Awesome. Let's get started, at 10:00 on the dot. Welcome to day three of the TMT conference. My name is Eric Woodward, and I lead the hardware research here at Morgan Stanley. Quickly, before we get into speaker introductions, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures, as well as the Cricut IR website. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm pleased to be joined by Kimball Shill, CFO of Cricut, and Jim Suva, Treasurer and SVP of Finance. Kimball joined Cricut in 2019. He's been CFO since 2022. Jim joined Cricut two years ago, after a long and illustrious career as a friendly competitor here within IT hardware on the sell side. Both of you, Kimball and Jim, thank you for joining us. Eric, thank you for hosting us. Kimball, I think maybe the best place to start is recapping earnings from last night. I imagine most people in the audience and, and on the webcast have been in and around the conference. Just maybe touch on some of the most important points from the report, and then, you know, what is kind of the high-level messaging as we think about 2025? Okay, Eric, thank you. We ended the year at $712.5 million. That was down 7% and generally in line with our expectations. You know, we increased net income by 17%, so we're very pleased with that. Overall, we were disappointed that we weren't able to execute and drive the top-line growth. I think the main message that we talked about last night on our call is we are relentlessly focused on our speed of execution and how we accelerate our product development cycles and how we drive better affordability for our consumers, even as we are also driving to a mass market experience in our software. And so, you know, we are accelerating investment this year, and we talked about how we actually will bring operating margins down by two or three percentage points this year as we accelerate those investments, because some of those investments will benefit 2025, but many investments across our entire hardware portfolio and our physical products will benefit 2026 and future years. Okay. That is, that's a perfect way to start. If I, if I maybe transition to, to you, Jim, just to kind of get the question out of the way. We talk to basically every company about this, but tariffs, big theme of the week. You know, just simplistically, how much exposure does Cricut have to manufacturing in, in China and Mexico? How are you working to mitigate that tariff impact? And how, how do we think about how that's factored into, into 2025, your thought process? Yeah, thank you, Eric. It's definitely a dynamic situation, but let me potentially set the stage a little bit better by helping the investor in the rooms know about when Cricut filed its S1 about three or four years ago, I remember reading a line that said, "We manufacture our connected machines in China." Now, roll the clock forward to today, that's been three, four years since then. The Ks get issued each year, and there's little adjustments to languages. Simply to put it bluntly, Kimball and Ashish and our operators have really done a very diligent job. Maybe they saw the crystal ball, or maybe they knew what the fortune was going to be, but all, and I mean all of our connected machines that we manufacture today are manufactured and made in Malaysia. Okay. There are some things that still come from China, whether it be chips or ceramic mugs or a few things like that, but largely the majority of it is no longer in China, so we're pretty pleased with that. Now, who knows what happens with the administration and if they do anything against Malaysia or not, but our connected machines, Eric, to directly answer your questions, have been shifted of being manufactured and produced from China now to Malaysia. We have a broad ecosystem, so it's more than just our hardware products, which, as Jim mentioned, all of our machines, all of our heat press products are made in Malaysia today, but we also do consumables. A lot of that comes from South Korea and Thailand, and so just a small minority of our finished goods spend has any exposure to China. Okay. All right. Helpful. You know, something that's exciting that kind of gets back to the roots of the company, and I remember Ashish's, you know, excitement during the, during the roadshow process a handful of years ago was about product. This is a product company at the start, and you just launched two new products, the Explore 4 and the Maker 4. Jim, maybe just help us better understand, you know, some of the new innovative features, and characteristics that these products now bring to market that you weren't offering previously or that you've improved upon. Sure. This is all very new. Late last week, literally as you were getting ready for this conference, we launched two new products, and they are the Cricut Maker 4 and Cricut Explore 4. Those are our most popular, they follow on our most popular machines, which are the Maker and the Explore. A couple of things to note, it was actually in 2021, Eric, 2021 when those machines came out. Wow. When we think about what are some of the enhancements, they cut up to two times faster. Now, if my wife was making t-shirts for the swim team or soccer team, and she's going to bust out 30 of the machines and that could take a couple of hours, reducing