CRCT - NASDAQ

Good day, everyone, and welcome to Cricut Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Now, it's my pleasure to turn the call over to the Senior Vice President and Head of Investor Relations, Jim Suva. Please proceed.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's Fourth 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.cricut.com. Joining me on the call today are Ashish Arora, Chief Executive Officer; and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q&A. 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, March 3, 2026. Cricut 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. While we are pleased with the increased profitability and growth in paid subscribers and global machine sell-out units, we are disappointed in the lack of total company sales growth for both Q4 and 2025. We are working with tremendous urgency and focus to drive a mass market experience, accelerate our development cycles and compete better. I would like to look back on 2025 on what went well, what we could do better and our priorities for 2026. Kimball will go through much of the financial details and how we look at 2026. We are pleased with our increased profitability and the over 4% increase in paid subscribers in 2025, along with positive machine sell-out units. This was our ninth consecutive year of positive net income as we generated $76.7 million of net income, which increased 22% or $13.9 million compared to 2024. In 2025, we launched 2 new cutting machines, a new mini heat press, several new materials, including greatly enhancing our Cricut value line and significant improvements in our software platform that includes compelling AI offerings and easy-to-use project guided flows. We are disappointed we did not post positive full year revenue growth. Total company sales decreased less than 1% for the full year and decreased 3% year-over-year in Q4. We believe Cricut is a growth business, and we are intent on proving it. Last year, I mentioned, we were fundamentally simplifying our user experience. We are delivering on this commitment with our new project guided flows, which are in the process of being rolled out to our entire user base. While it is still early, we are pleased with the initial results and feedback. We are relentlessly focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth. These accelerated investments are in hardware product development, materials and engagement. You can see the early fruits of these efforts from our 2025 launches that I summarized above. Thus far, in 2026, we have already launched 2 next-generation cutting machines, new heat presses, a new Direct-to-Film or DTF service, and I'm excited about our future road map. We will continue a similar cadence of marketing and promotional spend as the prior year. We are focused on 4 main 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. In Q4, we amplified our marketing reach by strengthening our visibility during this key shopping period. We continued with increased marketing investment and activated several high-profile partnerships, alongside new advertising opportunities. These efforts led to increased marketing engagement and an increase in Google searches for "What is Cricut," which we have historically watched as a leading indicator. We believe these efforts will continue to bear fruit in 2026. While we did not grow revenue in the quarter, we did see a continued improvement in sell-out of connected machines, which we believe is a result of our ongoing marketing efforts. Quarter-to-date in 2026, we continue to see positive connected machine sellout. In 2026, we are leaning even more into our bundle first strategy, with a cohesive out-of-box experience that includes tools and materials with the machine, along with a tightly integrated guided software flow. With that, we are excited to announce the introduction of 2 next-generation cutting machines, with all new architectures, Cricut Joy 2 and Cricut Explore 5. The overall consumer experience embedded in these new machine bundles represent the start of a new era at Cricut. Recall last year, I mentioned we would fundamentally simplify our user experience. We delivered on this commitment as we introduced guided project flows for our most popular use cases. These include Vinyl Decals, Iron-On T-Shirts, Folded Cards, Cardstock Cutouts, Insert Cards, and Stickers and Labels. While it is too early to see a material change in engagement from these improvements as they were only recently rolled out, we are pleased with early feedback, especially for onboarders. Engagement erosion continues to moderate as we held active users about flat for the year at just under 5.9 million active users. 