Cricut, Inc.

Good day, and thank you for standing by. Welcome to Cricut's first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your questions, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on Cricut's first quarter 2025 earnings call. Please note that today's call is being webcast and recorded on the investor relations section of the company's website. A replay of the webcast will also be available following today's call. For your reference, accompanying slides used on today's call, along with a supplemental data sheet, have been posted to the investor relations section of the company's website, investor.cricket.com. Joining me on the call today are Ashish Arora, Chief Executive Officer, and Kimball Schill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q&A. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements and management may make additional forward-looking statements. including statements regarding our strategies, business, expenses, tariffs, capital allocation, and results of operations in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties. including those identified in the risk factors section of Cricut's most recently filed Form 10-K or Form 10-Q that we have filed with the Securities and Exchange Commission. Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, May 6, 2025. Cricket assumes no obligation to update any forward-looking projection that may be made in today's release or call. I will now turn the call over to Ashish.

Thank you, Jim. Let me begin with a few words about tariffs. We acknowledge that tariffs have introduced uncertainty into our markets and into our financial plans. That said, We have spent the last several years moving the majority of our finished goods spend outside of China across all of our product categories. So while we have exposure to Southeast Asia tariffs in general, we feel we have a competitive advantage in our current supply chain configuration relative to competition. We will discuss the potential impact of tariffs later on this call. Total sales in Q1 decreased 3% year-on-year. We are pleased with the increase in paid subscribers in Q1, up over 6% year-over-year, the continuation of positive international sales growth, which increased 8% year-on-year, and strong profitability with operating income up 16% year-on-year. Given the confidence in the sustainability of our profitable operations and right-sizing our balance sheet post-COVID, the Board of Directors approved three capital allocation items. a special dividend of 75 cents per share, approval of our recurring semi-annual dividend of 10 cents per share, payable in July, and replenishing our stock repurchase program up to $50 million. Kimmel will provide more details on these three capital allocation items in a few minutes. In Q1, platform revenue increased 2% on paid subscriber growth. Products revenue declined 7% as connected machines revenue growth of 4% was more than offset by the 15% decline in accessories and materials. We are pleased with the progress in connected machines as a higher investment in marketing and promotions over the past few quarters appears to be making a difference. Both sell-in units to retailers and sell-out units to end consumers were up for the quarter. We are dissatisfied with our results in accessories and materials which would have declined further, but for the benefit of one-time items. While paid subscriber growth is indeed a win, we would benefit from stronger acquisition and engagement. We ended the quarter with just over 5.9 million active users who cut in the past year, down less than 1% from a year ago, while our 90-day engaged users declined 4%. As I mentioned last quarter, in 2025, we are relentlessly focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth. We are continuing to lean into these investments as we navigate the uncertainty introduced by tariffs. These accelerated investments are in hardware product development, materials, and engagement. In Q1, we launched two new cutting machines and also more Cricut value materials. and we are pleased with the new launches. We need to reignite our top line to satisfy the expectations of our team and our shareholders. We have conviction in what we need to do to return to growth. We need to attract more new users to buy our connected machines as we focus on addressing affordability, ease of use, and increasing marketing and awareness. We need to reverse weakening engagement trends and re-inject enthusiasm among our users by enhancing and simplifying the making process. We need to take back our share in accessories and materials. I will now talk about four priorities. New user acquisition, user engagement, subscriptions, and accessories and materials. We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our monetization flywheel. I'm excited about the recent launch of the next generation of our most popular cutting machines, Cricut Explore 4 and Cricut Maker 4. These new machines became available at the end of February in the US and Canada and other locations in March. While these machines were just launched in late Q1, we are pleased with the initial feedback, which is positive from both retailers and users. Furthermore, we are seeing an increased uptake with our bundles, where we add increased value to users and make the out-of-box experience easier. In Q1, we focus heavily on tailoring our paid social content across Meta, Pinterest, and TikTok to drive users further down the funnel. This platform-specific approach helps strengthen mid-funnel efforts across platforms. At the same time, we continue to see strong results from our streaming TV ads and have expanded our strategy to incorporate sales messaging, further supporting our full funnel marketing approach. Recall, last quarter we mentioned that we expected to continue marketing spend for 2025 at a similar level to 2024. As we re-accelerate consumer excitement for the brand and category, Given the uncertainty created by tariffs and the potential ripple impacts on household discretionary spending, we will be data-driven in our future marketing investments. We continue to experience expected engagement erosion from our large user cohorts from 2020 and 2021, and from subsequent years, who age on their engagement curve and are not being replenished with as many new users. Also, our more recent new users tend to create fewer projects and use fewer material types in these projects than crafters in past years. Our initiatives to improve our experience for new users joining our platform or