the time by up to two times is pretty meaningful. Mm-hmm. The other thing, and this does matter a lot, is there's also additional color enhancements, sage and seashell. We know whether it be other consumer electronic products and things like that, color does sell. We also note that there are some benefits to us about costing down and optimizing the hardware also as far as costs out and reliability. The big thing is, these are our most popular machines. These are follow-on products, enhancements. They are just out newly as of late last week, and they will be rolling out globally in the weeks ahead, and we're quite excited. So far, the reviews, Eric, we're very pleased with the reviews from both the users. Mm-hmm. As well as the retailers that we sell through. Okay. Perfect. You know, you've also launched a handful of new accessories and materials, SKUs. I think it was something like 100-plus or something. There's a lot out there. Just help us understand, Kimball, maybe what you're doing on that side in terms of details of what those new launches are. Importantly, there is a huge aftermarket business here associated with the connected machines. You know, how does this help to kind of build out that broader ecosystem? We see our opportunity to really grow our accessories and materials business online and gain share there. Let me just clarify, because last year we introduced our value line of materials, and we started with a few SKUs to test our investment thesis. That paid off well. We did a few more in Q3 last year, and we think we've nailed the value proposition. What I talked about yesterday is we have over 100 new SKUs coming, many of those in the first half. We haven't launched them yet. Right. Right? Those are coming, and we think that helps us gain share in online marketplaces like Amazon, and be much more competitive. Okay. Perfect. All right. Before I, kind of delve into the specifics of 2025, you know, some of the key metrics, you had very specific language in your earnings release last night, about first half declines, though more moderate than 1H24, but a second half inflection. That kind of second half inflection kind of took my eye. You know, Kimball, maybe what exactly, what does that mean when we talk about a second half inflection? What gives you, and what gives you the confidence to say that, you know, today here, early in March, there's a potential for an inflection in the second half? Eric, thanks for the question. Let me break that down a little bit, because, you know, our optimism really is driven by all the things we're doing and our relentless focus on execution, and that we think we have an opportunity to move the needle here. I'll just kind of talk about the revenue segments of our business. Platform, you know, our subscription is, our subscriptions business is the healthiest part of our business. We grew year over year last year. We expect to grow for full year this year. Our machine business, right? We've been spending heavily on marketing to engage consumers and build enthusiasm with our retailers. Our data tells us that we're having an impact, and we're continuing at a higher level of marketing spend that will continue to build on that base. As Jim just mentioned, we launched two updated machines of our most popular machines, and that's being very well received. As we move through the year and continue to execute, we, you know, we believe that we're building momentum in that business. You know, we were down on machines last year, 3% for full year. You know, we see the opportunity that machines is neutral at best to positive as we move through the year. Our real challenge is on accessories and materials. We were down 20% for full year last year. I just talked about some of the new SKUs we're launching, but we think we have an opportunity to be more competitive in that space. We are sprinting towards new product development to add enthusiasm as well as options for consumers, both from a consumable standpoint, but also on our other hardware accessories, right? One of the things that we changed last year is in Q4, we did some price testing on our hardware accessories, and we lowered them to be, we promoted them to be more in line with competition. We saw an uplift that we were pleased with. We're continuing that strategy this year, and so we believe there's opportunity for additional revenue in hardware accessories, right? You know, we've talked about the investments. The investments we're making for this year and future years is across our entire lineup from products on cutting machines, on hardware accessories, and on materials. You know, we are sprinting to the world where we are doing a better job of addressing consumer affordability. Okay. Right? Why do I bring that up? Because we know that affordability is the number one concern consumers express when they're considering making a purchase and entering our ecosystem. Perfect. Okay. Let's maybe transition over to talking about engagement. You know, high level, you guys have been very transparent that recent user cohorts behave differently than the COVID cohorts. Maybe let's just start very high level. Like, what are you seeing in engagement trends from some of these recent cohorts? Kind of highlights that you'd point out to us. Thanks, Eric. I