forty two point three million dollars compared to one hundred and forty eight point five my dollars and twenty twenty one as a percentage of total revenue international my sixty percent compared to eleven percent of total revenue and twenty twenty one turning to use it and engagement i'm pretty sure we had a beer with nearly seven point nine million total users or twenty three percent growth over twenty twenty one despite softer consumers been throughout the year that was just shy of ever eight million total viewers expectation at the beginning of twenty twenty two we ended the year with over four main users who cut a project on a machine within the last ninety days this is that six percent from twenty twenty one to put this of respect if twenty twenty two and twenty twenty two seventy four percent of total users kind of project and last twelve months ooh the missions a sheesh outlined we have a significant opportunity to receive users which is three quarter of a user base we ended the year with over two point six when paid subscribers up twenty percent from the end and twenty twenty one attach rates were strong at thirty three percent up from thirty two percent last year i prefer subscriptions for the air with thirty eight dollars and nine cents slightly down from thirty dollars and thirty seven cents and twenty twenty one for context three factors generally explain variability in subscription arpu from one period to the next one subscribers are growing in the chatrooms you mean high timing of finance mix of new vs we know subscription and the increasing makes of international subscriptions accessories materials arpu was fifty dollars and fifty four cents for the year compared to one hundred and two dollars ninety one sense and twenty twenty one we believe the renewed focus we can with renewed focus we can we accelerate accessories immaterial revenue over time moving to gross margin told gross margin in the fourth quarter with thirty percent and improvement compared to twenty seven percent a queue for twenty twenty one as reminder few for has seasonal pressure do to increase revenue contribution to connect the machines breaking gross margin down further gross margin from collective machines was two point eight percent if compares to a negative one point five percent in queue for of last year when we elected to take price protection on air to make maker units in channel for the four year connected machine margin what three point three percent down from eleven point seven percent and twenty twenty one and was primarily impacted by higher fixed costs as a percentage of revenue a warehousing an operations expense along with increase for to expense and promotional activity looking at twenty twenty three decreasing inventory levels along with fix cars on warehousing and operations expense will continue to put pressure on margins partially offsetting this respect and of like machines weekend a smaller part of machine mix with small incremental improvements to machine margins subscription gross margin for the four year was ninety point three percent had slightly compared to twenty twenty one of eighty nine point three percent gross margin from access your twitter else was impacted by increase from oceans as well as fix operating costs amortized over large volumes both for the quarter and the four year before your vote margin for accessories materials with twenty six point five percent compared to thirty seven point nine percent and twenty twenty one going forward will continue to be competitive on price turn to operating expenses we continue to operate the business with this the flexibility to navigate current trends in march we began to see consumers been softening and started the reprioritise investments have result we eliminated fifty million dollars of plants man and investment throughout twenty twenty two and held operating expenses relatively flat year over year total operating expenses for the year with you and sixty nine point nine million dollars and included for a point two million dollars in stock based compensation expense it was up less than two percent from two hundred sixty five million dollars and twenty twenty one operating income for the air was eighty million dollars or nine percent of revenue reflecting lower revenue compared to twenty twenty one of hundred ninety two point four million or forty point seven percent of revenue despite the challenges we face and twenty twenty two we continue to prioritize net income in cash twenty twenty two with a sixth consecutive year apart ignorant i'm net income for the year was sixty point seven million dollars or twenty eight cents per diluted share compared to hundred forty point five million dollars or sixty four cents per diluted share and twenty twenty one turning out of the balance sheet cash flow we continue to generate healthy cash on an annual basis which binds annually majority in investments for long term growth for the year we generated the hundred seventeen point seven million dollars in cash from operations the balance of two hundred ninety nine point two million dollars if drake allows for a flexible your person purposeful approach the capital allocation including return of returning capital to shareholders during the year we purchased two point three five million shares of stock at a cost of eighteen point five million dollars we have thirty one point five dollars remaining in the repurchase program in addition on february fifteenth we you seventy seven million dollars to pay a special shareholder dividend have you look ahead to twenty twenty three we continue to see softer consumer spending patterns and others taking a good conservative approach and are planning we will continue to take a prudent and as approach to investment while managed for small incremental operating margin improvements and how the cash generating twenty twenty three and terms of new user growth we expect to add fewer new users and twenty twenty three than we did last year for comparative purposes user growth in que one of twenty two benefited from strong machine self and que four of twenty twenty one and early twenty twenty two conversely to one twenty three will see pressure from softer queue for all a sales in addition we started twenty twenty three with softer than expect did connected machine sales in january and february or we have a positive outlook and subscriptions lower new users will put pressure on or subscriber growth rate and attach right from reminisced and we entered twenty pretty with help your channel him into a level of revenue should be more directly linked consumer demand in other words and twenty twenty three cricket could sell more connected machines than and twenty twenty two and yet as your new users as reminder you want to twenty twenty three will be a tough year we're cop and we expect to be materially below you one of laughter respect you are here cause to improve starting a queue to crosswise you will continue to to be pressured on physical products