onboarders remain a key focus. We're also increasing our investments to enhance the overall user journey by helping them go smoothly from a project idea to a physical project in their hands. Our growing content library of images and fonts, along with our continued improvements in AI and machine learning search algorithms, continue to be strong value drivers on our platform, especially for our Cricut Access subscribers. Users seek a broad and diverse selection of high-quality makeable content, which often falls short when using external sources. We continue to see a favorable trend in the share of projects cut using our library versus external content. This trend helps retention of our Cricut Access subscribers. We continue to simplify the out-of-box experience and guide first-time users step-by-step through the most popular project types. This includes new personalized first-cut experiences, visualization of digital designs as a physical product preview, adding guided touchpoints, and leveraging AI assistance all the way through successfully making their creations. In 2025, we will continue to enhance and simplify design space, focusing on specific use cases and streamlining the entire customer journey for each of those use cases, both from a design and assembly perspective. Q1 was also the first full quarter of operating our new engagement marketing platform with personalized push notifications in the US and Canada. Our goal is to bring more users back to the platform to drive inspiration and reasons to make. We are pleased with the increase in returning traffic we are generating. A portion of users came back for the first time in the quarter thanks to these efforts. We are continuing to expand the capabilities of our platform to enable more omnichannel campaigns. At the end of Q1, we also started deploying our new engagement marketing campaigns to countries outside the U.S. Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify the design experience, continue to grow the number of images, fonts, and editable designs, and improve our capabilities to bring users back to our platform to make a project. Cricket is a platform company, and Design Space is our core platform. Nothing is more important to us than providing our users with a deeply rewarding creative experience every time they come to Design Space. We are not there today, but we believe that the focus and resources we are bringing to bear will result in significant improvements over the next 12 months. In Q1, our paid subscribers increased over 6% to just over 2.97 million. Paid subscribers continue to be a big positive for us and increased 177,000 year-on-year and increased 15,000 sequentially in Q1. We are doing a more effective job of capturing a higher percentage of onboarders as subscribers. We are also seeing positive trends on win-backs where our promotional offers are driving increased sign-ups from prior subscribers. Recall, in the second half of 2024, we focused promotional efforts on reducing cancellations and we are seeing improvements in our ability to mitigate cancellations with these promo offers. and improved explanation of subscriber benefits. These efforts continued in Q1. We have a rich roadmap to continually increase the value proposition for subscribers, including over 1 million high-quality makeable images and a suite of premium design tools, along with the content strategies described above. Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our content and software tools. As our engagement efforts bear fruit, we expect to see a further boost to our subscriptions. Accessories and materials sales declined 15% in Q1, which includes about 5 percentage points of help from one-time items. In our efforts to return Cricut to growth, we know we have to return accessories and materials to growth. We also continue in our relentless focus to drive costs out of this business. including diversifying our finished goods supply base, largely outside of China over the past several years. We're also focused on having the right product configurations in the appropriate channels, so Cricut materials are the obvious choice when users want to make. Over the last several years, we have lost ground to competition in material types, where there are low barriers to entry. This is manifested in white label brands and retailers, as well as new entrants in online marketplaces. We have embraced the challenge to provide refreshed and cost-competitive materials and accessory offerings. As these offerings continue to roll out over the coming 12 months, we intend to reclaim market share, and by doing so, enhance the making experience of our users. Recall in first half 2024, we launched the Cricut value line of materials with over 30 SKUs, stage throughout the year as a test. Given the success we saw, we are accelerating this business as we launched over 100 SKUs in late March and early April this year. We have expanded the Cricut value line beyond the initial assortment of iron-on, vinyl, and cardstock to include glitter iron-on, and there is more to come. Consumers love the value proposition of Cricut value line of materials with its quality and ease of use. We continue to be optimistic about this product, now that we have some history in the market, but it is still a small portion of our portfolio. We have additional innovation products and cost reductions coming in the quarters ahead. We also launched e-commerce specific configurations of our main line of materials, which are performing well. Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share. We continue to explore opportunities to increase Cricut's market share within our omnichannel retail partners. Also, we believe our more diversified manufacturing footprint gives us an advantage relative to competitors as tariffs are rolled out, giving us an opportunity to potentially capture more open-to-buy dollars from our retail partners. For some accessories, we recently focused on being more price-competitive, This may create some near-term margin pressure for these products, but as our accelerated hardware strategy bears fruit, we should see an increase in their profitability over time. We are intensely focused on the overall customer experience, and we are motivated to work with those retailers that help us create a great experience both on the shelf and for actual use of our ecosystem. It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift to materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. With that, I'll turn the call over to Kimball.