mean, so first of all, for those not familiar with Cricut, we define engagement as someone actually cuts a project. They use our machine, they cut a project. It's not that they come log in, that they do anything. They actually have to come and make a project, and using our platform. We have seen a softening of engagement trends, right? There are two metrics that we report publicly on this. One is active users, who has made a project in the last 365 days. We also look at 90-day engaged users. Active users was down 1% for the year, and 90-day engaged was down 3% for the quarter, which suggests there's still some pressure that we would expect to manifest. You know, we're disappointed that we haven't been able to turn the overall engagement trends positive. That said, let me actually back up a second and address, you know, during COVID, the years of 2020 and 2021, we brought in cohorts that were roughly double the size of what we were doing pre-COVID each year, right? It was a big influx of users, and those users were very engaged. They spent a lot of time on the platform. They were patient with the experience that we had as they learned our toolset and learned how to make projects. The consumers that we're seeing post-pandemic, they don't have as much time. When we research, it's, it's, you know, I need to be able to make something quickly that's easy, and that I can come up to speed very quickly. The users that we've been attracting post-COVID tend to be less engaged than this large group that we brought in. Now, we've brought in millions of users since the pandemic, but it's kind of a different dynamic of how they want to engage with our platform. We know we need a mass market experience, and our platform isn't there today in terms of that ease of use mass market experience. One of the areas of additional investment that we're focused on this year is delivering specific use cases that drive that ease of use. We have very powerful design tools, but there's so much flexibility when people come in, they get lost in the sauce a little bit and trying to figure out how do I get this. We know what the most popular use cases are, and we are focused on delivering by the end of this year a dramatically different experience for those core use cases to our consumers. You know, the two big things we're trying to solve are address affordability for consumers, and I've talked about the investments we're making there. Across all of our physical products and providing a mass market experience on our platform, and that's the future that we're running towards. Okay. You know, let's shift to subscriptions because, or the platform business, because that's been strong. Your subscription metrics have been strong and improving. More users are converting to subscriptions. Jim, maybe I'll ask you this one, which is, you know, why do you believe you're seeing such relative success with subscribers, and call it the broader platform part of your business? Thanks, Eric. To set the stage, it's important to realize the magnitude of our paid subscriptions business is really important for profitability. Mm-hmm. That is super important. I think a lot of people, if they look at us only as a hardware company, do not really look at the profitability of the paid subscribers, and that is super important to us. Eric, there are four things to directly answer your question about the paid subscribers. Number one, and most importantly, is we add more value for the paid subscriber. Let me give you a look under the covers of what that means. For example, in 2024, we crossed the threshold of over 1 million makeable high-quality images. These are ready to cut. These are ready to use. These are high quality. You do a search, they are ready to go and make it easy on making. Also, some additional tools are like automatic background removal. They were taking some pictures of here on stage that they wanted to take out the background. Automatic background removal is a tool that a paid subscriber gets that those who are using it for free don't. Other tools include like Warp, if you want to say, you know, my soccer mom era or my, you know, swim team era and Warp that text. These are tools and additional value that paid subscriber gets. That's the first thing, Eric, I'd say is, again, adding more value to the paid subscribers. Second, if you go to cricut.com and you go to buy a machine, you will automatically see a pop-up option of getting a paid subscription option that will likely give you a very compelling price. You know, years ago that wasn't as easy to do. Now we have integrated that very seamlessly and are very pleased with that attach rate. That helps the person when they're buying directly from cricut.com to see a good attach rate on that. It may seem simple, it may seem pretty basic, but we have actually done very well with that and we are seeing good uplift on that. The third part is, I wanted to mention about what we call our save rates. It used to be when Mrs. Suva, my wife, were to consider canceling our paid subscriptions, she just hit cancel and okay and be done. Today, when a paid subscriber wants to cancel, there'll be a pop-up, are you sure? Would you like to get a special promotion? It could be a discount rate for three months. It could be, you know, buy