Good day, and thank you for standing by. Welcome to the Cricut Q4 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, to Stacie Clements with the Blueshirt Group. You may begin.
Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's fourth quarter and full year 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, the accompanying slides used on today's call, along with the supplemental data sheets, 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, Marty Petersen, Chief Financial Officer, and Kimball Shill, Executive Vice President of Operations and incoming CFO.
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, 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. 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 the investor relations website. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, March 8, 2022.
Cricut assumes no obligation to update any forward-looking projections that may be made in today's release or call. I will now turn the call over to Ashish.
Thank you, Stacy, and welcome everyone. Before I get started with my comments, I wanted to take a moment to acknowledge the devastating events in Ukraine that are on our minds. As part of a virtual team, we have software partners that we work with in Ukraine. My team and I have been in contact with these team members and their leadership and have expressed our concern and support for them. We also know these events impact many people across our global teams, user communities, friends, and family. Our hearts and prayers are with all of them. While these events are clearly top of mind for us all, let me now shift to talking about our latest updates at Cricut. 2021 was an exciting year for us, with strong momentum across our business.
2021 was also a complicated year as Cricut, our retailers, and our customers navigated the ups and downs of a global pandemic. Total revenue for the year grew 36%, a remarkable performance on top of a very tough comp in 2020, driven by growth across connected machines, accessories and materials, and subscriptions. We delivered 16% EBITDA margin for the full year. Our profitable business model enabled us to fund significant investments towards our long-term growth strategy. In addition, we successfully navigated through some tough supply chain challenges and, as a result, benefited from a strong inventory and cash position that continues as we enter 2022. 2021 represented the second year in a row that we accelerated our growth in two key areas. The first was the expansion of our consumer base, adding nearly 2.1 million new users in 2021.
The second was the growing revenue contribution from our international efforts. In 2021, international revenue grew by nearly 110% compared to the prior year and represented 11% of total revenues. We added new use cases, entered into new markets, expanding our retail footprint and fostering a growing global community that will continue to fuel our engagement flywheel. Revenue in the fourth quarter was strong, as anticipated with the holiday season. Our gross margin pressures resulted in a much lower EBITDA margins in the fourth quarter than anticipated, which Marty will talk to in a few minutes. In 2021, we added more than 2 million new users, an increase of over the nearly 1.8 million users added in 2020. At the top of our engagement funnel sits 6.4 million users, total users on our platform.
As anticipated, engagement as a percentage of total users in the fourth quarter increased sequentially, consistent with typical holiday seasonality. As a percent of total users, engagement in the fourth quarter was 60%, up significantly from 56% we saw in Q3 at our trough. At the end of 2021, we had 1 million more users cutting in the last 90 days compared to the end of 2020. As we've discussed before, the engagement metric on a percentage basis will fluctuate as we expand our market opportunity and acquire new customers. We're expanding beyond our traditional craft consumer by broadening our use cases and growing partnerships with various retail channels. Our goal is to drive engagement with these users by offering seamless connected experiences, relevant content, community, and value-added services. This increased engagement in turn drives monetization through subscriptions and materials.
Our passionate and engaged users fuel our marketing flywheel, where over 40% of new users come to know about Cricut through word of mouth. This user acquisition, engagement, and sharing cycle powers our business for machines, subscriptions, and accessories and materials. These businesses are symbiotic with each other and the user experience. At the core of this user experience, we ensure compatibility between our connected machines, software content, accessories, and materials. We then work actively with retail partners who are passionate about telling the compatibility story, showcasing the entire Cricut brand and delivering a great experience for our consumers. Our growth from our international expansion was one of the highlights for the year. This past holiday season, we significantly expanded our retail footprint across a broad range of retail channels around the world beyond craft, including home office, home organization, and consumer electronics.
