Good day. Thank you for standing by. Welcome to the Cricut Q1 2021 earnings conference 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 will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Jessica Barker, Investor Relations at The Blueshirt Group. Ms. Jessica, please go ahead. Thank you, Operator, and good afternoon, everyone? Thank you for joining us on Cricut's first quarter 2021 earnings call. Please note that today's call is being webcast 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, prepared remarks and accompanying slides used on today's call have been also posted to the investor relations section of the company's website, investor.cricut.com. Joining me today on the call are Ashish Arora, Chief Executive Officer, and Marty Petersen, Chief Financial Officer. 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 in response to our 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-Q and S-1 Registration Statement. Actual events or results could differ materially. All non-GAAP numbers referenced in today's call are reconciled in the press release or the slide presentation on our investor relations website. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, May 13th, 2021. Cricut assumes no obligation to update any forward-looking statement projection that may be made on, in today's release or call. I will now turn the call over to Ashish to begin. Thank you, Jessie. Welcome to our first earnings call as a public company. I wanna start off by thanking all those that have supported us over the years, our passionate community of users around the world. My special thanks to the Perot family and their investment organization, Petrus Asset Management, for their early investment and continued support, and most importantly, our entire Cricut team for their hard work and continued dedication to our mission and our culture. In March, we completed our IPO, and I wanna welcome our new shareholders. We look forward to sharing our journey with you as we continue to grow and fulfill our mission to help people lead creative lives. While the IPO will help support growth across multiple strategic initiatives, we will continue to be very disciplined in our investment approach. We've had a long history of delivering solid growth. In 2020, in addition to COVID, we saw growth because of international expansion, the introduction of the Cricut Joy product family. Cricut Joy helped us expand our retail footprint, acquire more beginner users, and broaden our penetration. I'd like to start by sharing a few highlights from the quarter, and then I'm gonna spend a few minutes talking about the power of our platform and business model, our passionate community, as well as our growth drivers going forward. Q1 was a continuation of growth in 2020 as we acquired new users efficiently and drove engagement. Revenue in the first quarter was $324 billion, or 125% growth over Q1 of last year, putting us at a trailing twelve-month run rate in excess of $1 billion. EBITDA was $68.6 billion in the first quarter, a 232% increase over the first quarter of last year. We experienced a significant increase in user growth in the first quarter, growing 76% year-over-year, bringing our total users to just under $5 million, all this while we face connected machine shortages. For the large influx of users that we acquired in 2020, we benefited from monetizing those users with accessories, materials, and subscriptions. User acquisition is just the start of a user's journey with Cricut. Keeping them engaged and creating is one of the most important ways we fuel user acquisition and monetization flywheel. The more users are engaged, the more they are talking about Cricut and sharing projects with friends and family. As of the end of Q1 2021, 62% of our users created with their Cricut machines over the trailing 90-day period, up from 60% in Q1 2020. As our users create with their connected machines, we have an opportunity to drive revenues across our accessories and materials as well as subscriptions that are recurring in nature. Ending paid subscribers grew 118% year-over-year. Let me talk about the platform. We built a platform of software and products that accompany a user from inspiration to a finished project. We define our platform to include our highly versatile connected machines, design apps to discover and create projects, as well as hundreds of different types of accessories and materials that are designed to seamlessly work across our connected machines. For those new to the Cricut story, let me reinforce some of the key trends that shape our business and a typical user journey. We are benefiting from major long-term secular trends that include personalization, digitization of tools, technology enabling a new generation of entrepreneurs, and the proliferation of social media. Our user journey typically starts with the purchase of one of our connected machines. From the time the user opens a box, registers on our platform, and makes their first project, design plays a key role in that journey. Our goal is to wow our users at every touch point. Every user gets free Design Space apps on PC, Mac, iOS, and Android. Because we are cloud-based, a user can start a project on one device and pick it up on another. Users can access a selection of images, fonts, and ready-to-make projects, some free and some for purchase, as well as upload their own images. We have two subscription offerings, Cricut Access and Cricut Access Premium. Through these subscriptions, users get access to our content library of over 140,000 images, as well as discounts on cricut.com and priority member care. As of the end of Q1 2021, nearly 33% of our users were subscribed to Cricut Access. Our platform offers several community features which allow users to follow each other in the Cricut community, share projects, and create projects that other users have shared. The data from our users' contribution on the platform gives us valuable insights into their preferences and behaviors. Many of our users share a love for our brand, products, and our