spk_34: higher fixed off as a percentage revenue in warehousing and operating expense will continue to be a factor throughout twenty twenty three accessories materials will also continue at a similar promotional came through a price competitive and we will likely have eaters for aging emitters as relate to materials particularly and queue to address off with a bag for your
spk_35: accessories and materials margins will be similar to key for twenty twenty two results machine gross margins should improve incrementally as machine makeshift more to are newer machines in the second half of the year
spk_0: we remain focused on managing profitability well investing in areas with the highest impact for twenty twenty three wishes of a small incremental opera margin improvement on an annual basis with small objects in the second half and lima strategies nowadays
spk_9: should macro condition conditions worsened we will continue the man with the flexibility to make adjustments as needed
spk_10: to we demonstrate on twenty twenty two we expect to continue generating healthy cash flow from operations every remain committed to our launcher operating margin targets of fifteen to nineteen percent are proven model has demonstrated that when we operated scale and drive toppling growth these margins are achievable with that ultra he operated for questions thank you one moment while we pull not compile the human a roster if you have our to ask a question please post or when i your telephone
spk_7: the first crush we have is coming from mark auschwitz matter of beer your line is open good afternoon thank you for taking my question i'm a as we will get a gross margin profile of the machine segment and the battery the material segment i'm in these rican quarters versus a few years ago your how much of the compression it is structural you know weather related to cost inflation or efforts to dry
spk_11: i better affordability versus some are temporary factors
spk_12: i guess yeah after another way you could use a rebates
spk_11: a gross margin expectations for those segments medium to longer term app you blew past some of these them and a temporary factors yeah
spk_7: market your question it says all of a thought about machines and occasionally charlestown separately however physical products are are being influenced by how the cost of of a pick him a toy and and the cost of our physical plant footprint
spk_13: over smaller riots and that is any pressure the continues with his through the air
spk_7: the guy to twenty twenty three
spk_34: i'm in terms of magnitude that that and and are promotional campaign in the back of our promotional strategies commercialized his fan unashamed
spk_11: or about his or about equal hum and it up
spk_7: we were less promotional other yeah you are you and your basis of machines and were last year but but still it's it's it's a it's a fairly significant portion of address margin we expect
spk_11: machine buzz word is to improve incrementally this year as we have a makeshift more towards or learn the sheets
spk_7: on on the to the terrified
spk_11: liquid called out that would that we will be more promotional and and that some that come
spk_15: we weren't you for in particular but we were some we were more philosophy for were for the four year
spk_3: and we saw share against some
spk_15: from that in pin it are mass and fact else were we have data we don't have perfect get every place but that's where we do we we saw that yeah
spk_16: margins are going to be pressured for
spk_10: oh
spk_17: twenty twenty three and
spk_10: an improbable beyond as late as we got your journal i notice is retail business yeah i wanna stop there and i'm saying follow get a mammogram either but i thought for the question does add gimbals point i would go back to the machines than just gotta fight off our beloved campbell said a what as you know clearly a lot of a measure of or modified margins are compressed because of the existing other legacy machines serve you well as the comedy y twenty three with a much cleaner portfolio and other portfolio mix improves way i think that will be positive for our margins so i feel good about that the second which a week we kind of hinted on and be in the prepared to mark is it of a promotional remove in the last probably twelve months even though
spk_6: will be less promotion and kill for in general the focus a lot and the bottom of the final and you a lot of pos dollars well as he going into twenty twenty three we'll be you know less promotional and reallocate some of those dollars to top of one of i and into the driving of anna said setting between at least a especially on machines between the portfolio makes and it out or promotional strategy will see some a positive improve been in margins for machines
spk_3: right thank you for all that colors and then i'm a she says i think he mentioned earlier that you know you really do it i'd open a shop tracking and morty get are crafters to the platform and i think he said your studies he guess that they're as likely to buy the larger machines as well as and things like the joy i guess i'm a little bit surprised that
spk_15: that i thought maybe the joy would all green decks some of those beginner crafters so be curious if you could expand upon your you're learning spare and just maybe some of the implications as we think about some of the the next impacts on