Since the end of 2020, we've introduced Cricut products in 60 new markets, making Cricut products now available for purchase in over 45 countries. Our user acquisition approach is driven by our organic word-of-mouth marketing. Based on our experience to date, these international investments will pay off over time and typically take a few years to achieve critical mass in each country. At the heart of Cricut is our passionate community of users. We curate our Facebook, TikTok, Instagram, and Pinterest pages from projects that our users share across their social channels. Our goal is to amplify their great work and inspire others around the globe. Our community provides a powerful competitive moat while driving organic engagement and new user acquisition. More than 5.7 million social media followers actively engage with Cricut across relevant platforms.
The hashtag Cricut alone has more than 3.1 million posts just on Instagram. On YouTube and Pinterest, video views of Cricut content more than tripled compared to 2020. We now have over 3.3 billion views on TikTok, up from 2 billion at the end of 2020. Our international communities continue to grow as well, fueled by hundreds of active influencers outside of the U.S. with a combined reach in the tens of millions. In October, we launched Cricut Learn, showcasing a beginner's guide with live Zoom workshops and short, searchable on-demand video instructions covering everything from popular materials to how to use Design Space. As of today, we've hosted over 80,000 members, with introductory courses making up 40% of content consumed. At the same time, we hosted more than 40,000 new members in our live workshops.
We see member education as a significant opportunity to provide members with tools and resources early in their Cricut journey so that they can create more often and with confidence. We continue to drive engagement through Cricut Access, our subscription service. We ended 2021 with over 2 million paid subscribers, a 56% increase over the prior year. This equates to about 32% of our total user base, a strong attach rate that speaks to our continued investment of subscription services. We'll continue to add new features, functionality, and content as we continue to increase the value proposition of Cricut Access. One of the things I want to highlight is our new contributing artist program.
Currently in beta, this new marketplace enhances our content library, enabling artists to upload their artwork to Cricut Design Space and get compensated as their artwork is used by Cricut members for their projects. For millions of our users, they can access new, authentic, and diverse content from their favorite designers. This marketplace strategy lays a foundation for more to come as we look for ways to further engage with our community globally and for the community to further engage with each other. Our ability to extend the platform as we introduce new machines, smart materials, tools, and accessories expands use cases and categories, which further drives user engagement. Just yesterday, we introduced an exciting new lineup of heat presses.
The EasyPress 3 is our newest model that includes Bluetooth technology along with the new Cricut Heat app to perfectly monitor the heat settings for any project via our connected platform. Our new Cricut Hat Press enables us and our users to create personalized, high-quality hats. We also launched our flagship heat press, the Cricut Autopress. The Cricut Autopress is designed for enthusiasts who love making T-shirts and other heat transfer projects, as well as for prosumers who are using their Cricut machines for making heat transfer products to sell. We also recently launched the Cricut Bright 360 floor lamp and the desk lamp. These lamps are designed specifically for every Cricut user and every crafter. The lamps are designed to reveal rich, accurate colors and evenly light up your entire workspace. We're very excited about all of these launches.
Our platform enables us to constantly enrich the experience for the entire installed base of users and machines as we roll out software updates across desktop and mobile. These software updates allow users to benefit from new features and capabilities when coupled with new content, materials, and tools. This is very unique to our platform and allows us to drive engagement by giving users the ability to make new types of projects and expand on their creativity. Over the holidays, we released the new destination pages on the desktop version of Cricut Design Space. These pages allow us to feature targeted content, projects, and images to support key themes and to engage users in a rich and inspiring way.
We also plan to build on this and give our international markets to create their own flavor of destination pages for each of their respective markets. The underlying trends that drive our business, like personalization and digitization of tools, are healthy and intact. As we further penetrate our SAM, we are excited to see a broadening of demographics among our user base. We see a growing number of beginner crafters joining the platform. We are seeing younger generations of crafters, including more Gen Zs and millennials, as well as a greater percentage of men becoming Cricut users. One of our core mantras is proud but hungry, and we'll continue to innovate around the platform and create additional value for the user experience within the Cricut ecosystem. Over the last two years, we've acquired nearly 4 million new users, and we've significantly grown the business.