mission. Our users are passionate about sharing Cricut tips, tricks, personal stories, and more. All of this helps foster a loyal community of users who are deeply engaged with Cricut. Our community creates a reinforcing network effect. As the number of our users grows, so does the number of projects made and shared physically or digitally. This generates even more shared projects and word of mouth that, in turn, helps to grow our community. This community network effect has allowed us to efficiently acquire new users and drive sales by word of mouth referrals, complemented by our targeted sales and marketing efforts. We have over five million followers across relevant social media platforms. I encourage you all to visit our social media pages where we regularly showcase the creativity of our users. We also have over two billion views on hashtag Cricut on TikTok, which are almost entirely organic. We also have a deep focus on creating a diverse community of users and improving the breadth and depth of content we offer. We are constantly offering new styles, genres, seasonal content, and content that supports causes, all with the goal of inspiring creative needs. For example, in February, during Black History Month, we celebrated creators within our community and shared some of our favorite projects. We also plan to further expand the content in Design Space to reflect the interests of our diverse community. Finally, 29% of our users use their machine to create projects to sell, and many have created their own businesses. We believe we have a huge opportunity to continue to scale our user base. We measure our opportunity in terms of a Serviceable Addressable Market, or SAM. Our SAM includes active creatives who have created at least one project in the last 12 months in categories that we already address with our existing product portfolio. We estimate that our SAM in the U.S. and Canada is roughly 85 million individuals. Combined with our international opportunity in our four top international markets alone, Australia, France, Germany, and U.K., our total SAM is about 130 million individuals. With a user base of approximately five million, we have penetrated less than 4% of our SAM. As we continue to grow and become more mainstream, the opportunity to expand beyond our SAM is significant. Fundamentally, we believe that everyone is innately creative and anyone can be a part of the Cricut community. As we make new products and expand our reach, we believe there is an even greater opportunity for creatives and potential creatives anywhere to join the Cricut platform. We also believe there is a significant opportunity for Cricut to grow internationally. We began our international expansion by launching in Australia, Canada, France, Germany, and U.K. We've also localized our design apps in several languages such as French, German, Portuguese, and Spanish. We will continue to pursue a disciplined international expansion by targeting countries with large populations of active creatives where we believe the Cricut value proposition will resonate. International revenue grew 253% in the first quarter. We believe that the trends that help drive user acquisition and growth in North America are truly global in nature. In addition, we are seeing similar network effects and a passionate community of users in each of the markets we have launched. In the future, we expect to expand into new emerging markets strategically to continue to drive growth. Our cloud-based software enables us to update the functionality and features of existing physical and digital products and to release new products that seamlessly integrate with our platform. Our platform is extensible, allowing for innovation and growth from new products, tools, accessories, increased content, and greater functionality available through our software and apps. For example, in Q1, we launched the Cricut Mug Press, a machine accessory that allows our users to create easily professional-looking personalized mugs for personal use, for gifting, and for selling. Users can now get peel-proof, dishwasher-safe results with our Infusible Ink materials. As part of this launch, we added new designs in our library for mugs and coupled that with new software capabilities, Infusible Ink transfer sheets, and Infusible Ink compatible mug blanks. These mugs are designed with a special coating that makes it possible for the Infusible Ink transfers. They can also use our Infusible Ink pens to make customized mugs that have handwritten notes and drawings on these mugs. The Mug Press launch is a great example of the extensibility of our platform. Our users are being inspired with new mugs and gift ideas every time they use our apps and cloud-based software. It has been amazing to see our users' creativity, not only in the mugs they are making, but also in the occasion and friends they are making gifts for. We've been pleased with the sales so far. We spent a lot of time listening to our users, adding greater functionality to our software and improving the user experience. We added some great educational tutorials and step-by-step how-tos built right inside Design Space to increase ease of use and help drive engagement. We also enhanced our search functionality, added project collections to help users organize their creative work, and launched the highly requested offset feature, which allows users to add decorative outlines and shadowing to shape text, groups of images to make their designs pop. Software is core to our platform, and you will see us continue to invest in this area going forward. We have a proven ability to drive profitable growth, which we believe positions us well to keep innovating and delivering great experiences for our users over the long term. I'm extremely humbled by what our teams have been able to accomplish and how we've been able to enrich the lives of so many community users over the years. With continued strong demand, we enter the second quarter with positive momentum. Although we are taking a judicious approach to the medium term, we are very long