spk_3: machine revenue over time and then kind of a related question but year the subscription attachment continues to trend nicely is it fair to think that that could continue the edge higher as more of those beginner crafters to the platform i would think that some of the benefits of cricket access would be
spk_11: the bp potentially higher for those new are crafters that gum when otherwise know how to create some of the designs for thank you
spk_36: yeah
spk_7: some are clear plus while you know as kim as he said we were pretty pleased with the fact that to be added one point five million users so came up to seven point nine million and that just take less than six percent or six percent of on sam and he does as you pointed out a gun lobby the beginner users and jan these and specifically when it comes to begin our users we kind of studied the data and the a pretty positive a surprise that didn't knife edge they didn't differ from other cool watch both in terms of engagement as well as income
spk_11: love the kind the machine they bought for that was middle of the little bit also have a pleasantly surprised that he'll be this to do think that it off what ability is gonna continue to be key apply user base as though i think products like like joy i will play a role but i think is very hard to draw a correlation that good job
spk_7: as for the be getting beginner users just with those you know and feet of a machine price point i also think somebody improvement of be made flow use of the definitely the fireplace one is really one for the you that comes into the category and they've they've get to enter the got agreed that it has been lower price by but as we do a better job
spk_18: in helping people understand and figuring out they use cases i think we have an opportunity to continue to improve it out users to get the right product which may or may not be the entry level price point so we'll actually pretty please and excited about that are the we still think that you're driving affordability and lower price machines
spk_7: is beneficial to the whole category what one day i'll just a highlight is that we did we to have a a little notation in our presentation as we're looking at our data a british good percentage of users vaccine even beyond our staff so these are people that we would not categorized as people that would have qualified to be an awesome so we have actually really excited about the that the penetration of is the import inside sam and outside a let kimball talk about the gosh
spk_11: his thanks to the question mark what we're really excited about censorship this and with the team is done a great job this year
spk_10: in in
spk_0: activating some participation amazing an aggressive receives is a business and were in the very early stages of a roadmap and leave and repairs talk about features like automatic background mover and and will images and and we have a law remember features it will continue to add to the purposes of subscribers we'll talk about her country contributing artist program
spk_19: that is adding some new and diverse content that since getting a lot of traction
spk_20: we're doing a better job of merchandising cricket access some throughout the platform and everything results from that as as we create more touch points an example that is were having an uptick in the number of and your subscriptions as with advertisers as opposed to monthly subscription and so we think we have a lot of room for improvement
spk_19: as as we get better a better there
spk_11: that said in a week when we called on are prepared remarks that we expect and fewer new users in and twenty twenty three and so have naturally in a good pressure on on our attach rate and on our growth rate
spk_7: some of has the largest portion of the new subscribers phone from having to use his platform but as we as we get traction on sundays some acquisition initiatives the deceased mentioned and also engagement we think the that well for help us
spk_19: re accelerate growth in in the subscription casual thank you i'll pass it on
spk_37: thank you one moment while we prepare for the next question
spk_11: our next question will become a from jail silva of city your line of helping
spk_21: hi thank you so much for the detail so far i'm separately on machines versus the assessor east ah wouldn't do it sounds like you mentioned january and february were also facing challenging inventory work down and the channel when you can of expect that to be more normalize
spk_6: we talk and another corner
spk_19: or so or can afford around them i'll probably have a follow up
spk_22: since it's a gym thanks to the question as actually we entered the year with much healthy channel inventory
spk_15: some and what we're calling out and i'm prepared marks as we had our forecasts well respected for the quarter and we saw softer demand then then the second quarter but that's not related to unhealthy tell him into a love me a we ended we ended the we have a a target range of forward looking weeks on hand
spk_3: some four channels and we ended in in those range and so so this is more a consumer demand in fact related to an indiscretion spend some more than it was hell inventories
spk_5: okay that was very useful
spk_3: and so just to clarify sounds like where your channel not now you calculate but your channel feedback is that they are also comfortable with the inventory levels the channel because the reason i ask is it seems like a channel is working down inventory to level that pre covered maybe are even lower pre pre with
spk_5: but if you can comment on the feedback are getting there
spk_10: as as though so abby the channel is kinda you focus on him a toy but we are in continuous dialogue with on on on channel image or it plans and were aligned on those plans with original
spk_23: i didn't read gender level of conservatism of but overall a couple said you know the feel good about inventory come into twenty twenty three van a healthy on plan leagues and had inventory
spk_0: and i'd i think the to be just gonna watching the consumer spending goes in terms of discretionary products but i think the generally a good balance of disappoint overall