As we head into 2022, we are focused on cultivating this larger user base and creating the best experience we can for them. These investments will drive further monetization and profitability, ultimately fueling more investment and growth for the long- term. Our key focus areas this year include, first, we will continue to enter new markets and expand across retail channels. Second, we wanna simplify the onboarding process and drive engagement across our entire install base. This is fundamental to our user acquisition strategy and the marketing flywheel. Third, we wanna monetize our user base and this enhanced engagement. We plan to do this with the launch of new materials, accessories, content, and enhance the value our users get by subscribing to Cricut Access. Our focus on compatibility across the entire ecosystem is key to driving this.
Balanced with these shorter-term objectives, we will continue to invest for the medium and long- term. We are expanding our platform and investing in new types of connected machines that will serve us well for 2023 and beyond. Before I conclude my remarks, I would like to thank the entire Cricut team for their amazing and tireless work. I also wanna thank Marty for his countless contributions and leadership that have helped build the company to over $1 billion in revenue. He's built a tremendous team, and I'm grateful for the dedication and passion to our company culture, our mission, and our users. He's been an incredible partner to me over these past 10 years, and I wish him all the best in his retirement later this year.
I'm also thrilled to introduce you to Kimball Shill, who is joining us today on the call for the first time. He served as part of the executive team for the past three years, and his deep operational expertise and proven leadership at Cricut makes him the ideal person for the CFO role. Three years ago, Kimball was tasked with building a team that could reimagine our supply chain for greater scale and flexibility while also serving our growing international market. Kimball and Marty's roles were tightly integrated, and we are lucky to have Kimball expand his leadership role within the company. I now turn the call over to Marty.
Thank you, Ashish, and good afternoon, everyone. I wanna take a minute to thank the entire Cricut team. It has been a privilege to be part of this team for the past 10 years. I'm grateful for this amazing experience and to have been able to contribute. What we do and what we build empowers so many lives around the world, and I'm honored to be just a small part in helping with someone's creative joy and inspiration. For the call today, I'll quickly recap the financials on an annual basis, but we'll spend most of my time this afternoon giving additional color on our fourth quarter performance. As a quick reminder, we posted a supplemental data sheet with historical numbers on our investor relations website for easy reference.
We had a strong year, delivering $1.2 billion in revenue or a growth of 36% on top of last year's 97% growth. Driving this growth is our diversified revenue stream, with all three segments of 2021 significantly growing year-over-year. We increased total cost of revenue by 35% for the year but held gross margin flat with last year at 35%. Higher cost of sales primarily came from increased levels of promotions compared to the prior year when our promotional activity was unusually low and from higher freight costs. These costs were partially offset by the increase in revenue and revenue mix. The strength of our business model enabled us to significantly invest in multiple growth initiatives, many of which Ashish just mentioned.
Total operating expenses for the year were 20% of total revenues, compared to 14% in 2020. In absolute dollars, we doubled our operating expenses in 2021, up from suppressed levels in 2020 when we had paused spending given the uncertainty of the pandemic. We have a durable business model, and 2021 marked our fifth consecutive year of GAAP profitability. For the year, we delivered $140.5 million of GAAP net income, compared to $154.6 million in 2020. EBITDA margin for the year, which included $38.1 million of stock-based compensation, was 16.2%, just shy of our expectation going into the fourth quarter.
This compares to 22.4% EBITDA margin in 2020, which benefited from the lower promotional activity and paused spending just mentioned, as well as nominal stock-based compensation expense. Overall, 2021 was a year of many accomplishments. We saw continued strong revenue growth, significantly invested in the business, grew inventory back to strong levels, successfully navigated the challenging supply chain environment, and continued to generate profits. Now on to the quarterly numbers. I'm going to dive more deeply into certain business factors underlying Q4 financial results. You'll need this behind-the-scenes tour in order to evaluate Q4 performance and to frame the outlook for 2022. To understand the health and trajectory of the business, we focus on annual year-over-year trends, which normalize for seasonality. To normalize for the effects of the pandemic, we believe looking at financial performance on a two-year basis is helpful.