term focused on executing well and continuing to build our platform and enriching our community. I'll now turn the call over to Marty for more details on the financials. Thank you, Ashish. Good afternoon everyone? It's good to be here today on our first public earnings call. Before we move into the detailed financial results, I want to touch on the strength of our business model, which has been the engine of our rapid growth. Cricut has a proven track record of strong revenue growth and demonstrated profitability stretching back to 2014. Our sales are diversified across categories and give us revenue streams that are largely predictable. As Ashish discussed, the user journey generally starts with the purchase of a connected machine. The gross profit from that purchase mostly covers our customer acquisition cost. The purchase then triggers a flywheel of engagement, which in turn drives ongoing revenue from subscriptions and accessories and materials. Revenue in the quarter was $324 million, an increase of 125% over Q1 last year, and was the primary driver in delivering significant growth in net income and EBITDA. Revenue from connected machines grew 148% over Q1 last year. Strong machine sales and new user acquisition throughout 2020 and Q1 of this year helped drive 141% revenue growth in subscriptions in the quarter and 102% growth in accessories and materials. In terms of geographic breakdown, international revenue growth outpaced growth in North America, increasing 253% in the first quarter over the same quarter in 2020. As a percentage of total revenue, international represented 10.3% in the first quarter, significantly up from 7.4% in all of 2020 and 3.6% in 2019. We anticipate the investments we made in 2020 and ongoing future investments will continue to expand consumer reach and brand awareness internationally. The Cricut community of users drives healthy engagement on our platform and is one of the keys to building our long-term business with sustainable growth and compelling margins. The way we measure engagement is to look at what percentage of our entire user base is using their machines to create something in a given 90-day period. In the first quarter, engagement remained strong at 62% of our entire user base, up from 60% in Q1 of 2020. Sequentially, it was lower than Q4, which is to be expected, as Q4 is typically our seasonal high quarter in a given year. As we emerge from the COVID environment, we expect that overall engagement will generally be in line with historical levels, though the ways in which our users engage with us may change. For instance, as users begin spending more time outside the home, we may see them doing fewer home improvement projects and turning back to other types of projects like weddings, parties, back to school, and T-shirts for family vacations. We also saw higher year-over-year growth in both total users and paid subscribers. We ended the quarter with just under five million total users, which represents 76% year-over-year growth. Ended paid subscribers also grew in Q1 to 1.6 million, up 118% over first quarter of 2020. As engagement remains healthy on our platform, we're able to monetize that engagement through subscriptions and accessories and materials. We measure that monetization through ARPU in each of those segments. We calculate average revenue per user for subscriptions by dividing total subscription revenue by our entire user base, not just subscribers within that period. ARPU for subscriptions is the in the first quarter was $9.96, compared to $7.20 in Q1 2020. The increase was driven by an increase in the attach rate of paid subscribers to total users. We calculate ARPU from accessories and materials by dividing that portion of revenue by our average user base for the period. ARPU from accessories and materials in Q1 was $29.45, compared to $25.40 in Q1 2020. This increase was driven by our typical monetization flywheel and also by the launch of our Cricut Mug Press product line in Q1. Accessories and materials ARPU experiences seasonality patterns similar to our overall business, where Q4 is typically our strongest quarter of the year. All three of our product segments experienced increases in gross margin this quarter. Our total gross margin was 37%, up from 31% in the first quarter of 2020. We benefited from tariffs associated with moving the bulk of our connected machine production from China to Malaysia. As a result, connected machine margins returned to levels closer to what we saw in early 2018 prior to the increase in tariffs. Strategically, primary production will remain in Malaysia with the ability to flex manufacturing capacity in China as needed. In 2020 and in 2021, this strategy proved successful as we were able to increase production in an effort to help meet unusually high demand. Going forward, we expect to continue to incur some tariffs as we leverage production capacity in China to help address continued demand for connected machines. In addition, depending upon how the post-COVID environment plays out, we may choose to be more promotional in the second half of the year as demand and supply normalize, which could put pressure on margins. Profitability and a disciplined approach to spending have always been a priority for us. Our cost structure is characterized by three things, efficient sales and marketing spend, driven by our strong word-of-mouth adoption and network effects, investing in R&D for growth, and leverage in our fixed costs. Total operating expenses in the first quarter were $55.6 million, an increase over Q1 2020 of $28.2 million. $8.2 million of this increase was a one-time charge related to corporate reorganization associated with the IPO. As we move into 2021, we will continue to invest carefully in marketing initiatives, including those that support our international business, new products, our platform, our global community, and content, all to support future revenue growth to drive new users and increased engagement. We have always focused on building a long-term, durable business model that allows us