a year and get a couple months off free or something like that. It gives people a chance to ponder, do I really want to do this? It's a pretty attractive rate. We're seeing that. That was just rolled out and launched in 2024, so it hasn't even been around a full year yet. That's what we call helping with our save rates or some of our voluntary cancellations of people who, you know, meant to cancel and we give them opportunity to rethink it and a compelling reason to stay in the ecosystem. Finally, the fourth reason is we've been very successful at gradually shifting people from monthly to annual rates. And so when you think about, you know, a user who may not use and cut and make projects every year because they go on vacation and they may be out of town or something, we have been able to shift some users from monthly rates to annual rates. The benefit from that is not only does the user get a cheaper cost, you know, instead of $10 per month times 12 is $120 a year, you can basically get it for closer to about $100 per year. It is on a cheaper rate or more affordable rate. Importantly, it reduces the chance of churn of somebody just saying, oh, I, I'm tired of it. I don't want to use it anymore. Those are the four reasons, Eric, that I wanted to highlight about the paid subscriptions. The importance of it, a lot of external investors do not really see the importance of the profitability of the paid subscriptions. It is important to us, and we are very proud that we have seen growth in the platform, which is driven by paid subscribers. Okay. I'm gonna stick with you, Jim, talk about kind of things unique to you as being Treasurer, and then maybe we can go back to some points. In addition, again, to running finance, you're the Treasurer. This is a, this is a profitable business. You generate cash flow, very solid cash flow. I think free cash conversion, if I remember correctly, in 2024 was more than 400%. You've benefited from working down some inventory, which we can talk about. How does Cricut, and you, think about prioritizing those uses of cash? Thanks, Eric. I can tell you we have a very structured, disciplined nature of how we do our capital allocation. I want to make the blanket statement, we have no debt. Mm-hmm. It's important to note we're not a levered company, but we have no debt. That being said, I want to note that number one use and key focus is to fund organic growth. That is, we believe we're a growth company. We're doing a lot of things such as the new machine launches to drive growth, a lot of things with accessories and materials that Kimball talked about, Cricut Value. We talked about also paid subscriptions. We really want to have sufficient capital to drive growth. That could entail building up some inventory at some point. It could entail components, ordering them, getting the suppliers and contract manufacturers all stocked and ready to run those lines in a fast manner. Number one is organic growth. Mm-hmm. The second would be M&A. Since Ashish has been a CEO of our company for about 12 years, he has not made any acquisitions. We look at M&A from time to time, but it really has to augment and fit in with our ecosystem and spur our growth. There really hasn't been anything that crossed the thresholds. With that, there's nothing like big that we're looking at. Don't lead into, oh, our cash is built, therefore we're gonna make an acquisition. No, our cash has actually benefited. Kimball's been very successful at working down inventory to a turns rate and an inventory dollar level that's more aligned to what one should expect going forward. That's the way to kind of think about it. After that, hey, what's left? At that point, we look at returning cash to you as shareholders. We do that in two ways. We have an active stock buyback program where we're under our second authorized $50 million stock buyback program. It is worth noting that the NASDAQ does have certain trading limitations as far as how fast you can buy back stock. It is worth noting that. We also dividend. We've done several special dividends from time to time. Last May of 2024, we launched a semi-annual recurring dividend twice a year that is paid to shareholders of record in July as well as January. That equates to $0.10 per share each six months, which is ballpark around $20 million of cash that we give back to our shareholders. Eric, that's the way we look at our capital framework, but we're very fortunate not to be a levered company with a lot of debt. Kimball and Ashish are very eagle eye on running a profitable company and not making near-term sacrifices that long-term would hurt us. You will never see us pushing just to make a quarter or doing something simply to make EPS. We do not guide revenues in EPS, but we run it in a very disciplined, profitable manner. It is the DNA of the company to run it in a profitable manner. Okay. If I could just add one thing there, because we, we've had an active buyback program for the last couple of years, but we're also cognizant of the investability of our stock and the float. You know, going forward, that may be more conservative at times just because we want to make sure that there is sufficient float in the market. You know, I, I, we talked last earlier this session about the Explore 4 and Maker 