90-day engaged users who cut during the quarter declined 3% year-on-year. Our ability to hold active users about flat is a result of multiple efforts. The performance and reliability of our platform continued to increase, which made this holiday making season a more frictionless experience for our users. We've introduced several improvements to the core functionality of our design experience. Our AI-driven features, both user-facing such as Create AI or behind the scenes such as search algorithms continue to drive positive impact. For example, Create AI lets users take their personal images, easily add complementary text and choose an output style to create unique designs ready to cut, draw or print. This dramatically improves the likelihood of user success. Create AI lets users generate ready to make images using credits as part of their subscription plan and is an acquisition driver to attract non-subscribers to sign-up for Cricut Access. We see the use of AI-assisted images and project creation as complementary to our growing image library from a contributing artist program, and our curated guided flows and associated templates for the most common project types. Beyond these continued improvements within our app, we have continued to improve our engagement marketing efforts to drive returning visits to design space. As a result of all our efforts, we have seen our Net Promoter Score improve meaningfully in the past 12 months. Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify our design experience by assisting users based on their project intent, selling more of our connected machines in bundles configured to work seamlessly with these new guided flows and continuing to grow the number of images, fonts, editable templates and AI features available to users. We look forward to 2026, which will be the first year of our cohesive consumer experience that integrates our bundle for strategy, coupled with our new simplified project workflows that leverage AI throughout the making experience. In Q4, our paid subscribers increased by over 4% year-on-year to just over 3.09 million. Paid subscribers continue to be a big positive for us and increased 132,000 year-on-year in Q4. We are also seeing positive trends on win-backs, where our promotional offers are driving increased sign-ups from prior subscribers. We believe our new platform enhancements, including new project guided flows, templates and Create AI enhancements will continue to provide benefits and value to our subscribers. We have a rich road map to continually increase the value proposition for subscribers. As I previously mentioned, we launched Create AI for our Cricut Access Subscribers, and we will continue to introduce more AI-driven features. Our goal is to make it incredibly compelling to be a subscriber to leverage our content and software tools. Accessories and Materials sales decreased 13% year-on-year in Q4 and declined 9% for the full year. We realized that over the last several years, we have lost ground in competition in material types where there are low barriers to entry. We continue to see competitive pressure increase, manifesting in white label brands and retailers as well as new entrants in online marketplaces and in retail. We have embraced the challenge of providing refreshed and cost-competitive materials and accessories offerings. As these offerings continue to rule out, we intend to reclaim market share and by doing so, enhance the making experience of our users. I'm pleased to report that, we have seen share improvements globally within online channels and at select large retailers across the category. For example, we see our Value line continue to accelerate in online marketplaces. We continue to regain share in heat presses, and we continue to make progress with driving costs out of our supply chain as we fight to counteract tariffs and address affordability for our consumers. In Q4, we launched a new EasyPress Mini LT that addresses affordability concern and is available in 4 attractive colors. During Q1, we launched our new heat press, Cricut EasyPress SE, which comes in 2 sizes and a variety of colors. These machines provide a professional quality heat transfer experience without the complexity or large size of an industrial press. They support a wide range of materials, including iron-on, Infusible Ink, sublimation and DTF. I am also excited to share that in Q1, we launched a DTF service. DTF lets users create in Design Space vibrant, full-color, personalized artwork that is printed onto a special film, coated with adhesive powder, and then pressed onto fabric or other substrates. DTF gives us the opportunity to leverage our Design Space platform and guided flows that we have been investing in over the past year. This is an example of new opportunities we are exploring to monetize our platform and content beyond cutting machines. As you can see, our team has been very busy with R&D, innovation and new products. We are not done, and we have a great line of new products on our future roadmap. We also continue in our relentless focus to drive costs out of this business. We are intensely focused on the overall customer experience. 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 in materials consumption. We are driven to continue to innovate while exhibiting both long-term focus and current discipline. With that, I will turn the call over to Kimball.