to grow the top line, invest for our future, and just as importantly, continue to deliver solid profitability. We are pleased to report a ninth consecutive quarter of positive net income. Q1 net income was $49.4 million, up 279% from the same period last year, and diluted earnings per share was $0.24. Note that Cricut did not have a comparable EPS history prior to the reorganization at the time of the IPO. Turning to EBITDA, which includes stock-based compensation expense, we delivered EBITDA of $68.6 million or 21.2% margin in the first quarter, compared to $20.7 million or 14.4% margin in the first quarter of 2020. Q1 total stock-based compensation expense was $11.7 million, including $3.5 million in recurring stock-based compensation and an $8.2 million one-time charge related to the IPO corporate reorganization. Going forward, we expect stock-based compensation expense to be approximately $11 million per quarter over the next three quarters. Turning now to the balance sheet and liquidity. We ended the quarter with $337 million in cash and cash equivalents, and marketable securities, which includes $243 million in proceeds from the IPO. Subsequent to quarter end, the underwriters exercised a portion of the over-allotment option, bringing the approximate total proceeds to $261 million. We also have an untapped credit line of $137 million as of the end of Q1. Cash used in operations for the first quarter was $22 million, reflecting payments for higher levels of inventory as we continue to work to keep up with demand, especially on connected machines. As we discussed during our IPO process, we are not providing quantitative guidance at this time. That said, I wanna provide some color as we look to the rest of the year. Typically, Q2 is our seasonal low quarter and declines slightly from Q1 in a normal year. While we are only midway through the second quarter, current trends suggest that Q2 revenues will be at a range similar to Q1. As we look to the second half of the year, we maintain a careful view as we navigate several different dynamics related to the pandemic and possible inventory supply challenges that might occur. However, we currently expect to add at least as many new users in the full year 2021 as we did in the full year 2020. Please note that user growth in Q1 typically benefits from the increased number of machines sold in the last few weeks of the preceding Q4 holiday season. Due to typical seasonality, sequentially lower user growth would be expected in Q2, with new user growth picking back up later in the calendar year. It's also important to remember that we have aggressively and consistently grown the business for many years prior to the pandemic. We have built a durable business model and a passionate and viral community of users that drive our user acquisition. We believe the fundamentals, the macro trends, and the behaviors that drove our growth then remain intact. We have made significant progress over the years to reach our long-term targets, and we are proud of what we have achieved so far. Longer term, we will continue to invest for growth, drive new user acquisition and engagement, and bring the Cricut ecosystem to millions more around the globe. Our long-term model includes gross margins in the 37%-38% range and EBITDA margins in the 17%-20% range. We are committed and focused on the long term, and it is our job to continue to execute the way we always have. With that, we'll turn the time back to the Operator for questions. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Again, that is star, then the number one on your telephone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Rod Hall with Goldman Sachs, y our line is open. Yeah. Hi, guys? Thanks for the question. I guess, like, you know, good numbers here, obviously, and things are looking good into Q2 as well. I just wanted to, you know, double-check your user growth expectations and kinda your commentary there, Marty, in terms of phasing through the year. I assume that you're growing users faster than you normally would here at the beginning of this year, given, you know, we've been in lockdown conditions and so on. I'm also assuming you would assume that user growth, you know, isn't maybe as good in the back end of the year as you normally would expect, but I'm just not quite sure what you're thinking for the back end of the year user growth. That was my first question, then I have a follow-up. Yeah. One thing to just re-highlight that we talked about in my prepared comments is that there's a seasonal, a normal seasonal shift in how new users are acquired. New users in Q1 are quite a bit higher than new users in Q2. As we progress through the year, new user growth picks up later in the year. You know, we have always expect to see some normalization as we emerge from the pandemic. You know, we're pleased to see that that hasn't happened so far. I think that I'll direct you back to my prepared comments that said that we feel comfortable that at a minimum, we will match the number of new users that we brought on last year this year. Last year, 2020, was a pretty exceptional year for us. Our expectation is to grow users on top of that strong year. Okay. Okay, thanks. And, and- No, please, Ashish. Well, I just wanna add, thanks for the question, really apt. I just wanna add a bit more color to what Marty said because it kind of gives you the overall flavor of the business. First I wanna remind everyone that while 2020 was a strong year, we've grown at a CAGR of 45% for several years prior to COVID, right? Marty mentioned that, you know, currently we expect to add at least as many new users in 2021 as we did in 2020. What that means is that as we go into the second half of the year, we have a significantly larger number of users than we did going into the second half of 2020, right? From that, we benefit from those users being engaged, from ARPU, from subscriptions, accessories, and materials. You know, I know we mentioned in our prepared remarks, we talked about some engagement behaviors changing, but many of