Revenue in the fourth quarter was $387.8 million, a 5% increase year-over-year. On a two-year basis, revenue was up 123%. We saw typical holiday strength in Q4 as anticipated. Additionally, Q4 2021 revenue benefited from a few of our retailers ordering more aggressively and building defensive stock in Q4 2021 as they also navigated concerns about supply chain disruption. We estimate that this buying inflated Q4 revenues by roughly $20 million across connected machines and accessories and materials. These revenues were likely pulled forward from the first half of 2022. Revenue from connected machines was $158.1 million, down 7% year-over-year. Keep in mind that on a year-over-year comparative basis, we are comping to an exceptionally strong Q4 last year.
Additionally, Q4 2021 revenue benefited from some unusual retailer behavior that I just mentioned. Revenue from subscriptions was $55.7 million, up 51% over last year, driven by continued strong machine sales and attach rates throughout the year. Revenue from accessories and materials was $174 million, up 7% over last year as we grew our engaged user base sufficiently to offset the year-over-year decline in engagement percentages. These revenues also benefited from some higher retail-retailer buying during the quarter. In terms of geographic breakdown, international revenue growth continued to outpace growth in North America, increasing 53% in the fourth quarter over the same quarter in 2020. In the fourth quarter, we added 676,000 new users, a record number for any single quarter, helping fuel our monetization flywheel for continued long-term growth.
We ended 2021 with more than 6.4 million total users. As anticipated, engagement in the fourth quarter increased on a sequential basis as Q4 is typically strongest, our strongest quarter for engagement due to seasonal trends. Year-over-year, the number of users engaged on our platform for the 90-day period ending December was 3.8 million, an increase of over 1 million or up 36%. Also, as of the end of 2021, 5.2 million of our total 6.4 million users had used their connected machines in the prior 365 days. As a percentage of total users, user engagement was 60% in the fourth quarter, significantly up from the trough we experienced in Q3. Engagement was down from 65% in the prior year, which was unusually high.
Keep in mind this calculation will fluctuate over time as we broaden our user base and expand into new verticals and use cases. On a year-over-year basis, the number of paid subscribers grew by 735,000 or 56%, ending the year with just over 2 million paid subscribers. Attach rates held strongly at 32% as of the end of Q4 2021, an increase of 2 percentage points on a significantly higher total user base compared to Q4 last year. We measure our user monetization through average revenue per user in both subscriptions and accessories and materials by dividing revenue in those segments by our entire user base within that period. ARPU for subscriptions in the fourth quarter was $9.18, down slightly from $9.23 in Q4 2020.
Accessories and materials ARPU closely relates to engagement. ARPU from accessories and materials in the fourth quarter was $28.66. This was up sequentially from $18.79 in Q3 2021. This compares to Q4 2020 ARPU of $40.76, which was an all-time peak, benefiting from higher than normal engagement levels related to the pandemic and some catch up on channel inventory in 2020. We have a strong focus on monetizing our growing user base through our subscriptions and accessories and materials. Keep in mind, we grew our user base by 3.9 million or 154% since 2019.
This fuels our monetization flywheel as we move forward by adding more beginner and intermediate users, which presents a significant opportunity for us to increase levels of engagement over time and drive these revenue streams to higher levels in the future. Moving on to gross margin. As a reminder, historically, we see softer gross margin in the fourth quarter due to a higher revenue mix in connected machines and increased promotional activities around the holidays. Total gross margin in the fourth quarter was 27%, down from 33.6% in Q4 last year, largely driven by significantly lower margins in our connected machines and accessories and materials. Q4 2021 was also impacted by a few items that resulted in lower margins for the quarter. Breaking this down further, gross margin from connected machines in the quarter was -1.5%, which was unusually low.