spk_1: great the my last question is focused on research and development that you're doing internally there a cricket arm are you of keeping same levels and same road map or given the macro uncertainties do you need to do some adjustments
spk_0: yeah so
spk_9: thanks jim of i think couple of comments see i think about six maybe two quarters ago we kind of shed two or three quarters ago be chaired that we gonna really lean and and doubled down on connected machines right to focus less at least in the short term and accessories but
spk_24: really kind of bill not are connected machines portfolio so i think that serve you know we take a very long view on dad and i will continue to innovate we continue to you know our too exciting things in that category said you'll see some great innovations from us over time the thing that i would say that we have really kind of been focusing on his building up the soften the platform you see the benefit of that in subscriptions already ah i do you will see a number of initiatives around engagement and even more so i would say your the company is really gonna become a black thumb if you are on the platform company but you see more and more investments into software platform and we're really excited about that but we didn't have a balanced approach to on our and be and feel that you've got to streamline are already opposed to when our strategy is a priority them
spk_15: great thank you so much the colors and can congratulations and for all the details
spk_6: thank you thank you if you would like to ask a question please best star one woman your telephone
spk_3: one moment while we prepare for the next question
spk_5: next question is coming from adrian yeah
spk_3: oh barclays and on open
spk_15: they thank you very much an ss i wanted
spk_5: it's a more details on kind of dirt target your customer and the you have good data on sort of the target household income it sounds like the the new users are more beginners immortality of that name that maybe they're more season here there's our are colored coming out of be had active user base and then of the seventy four percent today hut this year can you tell what proportion of them are heavy
spk_3: users are censored a one time users and for the one time use or there and active method of reaching out to them and being more personalized to engage them more think you a much yeah
spk_6: as the thanks it in for the question is another question that and if i don't get to all of them please feel free to follow up on a weekend don't have enough in our call so i think one of the things that feel really good above is so early on and the psycho right and even though he added one point five million users and get seven point nine total at the end of the day is less than six present
spk_3: six percent five sam and like you said he'd even gotten outside our sam
spk_15: i would say that the is i don't think of market is shifting i think our marketing expanding right oh and what i mean by that as we're definitely continuing good that you know attract a big enough without advanced class and age crafters but we also broadening so if you is the way to think about it as with
spk_25: kind of flat the bell curve if you out by the the the long tail that getting fatter to be think that we're you know as we expand the market which is what our strategy is it our plot as a product become easier to use more affordable and it's still a long way to do that via keeping the current engage customer base were getting to the crafter
spk_24: but also be getting to a you be a user base that we've always wanted to add like i said you know the good news about attracting begin a crafter is that at least at this point we don't see that cool white you know doing anything different for mom would engage coupons so that's gonna buy my overall remark on the acquisition peace i think from an engagement perspective oh we have gotten better and better add understanding the various cool hard so be haven't got a bit with that he does not mature enough to to shed outside but the way we look at engagement as been able to differentiate between subscriber the non subscribers the able to go classify people love monthly users and quarterly users occasional and semi annual and don't want the one good thing that when we ask a customer base your even people like with not engage with us for twelve months right to as to what's that experience be the trick and white or what drives them to cricket be see a very high percentage of shed this number the path google close to eighty percent of people really that lot of these people that actually not used the platform and nine to twelve months and they'll have their own i love using the platform and adidas and big get into the question say well why didn't you bite and typically would be here is a while i just ran out of time or life got in the way and what they probably saying is that he'll do v re have an opportunity to make the experience even simpler better and as a billion mobile strategy cetera for we have an opportunity to attracted to bring back that user
spk_15: the down and have been ended there
spk_5: we clearly want to go after if you think about the folks that are engaged and specifically subscribers or number one focus is on a good subscribers
spk_3: by because these are the people they wanna keep a gave you are keep subscribe having said that they do have an opportunity to go after the folks that are you know if not as engage are not subscribed and we have a number of strategies and case to block them but i would say into the the pecking order another one focuses let's keep on against black engage as engaged and risky been engaged subscribers gate and subscribed
spk_15: okay that's super helpful
spk_3: a couple of follow up against the community aspect of the that was you know kind of front and center i think the and the same sales have
spk_6: a colossal that that in terms of the story discussion and i'm just wondering you know content creation you did talk about it
spk_5: it can you talk about kind of the community development in that aspect of it
spk_3: the has that is seemingly kind of taken aback the in the mind of the you down on is that not the kid and for campbell