these behaviors will still remain intact, right? People still have back to school. In fact, it'll be bigger this year. People still craft for Halloween, Thanksgiving, holidays. People still want to use our products for emotional wellness, right? In summary, I just wanna reinforce, you know, a few things that we tried to highlight in our prepared remarks. We have a durable business model. We have a passionate and a vital community of users. You know, our fundamentals and trends remain strong and intact. One thing to just add on there that Ashish touched on, and that is that, you know, we have a large number of new users that came on in 2020 and in Q1 2021 that generate ARPU. If you just quantify that, there were one million new users that came on in just the second half of 2020. Another 600,000 came on in Q1, and another, you pick the number you want to plug in there for Q2. All of those users, we know from years of history that they will generate ARPU, continuing not just through the back half of 2021, but for years in the future. That, that's in addition to the rest of our user base that does the same. That's creates a tailwind for us, not just in the near term, but for the long term as well. Yeah. Yeah. Hey, could I ask a follow-up, or you guys mind? Sure. Yeah. Is the subscription ARPU progression's been great here, and I know, Ashish, you had planned to, or, you know, one of the strategic goals you've got is to continue to increase that. I know that, you know, you guys attempted to make some moves on that around the, you know, round about the time of the IPO. I'm just curious kind of what the plan now is as you look toward the end of the year for continuing to increase the value for that subscription. Maybe talk us through that. Rod, you know, as you pointed out, subscriptions is a key part of our portfolio, and, you know, we try to drive both engagement and the value proposition of our subscriptions. You know, today the subscription value is driven by content, one of our focus areas has been to significantly add to the diversity and the breadth of the content. In addition to that, you know, we are adding, we've launched a few software services that are only available to subscribers. I think you will continue to see us doing that as to, you know, as we try to enrich the overall value of subscriptions with enhanced content, you know, software, and as well as other services. I'm really excited about the work that the team is doing, and I think you'll see more of that in the future. Great. Okay. Thanks a lot, guys. Appreciate it. Thanks, Rod. Your next question comes from the line of Katy Huberty with Morgan Stanley. Thank you. Good afternoon? It was impressive to see the acceleration in year-on-year growth, even as we start thinking about lapping COVID at the tail end of the March quarter. When I think about the acceleration from 114% growth in December to 125% growth in March, that's about $17 million of incremental revenue. Any color, just generally speaking, on what drove that incremental revenue base? Was it largely related to the Mug Press launch? Are you starting to see retailers build more channel inventory as they prepare for increased traffic in their stores? Are there other factors that we should think about that help drive the growth acceleration? Then I have a follow-up. Yeah, a couple of things, Katy. I think you correctly identified two items. One is channel fill of machines. We're getting back on top of our inventory or our supply constraints with machines. Part of what you're seeing in machines in particular is replenishment of channel inventories as well as just strong demand that continues in Q1 carried over from 2020. In accessories and materials, our, you know, our Cricut Mug Press is doing well, as well as, you know, our entire Cricut EasyPress line has grown faster than that segment as a whole. I think those as well as subscriptions. You can look at subscriptions as well. Our ARPU has increased. That's largely driven by increased attach rate of subscribers to users. Really kind of all three of our segments have contributed to the growth. Marty, just a follow-up on that. How many more quarters do you think it would take you to get to the appropriate channel inventory levels and catch up with some of the backlog in the business? I mean, I appreciate that it depends on what happens with supply, but, you know, is it multiple quarters in a normal supply environment to get to normal channel inventory levels, or is it quicker than that? Yeah, you're correct. That's a tricky question to be able to answer because there's multiple facets to it. One is demand. You know, where does that go in the second half of the year and beyond? But more importantly, it's on the supply chain, there's a number of factors that are affecting the supply chain. You know, there's logistical issues where, you know, there's some constraints on shipping, on containers, on commodities, on other components. It's a little tricky to be able to say when we will be back on top, and in a comfortable position on our machine inventory. I think that a lot of these supply chain constraints will, you know, be present at least in some form. Our plan is through the end of the year. We've done a number of things to try to mitigate those as much as possible, but I think that we should look through at least through the end of the year to see some of that. On the materials and accessories side, we're back into a pretty comfortable position on those. Really the machine areas where we're more supply constrained at the moment. Okay. That's helpful. Katy, I'll just add one specific comment. I think, very consistent with what Marty said, you know, we're definitely better in the Q2 and the rest of the year timeframe than we were in Q4 and Q1 last year. I think the challenges that Marty's highlighted, you know, continue to exist. I think we're definitely in a better position today and for the next, you know, few months and quarters than we were three or six months ago. Okay. Ashish, if I can just ask you a follow-up. You know, you're