Thank you, Ashish, and welcome everyone. In the fourth quarter, we delivered revenue of $203.6 million, a 3% decline compared to the prior year. Full year 2025 revenue was $708.8 million, less than a 1% decline from 2024. We generated $7.8 million in net income or 3.8% of total sales in Q4, and $76.7 million or 10.8% of total sales for the year. Breaking revenue down further, Q4 2025 revenue from Platform was $83.9 million, up 6% year-on-year. We ended the year with just over 3.09 million paid subscribers, which is up 132,000 or more than 4% year-on-year and up 87,000 or 3% from Q3. For the full year, Platform revenue was up 5% and ARPU increased 5% to $55.77 from $53.12 a year ago. Platform revenue was up slightly more than paid subscribers primarily due to the benefit of foreign exchange. Q4 revenue from Products was $119.7 million, down 8% year-on-year. Connected machines revenue decreased 4% year-on-year in Q4, driven primarily by lower average selling prices as we were more promotional preparing for new product launches in Q1. Accessories and Materials decreased 13% in Q4. For the full year, revenue from Products decreased 5%, driven mostly by the 9% decrease in accessories and materials while connected machines revenue was about flat. As Ashish mentioned, machine sell-out units were positive for the year and continue to be up quarter to date. As a reminder, we don't have perfect coverage for sell-out data in all channels, so treat this as directional. As we shift to our bundle-first strategy, where we will only sell next-generation connected machines bundled with materials, we will no longer provide the supplemental revenue breakdown of Connected Machines and Accessories and materials in our SEC filings and data sheet. We will continue to report Platform and Products revenues and costs as we currently do in our consolidated statement of operations and comprehensive income. In terms of geographic breakdown, international sales were positive at $57.8 million, an increase of 9%, compared to Q4 2024. As a percentage of total revenue, international was 28% in Q4 2025, compared with 25% of total revenue in Q4 2024. For the full year, 2025 international sales increased 8% and represented 24% of total company revenues compared to 22% in 2024. Foreign exchange benefited international sales by 6% for Q4 and by 4% for the full year. Our Australian business stabilized through enhanced pricing and marketing programs in the second half. Europe showed solid growth, thanks to increased marketing investment and store expansion for the peak season. Our emerging markets also demonstrated strong performance, especially in our fledgling Japan and India markets. We continue to make progress in increasing brand awareness in international markets, which we expect to have a positive impact on member acquisition in 2026. We ended the quarter with just over 3.09 million paid subscribers, up over 4% from Q4 2024 and up sequentially. This continues to be a bright spot for us, and Ashish detailed our efforts that are getting traction in this area. But I do want to mention, as discussed in earlier calls, there is some natural subscriber attrition, so subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition. Recall, this could result in a seasonal pattern of quarter-on-quarter paid subscriber growth in Q1 and Q4, but flat to declining quarter-on-quarter subscriber growth rates in Q2 and Q3. Moving to gross margin. Total gross margin in Q4 was 47.4%, an increase from 44.9% in Q4 2024. For the full year, total gross margin was 55.1%, also an increase compared to 49.5% for 2024. The full year improvement reflects higher product gross margins and a higher amount of subscription revenue as a percentage of total revenue. Breaking gross margin down further, gross margin from platform in Q4 was 88.6%, an increase compared to 87.9% a year ago. For the full year, gross margin from platform was 89%, which increased from 88.1% in 2024. The increase in platform gross margin for the quarter and full year was primarily related to lower amortization of software development costs. We are excited about our AI investments. Recall, as we previously mentioned, there may be some gross margin pressure as we continue to ramp our AI features. Gross margin from products was 18.4% compared to 18.7% in Q4 a year ago. For the full year, products gross margin was 26% in 2025, which increased from 19.3% in 2024. The increase in gross margin for the full year was primarily due to selling previously reserved inventory and reduction in inventory impairments. Total operating expenses for the quarter were $82.5 million and included $7 million in stock-based compensation. Total operating expenses increased less than 3% from $80.1 million in Q4 2024. For the full year, total operating expenses in 2025 of $294.4 million increased just over 6% from 2024. As Ashish mentioned, we are focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth for hardware product development, materials, engagement and marketing. Operating income for the quarter was $13.9 million or 6.8% of revenue compared to $13.9 million or 6.6% of revenue in Q4 last year. For the full year, operating income increased to $96 million, up 26% compared to $76.1 million in 2024. As a percentage of sales, full year operating income was 13.5% in 2025 compared to 10.7% in 2024. Our tax rate in Q4 2025 was 51% due to the full year true-up associated with our higher profitability, bringing the full year tax rate to 28.9%, in line with our expectations. For the quarter, net income was $7.8 million or $0.04 per diluted share compared to $11.9 million or $0.06 per diluted share in Q4 2024. For the full year, we generated $76.7 million of net income and diluted earnings per share of $0.35, up from $62.8 million in net income and $0.29 diluted earnings per share in 2024. Turning now to balance sheet and cash flow. We continue to generate healthy cash flow on an annual basis, which funds inventory needs and investments for long-term growth. In 2025, we generated $200 million in cash from operations compared to $265 million in 2024. We ended 2025 with cash and cash equivalents of $276 million. We remain debt-free. Inventory decreased by $13 million from a year ago to $103 million at the end of the year. During Q4, we used $5.6 million of cash to repurchase 1.1 million shares of our stock. For the full year, we used $24.6 million to repurchase approximately 4.6 million shares. As a result, $41.3 million remain in our approved $50 million stock repurchase program, which the Board replenished in May 2025. During the year, we paid $202.1 million in dividends. After the close of Q4, we paid approximately $21 million for the declared $0.10 per share semiannual dividend on January 20, 2026. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2026. We are focused on bringing excitement to our category. We are doing this by accelerating our investments in R&D, new product launches and marketing, including international markets and continuing our promotional strategy to drive affordability. Thus far in 2026, we have already launched 2 next-generation cutting machines, 2 new heat presses and a Direct-to-Film service, but these have only been available a short time. We expect to see the benefit in 2026 and beyond. Previously, we talked about the headwinds that tariffs presented to our business. Given the recent Supreme Court ruling overturning IEEPA tariffs and associated dynamics, we are not providing any guidance on margin impact. We expect to be profitable each quarter and generate cash flow from operations for full year 2026. We also expect to continue to be active with our authorized $50 million stock repurchase program, which has $41.3 million remaining. While tariff uncertainty is a reality of today's world, our team continues to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that, I'll turn the call over to the operator for questions.