4. You know, something Ashish highlighted last night was kind of this renewed focus on product launches and innovation. The messaging kind of takes me back to the Cricut of its kind of original roots. I don't know whether it's Jim or Kimball, can you maybe just kind of elaborate on how Cricut is thinking about new product introductions, not necessarily in the immediacy of the future, but just big picture, how we think about getting back to more products, spurring more upgrades, new cohorts, getting you into the ecosystem, going you through the funnel, and et cetera. The single biggest driver when we think about innovation is how do we make our products more affordable for consumers, right? If you look at this last generation and even this derivative that we've launched, we've been able to pull cost out as we've gone to our latest E4, M4. Coming out of COVID, we inherited a consumer that is very strat for cash, if you will. Yeah. We know we have an opportunity to innovate and deliver a great experience at a much lower cost to produce that, that will let us get good margins for our business, but also give a much greater value proposition to consumers. That is true across our entire hardware lineup, not just cutting machines. We are focused on that. We have been talking for a couple of years about how we are driving cost out of our materials ecosystem. That is a continued theme where you hear conviction and even some urgency, as we think we can do a much better job in our speed of execution and driving that. That will help drive consumer enthusiasm as we invigorate the category. It really is about execute, execute, execute to make all this happen, right? In parallel, again, providing that mass market experience with our platform so that both things work together to really drive our business forward. Okay. Can we talk about maybe international versus domestic markets? Obviously, you know, when Cricut went public, it was a very domestic-centric business. You guys have kind of leaned into the international markets as a source of new users. Curious from your side, you know, where you're finding these new users internationally, what kind of parts of the world are most popular for Cricut? What kind of countries are most core to the story and anything that you're learning about them as user cohorts kind of compared to U.S. users? I think the most important lesson we've learned internationally is the desire to create and the trends that we, that started our business in the U.S., we see applicable everywhere we go in the world, right? Ashish recently did a tour of Asian countries last quarter. You know, he will tell you that when he walks, and when we could do these tours, we'll have influencers and enthusiasts and our consumers that come to these conferences because they're excited about Cricut. They want to, they want to be involved. He says, you know, he'll tell you that when he walks into the room, it's the same everywhere in the world until he hears which language they're speaking, right? People love the creativity that our platform and our products unlock for them. We see that value proposition everywhere in the world. We see a huge opportunity in international over time. We're still in the very, very early days. We're active in over 50 countries around the world. Some have been in longer, like the U.K., France, Germany. Others are much newer, like our Middle East, Turkey, Africa region, or Korea and Japan and some of these other Asian countries where we're just barely getting started. We're pleased that we've been able to grow for the last three quarters in international. It's not at a rate that we think we can drive a lot more growth there. To a certain extent, we have the same headwinds economically in some of the bigger countries for us that we've seen in the U.S. and while there are green shoots of growth, it doesn't fully offset some of those headwinds. Okay. You know, I highlight that U.K. has been particularly challenged. We talked about it several times last year. We saw that hidden inflection point in Q4, right? We're seeing something, some signs of turn, but some, you know, by contrast, Australia, we highlighted this quarter, continues to be significantly pressured. Okay. Let's kind of turn to the cost side and investment side of things. Obviously gross margins are expanding. You're seeing positive mixture. Platform outgrowing product. You are leaning, as you've been transparent about, into OPEX this year and 2025. Gross margins compressing by about two to three points in 2025. You know, first, maybe a two-part question. First, first one is just where are the areas of spend that you'd want to highlight? Because I think last night you kind of called out sales and marketing, G&A and R&D. Like where are the areas that you'd highlight within each of those buckets? Second to that, is this unique to 2025, or how do we think about the possibility of kind of returning to margin expansion beyond 2025 and the ability to kind of drive leverage in the model like you did in 2024? Okay. Yeah. Thanks for the question. First of all, I mean, you highlighted that the main areas where we are investing. Last year, we started spending on marketing at a higher level and we increased our marketing spend by $20 million in 2024. We are