not providing quantitative guidance because, you know, it's hard to know how the world normalizes post the pandemic and, you know, that is a big investor debate across all consumer stocks that saw a boost in their business as consumer behavior changed last year. Can you just talk at a high level, what metrics are you as Chief Executive Officer and the management team tracking to understand how your business might evolve? You know, what are some of the leading indicators that we should think about that helps us understand early what the normal run rate of this business overall and consumer behavior will be within your user base? I think, you know, I'd like to start off by just saying, you know, one of the things that we obsess about or are very focused on is our overall, you know, how we estimate the market size, right? We constantly focus on, you know, understanding how we get further penetration in our SAM and TAM. Some of the macro level drivers, which I believe are leading indicators, you know, we look at the trends like I know you talked about KPIs, but let me just kind of get to that. We're constantly looking at are these trends. You know, what is the seasonality of these trends? Are they here to stay? Are they mainstream? As we look at trends like personalization, right? As we look at trends like social media and the digitization and more and more prosumers happening, those are broad indicators that we look at to make sure that none of our assumptions about our business have changed. You know, as far as our specific metrics that we look at, I would say, you know, clearly, net new user growth is a big one, but also engagement, right? One of the fundamental drivers or one of the drivers of our growth is that our users are engaged. You know, that engagement not only drives ARPU, but it also drives the word of mouth, right? The more people make, the more projects they make, the more they tell people about it in the digital or the physical space. For us, it's very important to make sure that, you know, that engagement stays high. If we can continue to drive, you know, that, we think that We'll stay in a healthy place. Thank you. Congrats on the strong quarter. Thank you, Katy. Your next question comes from the line of Jim Suva with Citigroup. Thank you, congratulations on your results and the qualitative outlook that you gave about subscribers. Following up on some of the earlier questions about as the year progresses, you know, I've been trying to buy some of the product online for my wife and stuff like that, and it continues to be sold out, which is a good situation of demand exceeding supply. It sounds like you've mentioned equilibrium and supply, did you say by the end of this calendar year? Does that account for semiconductor shortages, not for your supplies, but for your equipment? Does that include also restocking the channel? Just a point of clarification, Jim. My comment about the end of the year was intended to be at least through the end of the year. I'm not necessarily saying we'll be back in stock in the end of the year or back at normal levels. It's just too hard to be able to make that judgment. I think a lot of the things that we're facing, you know, in the supply chain, will be prevalent and manifest themselves at least through the end of the year. In terms of components, there are shortages in components, but we've done much to mitigate those shortages by going out and securing longer term agreements with the manufacturers. Many of those agreements carry us at least through the end of the year. Despite some of the shortages that you see in other industries, we've still been able to grow machine growth just in Q1 at 148%. We're still able to manufacture a number of machines. We're still not able to manufacture as many as demand would want at the moment. Great. As my follow-up, my wife won't let me take apart her machine to see what's all inside of it, but I do note there's metal and plastic, and in the world, there's been some changes of both metal and plastic costs. Is that gonna hurt your margins, or is it just in aggregate, they don't add up to be meaningful enough? Any thoughts about raw materials, not semiconductors, but plastics and metals, you know, cutting knives, tools, all these things that my wife uses. Thank you. Yes, Jim Yes. We are now seeing increase in these commodity prices, sheet metal, resin, glue, polymers, et cetera, most of the commodities that you would expect. We are seeing those now. That is really a supply-demand issue, and we believe it's transitory. We think that it will impact some, have some margin impact in the short term, but we think that, you know, that over the medium term, that supply-demand balance comes back into line. Jim, I'll just add to. Thanks so much. Right. Jim, I'll just add to that comment from Marty, which is, you know, clearly, there's, as you rightly pointed out, there's increase in commodity costs. One of the things that I'm very proud about, on behalf of the team is that we as we continue to broaden our supply chain, as we bring additional contract manufacturers, we will mitigate some of that with, you know, just more competition on the supply on our supplier side. So we're definitely taking some proactive steps to make sure we are offsetting some of those cost increases, when we see them. Thank you so much for the details and clarifications. It is greatly appreciated. Thank you, Jim. Your next question comes from the line of Adrienne Yih with Barclays. Good afternoon? I will add my congratulations. That was very nicely done. Great start to the year. Ashish, I wanna stay on the inventory issue, and I guess my question is, what are the forward order books like in the wholesale channel? Are you able to meet that demand, or do you have to kind of push it off a little bit based on the uncertainty? That's my first question. Then my second question for you is, what is your go-to-market strategy in a new geography? Do you have customized software, and how much do you prep the market with advertising in a new market? Then I have one