spk_26: have you thought about a two year horizon and i did was make sure that anything that of of pressure on sale and is that if i got is that correct
spk_7: how are you thinking about managing the the cross side of the piano and certain sell
spk_11: eg
spk_7: so it let me the first half the question of them are led kimball a second half know i think you out what what drove the category and comes off the net like a badge and gun to the community the it they're stronger a at the but that's one of them have ever been widely considered to have very high percentage of users coming from
spk_11: and family all eighty percent of users come to be i know about could get through some kind of social media friends and family or some kind of demo that somebody did for them
spk_7: so that aspect even outside the platform and then i'll talk about the block from continues to be very healthy and a robust way or nothing has seen from that standpoint as far as the focus and community itself you know i would say and i made this you know common to when it when marcus the question but i i actually when i think the urge a ask which might be we'll be a building the community right inside the platform right and the community is creating projects that subscribers able to benefit from and that helps them sable the time that we have created other high value add actions were good old people are able to follow each other people able to bookmark so all of
spk_11: that's the thing that takes an expanded view of on length and engagement so i would say bit of in in summary
spk_27: both outside our platform and inside our black on community plays a massive role and i think those network effects of continue to drive that
spk_12: ah as a thing as a consumer spanned returns over time we think that we would benefit from the funnel that the a building and the network effects the were driving
spk_11: but also as i said community the front and center you know part of a black full and i think of a will see the benefit of that in terms of content of the community will generate and contributed to the platform
spk_7: yeah i'm agency
spk_11: sorry me because your accent the thanks for the question
spk_7: when i talked about two years as mutilation is you're talking about the excesses materials not machines five and to like them talk about what we're seeing and what we're doing some as and this context of diseases for month
spk_11: we're seeing a prices in consumer fight for also saying cheaper inferior materials
spk_7: come to have the market especially online or and so are our strategy there is because compares
spk_13: so over the last year and and enough for the next
spk_11: couple years you'll see as be more promotional and in term as because we want to make sure that our our products are affordable if consumers and and as imagine that one we are
spk_12: closer prosperity we went our fair share right we were more promotional into for and where we have dated to measure we saw them he actually improved or share position
spk_24: ill over the medium term where did we reconfigure a supply chain to drive cars doubt that they help improve our margins
spk_28: even as we're being more promotional and and president and
spk_0: the hell we saw lot of materials through bundle for we still an unseemly bundling and when we had fewer meet new machine sales and also translate into feel materials else
spk_9: and and as the work for their with a retail partners
spk_19: you'll see as being leaning into bundles was better value propositions both in perfect order and online
spk_10: and then kills her factor is is is is low engage with i even lower the gauges that are at six percent year over year we're saying since since abandoned like people having fewer projects or it and so that drives the amount of material such as a that's where the the engagement this is a she's reference
spk_19: really come into play
spk_7: and and and of this is a space where our materials work seamlessly with our machines and we believe we have a favourite to win and and so ill it's gonna take some time without image whereas we have to work through and and so between supply chain reconfiguration and working for a toy that way we think it's kind of a teenager any but i just want a highlight that we're we're very focused them as your thoughts and a responsible and and and we demonstrated that in last year with towers ones where do with how the your played out for us
spk_13: and we will continue to be flexible based on what we see but overall the over our business we do expect to improve margins incrementally over the course of the year
spk_7: okay thank you so much that all very helpful detail as one thank you
spk_19: one moment marvel take a follow up question
spk_10: never follow up question coming from and and is over of city your line is open
spk_29: hey i have a couple follow questions i believe it was kimball mentioned
spk_30: and changes to the supply chain are you referring more to like it was fun but bundles like when gyms were bought their premium on bundle with the machine the first time that what you mean by reconfiguring the supply chain for those packages are you talking about reconfiguring the supply chain like how you make the machines where you make the machines
spk_7: where you do your distribution centers or what did you refer by
spk_10: the changes to your distribution and you or your your channel yeah says that that so the my comments are most of the reconfiguration most a directory towards excesses who turtles and some if it involves everything from looking at how we package how we differentiate across different channels
spk_7: with with configurations and product along with machines and of activities take place so some and it we met we may look at at some
spk_19: near showing different materials
spk_28: over time to different how we can serve the market more effectively and and friend to do with less inventory
spk_9: okay and then my second follow up his on
spk_3: cash flow and what your plans are there and sounds like he mentioned work down inventory still some more is is that correct my they sell our house with about your cash flow and what you're going to use
spk_0: as well so
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