[Operator Instructions] It comes from Erik Woodring with Morgan Stanley.

I have 2, if I may. Just first, Ashish, if we look back on 2025, if we exclude accessories and materials, the business grew year-over-year, revenue grew year-over-year. And then if I go back to the last time you shared connected machine versus accessories and materials gross margins, they were relatively similar margin rates. And so my question is, strategically, given the challenges that face the accessories and materials market, why do you need that business? I'd just love your thoughts on how it is value enhancing for you and how you see it going forward? And then a quick follow-up, please.

Erik, thanks for the question. So I think, first of all, as we recently announced, we've launched our bundle strategy, which really simplifies the experience for the user, right, where they have all the materials that they need on day 1 to start the project. We also believe that, while we have competition and some copycats from various brands, including private brands, our machines ultimately have to satisfy the overall holistic experience. So I think it's important from an experience standpoint that we offer these materials, test the compatibility, take control of any -- whenever a customer uses our materials, we see from our research that they have peace of mind. They know it just works. It's high quality. So I think just from an overall experience, it's really important -- it's an important business to us. The second is we believe that as we are successful on our engagement initiatives, while we want to be cost competitive, while we want to compete in this, it's still a very lucrative business. And we believe that with the Value line, with EasyPress, we are on the path of execution, and we think we'll be able to turn this corner and turn the business around. But you're absolutely right. If you look at the high-quality aspects, if you look at connected machines and sell-through, you look at subscriptions, those are the leading indicators, and it's our job to then monetize that flywheel, with accessories and materials and subscriptions. So we think that it's an execution opportunity and an overall opportunity to provide a better experience to our members.

Okay. Very fair. I appreciate the cadence. And then just as a quick follow-up. Just as we think about either 1Q or 2026, are there any guardrails that you guys can provide behind even directionally user growth, revenue growth, margins, operating expenses, anything that just helps us understand how you're thinking about the year? Is this -- just maybe I'll leave it at that. Would love any color that you can maybe provide and help us with.

Yes, Erik, this is Kimball. Thanks for the question. We're really optimistic about the year overall, even as we see some challenges in the first half. So let me kind of break that down a little bit. We're very confident in platform growth for the year, even as we expect some seasonal softness in Q2 and Q3 as we highlighted in our prepared remarks and as we've seen in the last couple of years. But overall, we're confident that we'll grow platform for full year. When it comes to products, there are some challenges in first half because remember, last year, we had some opportunity to pull forward some accessories and materials demand, especially in Q2 around uncertainty related to tariffs, and that sets up kind of a difficult comp. We've also launched some new machines this Q1 that are lapping cutting machines that we launched a year ago. But the year ago machines had generally higher prices than the machines that we're launching this Q1. And so that presents a little bit of a challenge. But that said, we're really excited about our road map. We've been investing heavily, and there's more goodness to come in the quarters ahead. And so as we look to the back half of the year, in particular, we think we will hit our stride, and we're really optimistic for full year.

And Erik, let me just add to that. So I think about a few quarters ago, we talked about how we are accelerating our innovation across the board. So first and foremost, we just launched 2 new machines just a few days ago. We're very pleased with the launches. They are part of our holistic bundle strategy, coupled with the platform. So we will continue to launch new products in our existing category. The second thing I'll mention is that leveraging the platform, we also plan to launch new services in our existing category. And this is where the true benefits of the platform come to life. And finally, new products in new categories. So I think you'll start to see that materialize as we go through the year and into next year, all the engineering and innovation efforts that we've been investing in will come to bear. And I think this is -- underlies what Kimball shared in his comments overall.

Our next question comes from Adrienne Yih with Barclays.

This is Angus Kelleher on for Adrienne Yih. With the shift toward bundles, are retailers needing to make any changes to shelf space or in-store merchandising? And I guess just more broadly, how are retailers responding to your bundle offering?