Prior year Q4 connected machine gross margin was 14.4%, which was unusually high due to the lower level of promotional activity in the middle of the pandemic. For context, pre-pandemic Q4 margin on connected machines typically ranged in the mid- to high-single digits. The decrease was primarily driven by some non-recurring items as well as ongoing cost headwinds that will continue to impact our machine gross margin as we look into 2022. First, our support for promotions to end consumers by our retail partners was much higher than expected. We benefit significantly from strong competitive retail partners who look to us to maintain order in the channel. In Q4, we stumbled in managing the channel and the promotional activity tightly enough.
To address this channel imbalance, we chose to align and support all of our retail partners appropriately with additional promotional dollars, which drove about 5 percentage points of the decrease in connected machine gross margin. Going forward, we have put in place structures and policies to ensure stronger management across our retail channels, and we'll partner with retailers who strategically align with us to prevent these types of issues in the future. Second, Q4 2021 also reflected a higher level of reserves related to our pricing plan for end of life on certain products. These reserves resulted in an additional 3 percentage points of connected machine gross margin impact. Additionally, our connected machine gross margin continued to see inflationary impacts across all aspects of our supply chain. Our teams have been successful in navigating the environment to ensure we have sufficient inventory when and where we need it.
As we move through 2022, we expect to continue to feel the impacts of elevated freight, warehousing, and handling costs, as well as increases in commodities. Going forward, to mitigate some of the continued headwinds from inflationary pressures, we intend to implement price increases and adjust our promotional strategies across connected machines and accessories and materials. Gross margin from subscriptions in the quarter was 88.4%, down slightly year- over- year due to an increase in hosting costs to support increased functionality of our applications and to scale capacity for future growth. Gross margin from accessories and materials in the fourth quarter was 33.3%, down from 41.3% in the prior year due to tighter unit costs, including increased freight expenses as well as a change in the revenue mix of product.
Moving on to operating expenses. Total operating expenses in the fourth quarter were $79 million and included $10.1 million in stock-based compensation. This was a significant increase over Q4 2020 of $45.2 million when we paused spending as we navigated the uncertainties of the pandemic. Additionally, Q4 2022 had much lower stock-based compensation expense. Total operating expense as a percentage of revenue was 20% in Q4. This is higher than the prior year figure of 12%, reflecting increased investments in sales and marketing and R&D to extend our platform for future growth. The main drivers of the year-over-year increase were led by increased advertising and marketing spending, particularly related to our international expansion. Additionally, we increased headcount, particularly in R&D and stock-based compensation as a result of our IPO in March.
Operating income for the fourth quarter was $25.8 million or 6.7% of revenue, compared to $79.6 million or 21.5% of revenue in Q4 2020, driven by lower gross margins plus the increased investments and stock-based compensation expense I just mentioned. On a full year basis, operating income in 2021 was $192.4 million or 14.7% of revenue, compared to $200.5 million or 20.9% of revenue in 2020. We delivered our twelfth consecutive quarter of positive net income. Net income in the fourth quarter was $11.9 million, down from $61.4 million in Q4 of the prior year.
In the fourth quarter 2021, we recorded a tax true-up of $6 million related to higher sales across more states with higher tax rates as well as taxes related to higher stock-based compensation. This resulted in a significantly higher effective tax rate for the quarter. Going forward, we expect our ongoing effective tax rate to be about 25%. Diluted earnings per share was $0.05. Note that Cricut did not have a comparable EPS history prior to the reorganization at the time of last year's IPO. EBITDA in the fourth quarter was $31.8 million or 8.2% margin in the fourth quarter, which includes $10.1 million of stock-based compensation expense. This compares to an unusually high $83.5 million or 22.5% in the prior year Q4.