for Marty. Thank you. Okay. Well, you know, I think, Adrienne, on the, on the inventory side, we were constrained in Q1, so we adapted our promotional strategy to accommodate the fact that, you know, it didn't make sense for us to be, you know, as to follow our regular cadence of promotions when we're having some inventory shortages. As we've gone through the quarter, we are in a much better position. I think we are, you know, we as we go into Q3 and Q4, we'll definitely not be in an oversupply situation, but I think we'll be, we'll do fairly well when it comes to a healthy, you know, mix between supply and demand. That's, that's what I would say to that. On the international front, you know, let me I'm actually really excited about that because one of the things that really helps us is that, you know, people are creative everywhere, right? the behaviors and the intrinsic motivations of what drove our growth in the U.S. and in some of the markets we are in today, they're, you know, global, right? We have not yet found a country where we've gone in and we've seen that, you know, behavior is different. There are some nuances, though. One is, you know, in some of the countries, the channel may not be as developed, and, you know, that has allowed us so they may not be specialty retail, but the user need and the demand is there. We have actually been very successful in working with, you know, mass retailers, electronics retailers, office stores to bring some of those solutions to our user base. You know, our spend in, you know, in marketing and sales will be somewhat higher but not dramatically higher in some of these countries, but the go-to-market formula is not changing, right? What that go-to formula entails is, you know, basically driving user engagement, seeding our products, using digital and social very actively and really kind of, you know, creating raving fans, right? It's a very ground up model. We definitely create awareness from that, but we also make sure that we are providing a great experience, and we are building off that engagement, which ultimately then drives network effects and word-of-mouth marketing. I think both from a channel perspective and from a consumer marketing perspective, the core of the formula remains the same. Very helpful. For Marty, this is a little bit of a loaded question 'cause it's got so many components to it. So far what I'm hearing, on the cost side is that raw materials are going up, but you have, you know, new unit break points, which are sort of, you know, economies of scale. You're shifting countries of manufacturing. I guess my question is, you know, let's just take the 600 basis points of gross margin expansion in the quarter. If you take out the country mix, right? How would we think about the IMU or the initial margin on the manufacturing of the product versus perhaps mix shift of higher margin subscriptions and accessories and materials? That's why I say it's a loaded question because there's so much going on in there. Any help there would be super helpful. Maybe one of the easiest ways to start that is when did you shift to Malaysia from China as a full quarter? Maybe that'll help me give myself a baseline. Thank you. Okay. I'll talk to your last question first, and that is our machine production shift. We began shifting that in 2019. The tariffs on machines increased in mid 2019. Early 2019, you didn't, while there was a 10% tariff, you didn't see as much. The second half you saw a lot more. We, for the most part, had gotten all of our manufacturing to Malaysia by early 2020. The pandemic hit, Malaysia, and other countries began closing their manufacturing doors, we shifted some manufacturing back to China. We really haven't had a full quarter of non-tariffs because in order to meet demand, we have been manufacturing some of our machines back in China as well because demand has been so strong. We have flexed back. Even today, we haven't had a full quarter out of China. In terms, I'm sorry, what was your other question? Yeah. The other question was of the 600 basis points, I guess just let's use that as an example, you know, gross margin year-over-year improvement. How much of that would be manufacturing costs? Maybe that's the easier way. Manufacturing costs itself versus mix shift to other categories, subscriptions and accessories and materials. Yeah. Most of that was tariff related. Okay. You know, you can see that, in Q1 2020, our machines, carried a gross margin of 9%, and they were 15% this quarter. That's really tariff related. Most of it was that. At the same time, you do see, that, subscriptions, for example, was at a full percentage point higher when subscriptions carry, essentially a 90% gross margin. The majority of it is really tariff related, as well as some manufacturing cost reductions because, we have, you know, we have been able to negotiate and with some of our new manufacturers, as we expand our supplier base to others. Great. I'll just add to that and just say that, you know, promotion is another area that, you know, probably contributed some. We were more promotional in Q4. In general, people are, you know, there's just more promotional activity. In Q1, we are constrained, so we also did less promotions. Yep. Makes sense. Well, best of luck, and I'm glad to hear Q2 is off to a strong start as well. Thank you, Adrienne.. Thank you. Your last question comes from the line of Mark Altschwager with Baird. Great. Good afternoon? Thanks for taking my question. Let me offer my congrats on the quarter and your first call here as a public company. To start out, I wanted to ask about engagement. You know, really nice to see that up year-over-year. Any perspective you can provide on, you know, how engagement has trended in kind of maybe the March, April, May timeframe? I mean, I know that the metric you provide is a 90-day metric. Maybe just qualitatively, I'm trying to understand, you know, user behavior recently here as, you know, vaccine distribution's picked up and we're seeing kind of more demand for the out-of-home activities and