Angus, thanks for the question. Okay. Angus, thanks for the question. We're really excited about this bundle-first strategy. And it really is, as Ashish mentioned in his prepared remarks, a new era for Cricut users. And it kind of breaks down into 2 pieces. One is let's talk about ease of use for consumers, right? Because with these new bundles, we're going to have a tightly integrated user experience, and that starts with the new guided user flows that we've talked about and that we've spent the last couple of years investing in and creating. And so it makes it simpler, faster, easier for users to make what they want to make. And these new bundles are designed to match those guided flows. So the out-of-box experience, a new user has everything she needs to succeed at the start. And then on the affordability side, we know that affordability has been one of the biggest concerns that someone researching the brand has is what is this activity going to cost them when they take it on. And so as we move into this next generation of machines, everything will come in a bundle. Now, we'll have a range of bundle sizes so that we can have compelling opening price points, but also larger overall bundles that drive more value for consumers, but each of these bundles will provide that much better experience for consumers in a cohesive, integrated way that they haven't had in the past. And so we're really excited about it. Our retail partners understand the strategy, and we get positive feedback from them on it as well. And so -- and the guided flows have only been available for a short time as we've been rolling them out. But initial results that we've seen this year, especially with onboarders, is very positive response.

And I'll just add specifically just to further embellish what Kimball said from a retailer standpoint. We haven't seen any big impact of our bundles on the placement strategy or whether they've reduced our shelf space or things like that. If anything, as we have shared and demonstrated with our retailers, what -- these are not just like random materials that are thrown into the bundle, right? They're very -- over the last 12 months, we've done a number of user studies, carefully curated and orchestrated these materials to give that out-of-the-box experience. And so I think it's -- I would say, without kind of speaking on their behalf, as they've seen our research, as they've listened to the user feedback, we believe that a good out-of-the-box experience will ultimately drive higher engagement, more trips back to the store and ultimately, people buy more materials. So I think overall, both consumers and retailers have received this positively. We have not seen any impact to their merchandising or shelf strategy. And it's -- as we said, our initial feedback from the guided flows has been positive. And even as we launch these 2 new products, we've gotten a lot of positive feedback on how many things we are including and how well orchestrated those things are. So we're pretty pleased with it overall.

Great. Great. And then just one quick follow-up on DTF. It feels like a new monetization lever beyond your kind of classic offering or kind of adjacent to your classic offering. How should we think about its role longer term? Is it primarily incremental usage from existing users? Or is it a way to attract new consumers to the platform?

Angus, thanks for the follow-up. So we're excited about our directed film offering, and it's really enabled by the infrastructure we've built around the guided flows, as Ashish mentioned in his earlier comments. And it's an example of where we're experimenting with ways to monetize our platform without the need to use a cutting machine. And so today, it's focused on our existing users as we learn and primarily focused in North America to start. And today is only available on desktop. But as we learn, we'll expand the audience and we'll expand the geography over time. And you'll see other things like this where we are looking for opportunities to monetize the platform outside of just our traditional cutting machines.

Yes. So again, just reinforcing the point that Kimball made, we -- this is -- initially, we've launched this product for our existing members. So as they come into design space, as they want to do these full color fidelity, high fidelity projects, this is a way to monetize that user need. Second, just double-click on what Kimball said, this is a really good example where we have leveraged our T-shirt guided flow that we had already built for our machines to basically provide another use case, right? So the same guided flow that we use for making a T-shirt with a Cricut is the guided flow that was used as a basis to create a T-shirt flow. And you'll see -- you'll continue to see us expand into those types of services. We've just started rolling out. It's still only on desktop. So I think it's too early to tell, but we are pretty excited about it, and we feel that we'll continue to invest in the service.

Our next question comes from the line of Eric Sheridan with Goldman Sachs.

This is Emma Huang on for Eric Sheridan. Just on the topic of your product road map and kind of AI offerings. Can you talk about some of the key learnings so far as you continue to roll out these AI-driven features and products and how they're kind of informing your priorities for go-to-market strategy?

Yes. So we're really excited about AI. We think it fits very well with our content strategy and is very complementary to it. And just a reminder that one of the primary reasons subscribers subscribe is for the content that it brings to their projects. And so while we have a large image library and we use -- we leverage AI to drive search algorithms to serve that content, we also have a generative AI offering that we call Create AI, which if a user can't find something that she wants to make already in the existing library, she can easily generate an image and then modify it quickly into a project that she wants to make. And so we continue to invest heavily in that over time and expect that to continue. We also expect as we drive adoption over time that, that might introduce some pressure in platform margins. But we also see with the early data that it also is a great acquisition tool for attracting new subscribers. And so we see it as an important aspect of continuing to improve our overall customer experience, but very complementary to what we're doing today.

And this concludes the Q&A session. I will turn it back to Cricut for final comments.

Thank you, operator. We will be meeting with investors at the Morgan Stanley Technology, Media and Telecom Conference tomorrow, Wednesday, March 4, 2026, in San Francisco, California, and we hope to see you there. If you have additional questions, please e-mail me at [email protected]. This now concludes this earnings call, and you may now disconnect. Thank you.