continuing spend at that same level as we move through 2025. As we've talked about, we see the return on that investment. Our data tells us that it's having an impact and at some point that will manifest in overall top-line growth. We have the confidence that we're continuing to invest in that. Second is R&D and accelerating the hardware products that we've talked about, right, across all of our physical products. Third is accelerating investment in our platform. Things that we would've taken 18 months or more to get to, we are fitting inside of 2024 and that's part of the accelerated spend. We did highlight that we also are, you know, prosecuting some IP actions to appropriately protect our intellectual property. We have a long history of protecting our intellectual property, but spend is a little bit higher than normal because we have both an ITC action and a district court action. That is kind of a short-term blip that goes into our OPEX spend. Really, it's about how do we accelerate our timelines and get to this future of more affordability on our hardware products and a great mass experience on our platform. In terms of margin expansion, you know, we do expect, especially as we return to growth, that we see an increase in our margins and in our operating margins, right? I think that comes incrementally. There will not be a step function as we get into 2026. Expect incremental margin expansion. Jim, I do not know if you have any model questions you want to or point your arm. Yeah. I would just mention the two to three point compression for 2025 is on operating margins. I can't remember if you said gross or operating, but I just want to be clear, it's on operating what we're talking about because gross margins can really swing a lot based upon mix, more subscriptions or more platform versus product. We're talking two to three points, but we're very confident of, you know, that $1 billion of getting back within our range. As Kimball mentioned, it's not a light switch or a giant step. It'd be a gradual enhancement there. Okay. We just have a few minutes here. I'm going to kind of ask each of you the same question, but Jim, I'm going to ask you to take the treasurer hat off and put like my hat back on, right? Put your old hat back on, because we've known each other for a while and I've always kind of respected how you think. That is, what do you believe as we think about this company, the stock, the trajectory, everything that we've talked about so far, what do you think is either misunderstood or underappreciated by this business? How is the team working to kind of change maybe some of those misperceptions, so to speak? Yeah. The first thing is, and this is an accurate view, is external people look at Cricut as a machine company. It's simply because that's the first time they typically run across or use the product as from a machine. Eric, to directly answer your question, I think what they overlook is they don't give us any credits or valuation on the platform or the paid subscriptions. I understand that, but it's important to note when you look at that, the profitability of the company and our paid subscribers tend to be very loyal and very strong profitable. When we look at these enhancements that Kimball talked about, we actually see this, you know, growing even more. The last thing I'd mention is valuation. At the end of the day, you know, investors have to put on what their target price is on this company. If you look at right now our market cap and you remove the cash we have and with no debt, we're not trading far away from one-time sales. We're not getting any benefit from the platform side. I'd say that's the thing that I think a lot of people don't realize is the paid subscriptions and platform profitability of the company. Okay. Perfect. Maybe, Kimball, I'm going to ask you maybe a similar question, but from a different angle, which is kind of last word for all of us. Similar question, but just what, as a CFO and someone that's been around the company since pre-IPO, kind of what gets you most excited as you sit in your role today and you think about where this company has kind of come from and where it's going to and the initiatives that you guys have in place? No, Eric, thanks. First of all, we have a strong conviction in the opportunity ahead of us, right? All of our research shows us we have millions of people, tens of millions of people in the U.S. and hundreds of millions of people when we look internationally that are in our TAM. We're profitable. We just finished our eighth consecutive year of profitability. We manage our business with a focus on the long term and we are focused on being a profitable company. We are in the very early days, and we think we have a huge growth opportunity in front of us. As we succeed in some of these things I have talked about and accelerating our product life cycles in providing consumers with a more compelling value proposition with our next generation of products across our whole lineup, you know, in coming years. We deliver on our promise of a mass market opportunity. We think we have the opportunity to bring tens of millions of people into our ecosystem and monetize them. That's a perfect way to stop. Kimball, Jim, thank you so much for joining us today. Eric, thank you.