just any key learnings as we've begun to lap lockdowns that's really informing your outlook for the remainder of the year. Sure. Mark, one of the things that we're actually really excited about our engagement and how it stayed consistent, in fact, done better than we were in the same at the same time last year. You know, it's particularly meaningful because as we're bringing in new users, and the majority of our users who are joining our platform are first-time users, and it takes them a while to get onboarded and, you know, get really familiar with the platform. The fact that it's stayed as healthy as it has is really a good thing, right? We really haven't noticed very many changes in the types of engagement, even in the last few weeks and months. You know, we had strong engagement on Val, you know, clearly throughout the Q1. Even more recently, like, as we've, you know, gone into Mother's Day and, we've seen, healthy engagement. You know, as we go through the second half of the year, as we go into summer, there's a hypothesis that some of that engagement patterns may change, right? Maybe people are doing less home DIY projects. One of the beautiful things about our platform and our category is that, you know, all of a sudden there'll be weddings, right? There will be lots of T-shirts, and people will plan trips and cruises, and they'll wanna wear, you know, matching T-shirts. You know, back to school will be much bigger, right? There is patterns of engagement that we're keeping a handle on, and we're also kind of matching our content programs. One thing I wanna emphasize that I said before is that, yes, there will be some engagement patterns that will change, but there is a lot of engagement that will stay consistent, right? People will still have, you know, the same festivals, and people will, you know, prepare for holidays. People will be doing gift, you know, they'll be gifting. You know, we are, you know, we continue to monitor the situation, and we will continue to adapt our engagement. One final point I'll add is that we've actually really been investing in our, a dedicated engagement team. I'm really excited about that because I think we'll be able to, you know, not only understand how user behavior is changing but be very proactive in making sure that that engagement stays healthy. Mark, just one quick comment on a general comment on engagement. Engagement does have some seasonality in it. Lots of engagement, particularly in Q4 when people are making things for the holidays, both, you know, Thanksgiving and Christmas. You do see some seasonality patterns in engagement. You know, one last final point, Mark, I'll make is that because we are a platform and because we are connected, we can see this engagement in real time. We have not only programs that are, you know, forward planning, but we can also react to, you know, daily, weekly basis. You know, if we see a downturn, we can really kind of try to understand the, you know, what's driving that and also put in place programs that offset some of that. I just wanted to say this is the benefit of having, you know, a cloud-based platform, that we can actually look at some of this behavior in real time. That's great color. Thank you. I wanted to follow up also on international. Maybe just a bit more I mean, great growth there. Does the 10% of sales level, is that something you would expect to sustain for the year? Just any more color you can provide on the drivers, new retail relationships versus sales with your existing partners, or any notable differences on accessory, materials, ARPU, and subscription penetration versus what you're seeing in your domestic markets. Thank you. Thanks, Mark. Those are about five questions. All good ones. You know, we're not right now commenting on what the business will look like in the future, whether it's, you know, and where we'll achieve. You know, needless to say, we are really excited, and we are learning a lot, right, by, as we go into some of these markets. As you saw that, you know, 10% of the business, of our total revenues in Q1 came from international. You know, we are very focused on driving additional countries. While we've launched in the four markets that we've talked about, we are now in several countries in Europe, including the Nordics, Spain, Italy. We have, you know, added Middle East, South Africa. We are, you know, already we're building up a team in Singapore and Malaysia and, you know, Asia, Asian countries as well. As I said before, in some of these markets, they're specialty retail, and we understand that, and we call it the core of our concentric go-to-market strategy. In many countries, we have not had the benefit of that, right? We've been successful in working with other retailers, like consumer electronics retailers, and office retailers and mass retailers, and bringing those solutions to the market. Our go-to-market strategy, which I talked about earlier, stays, you know, remains the same. One difference, you know, I will highlight that I think we will encounter in some of these international markets is what we call prosumers. While, you know, when we started off in North America, for example, we initially really focused on the hobby market, and then we saw, you know, as we noted, 29% of our users also end up selling things made of our products. As we're going in some of these countries, there will be situations where we will enter the market more focused on small businesses and prosumers, and then kind of building on that into the hobbyist market. You know, overall, we Again, as I said, we are in the very early stages, and we have a great team in place, and, you know, it's first, it's the first innings, so. Great. Thank you and best of luck. Thank you, Mark. Excuse me, speakers. I'm showing no further questions at this time. You may continue. I think that's it then. We wanna thank everybody for joining us today. We look forward to many more of these calls. Thank you. Thanks, everyone. This concludes today's conference call. Thank you for participating, y ou may now disconnect.