On a two-year basis, our EBITDA grew 122% over 2019. We generate healthy operating margins, and starting in 2022, we will be able to provide year-over-year EPS comparisons. Going forward, management believes that operating income and earnings per share are the key metrics on which to measure profitability and manage the long-term business. Therefore, this will be the last time that we highlight EBITDA as a key metric. Note that operating income is closely aligned to how we have calculated EBITDA. Of course, investors who are still interested in the EBITDA metric can easily calculate it from our financial statements. To align to this framework, we will manage towards long-term operating margin targets of 15%-19%. Our long-term target ranges for gross margin and operating expenses remain unchanged.
For reference, our historical operating margins are included within the data sheet, and the long-term target ranges are included in the appendix of our earnings presentation. Both are available on our investor relations website. Turning now to the balance sheet and cash flow. We ended the year with a strong balance sheet of $241.6 million in cash and cash equivalents and healthy inventory levels. Our credit line of $150 million remains untapped. Cash used in operations for the year was $104.9 million, which was primarily used to rebuild depleted inventories. Consistent with what we have said over the last few quarters, we plan to continue carrying higher than normal inventory levels to mitigate supply chain risks.
We are carefully monitoring known risks and plan to manage down inventory levels to match as risks unwind. In summary, 2021 marks two consecutive years of hyper-revenue growth. On a two-year basis, revenue grew over 165%, and we added nearly 4 million new users to the platform. We grew operating income over 255% over the same two-year period. At the same time, we held gross margin flat while managing through a complex supply chain environment and have continued to significantly invest in the business. I believe we are a stronger organization today than we were pre-pandemic, and we will continue to tightly manage what is within our control. As we look to 2022, it is important to keep in mind the first half of last year was unseasonably high.
If 2021 had followed our typical seasonality pattern, similar to years prior to COVID, the quarterly revenue distribution would have looked significantly different. As we return to a more normal seasonality pattern, this makes first half 2022 comps very difficult. Moreover, while we don't have full visibility into the channel, we are operating on the belief that retailer inventories entered 2022 about $35 million above what retailers would consider normal levels. This figure includes the roughly $20 million of defensive buying that occurred during Q4 by a few retailers. Combined, these factors create headwinds in the first half, which we can already see early in 2022. As we move further into 2022, we expect to benefit from traditionally stronger seasonality and easier comps over second half 2021.
However, we are mindful of uncertainty around some of the macroeconomic pressures of inflation and consumer spending. We expect to end 2022 with at least 8 million total users. The significant growth in our user base over the last two years also provides opportunity to further drive engagement and monetization over a larger base of users. We remain focused on driving profitable growth and committed to our annual operating margin targets of 15%-19% over the long- term. Given the uncertainties of the current environment as we enter 2022, we do see pressure on operating margins that may put us below the range in the short- term. We believe the same trends that have fueled our growth from 2014 will continue for many years to come. We have a consistent track record of driving profitability while managing our financial resources.
This dynamic macro environment plays to the strength of our disciplined approach we have cultivated since 2014. The tremendous growth we've achieved laid the foundation for us to scale and grow even further. With that, I'll now turn the time over to the operator for questions.
Thank you, sir. As a reminder to ask a question, you would need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Mark Altschwager from Baird. Please go ahead.
Good afternoon. Thanks for taking my question. Just to start out on gross margin, could you maybe talk a little bit more about the levers that you have within your control to help stabilize the machine margins and the materials gross margin through 2022, just, you know, what are the puts and takes there? If you could say, you know, I guess net of the price increases and promotional changes, you know, how are you thinking about sort of the gross margin in those segments for the year?
Let's just talk really quick about just recap a couple of things on gross margin, specifically talking about machines. The machine gross margin was lower than we would normally see, and this was due in part to three things, primarily. The first was the unusually high level of promotional activity that we highlighted that occurred in the quarter. That represented about 5 percentage points of the decline. That's on machine gross margin. The second was the end-of-life reserves that we took.
You know, you may recall that we had elected to delay the end of life of certain of our products, particularly machines, as we went into the pandemic, because we wanted to make sure that we could, we didn't know exactly when and where and what machines and other products we'd be able to produce. We chose not to end of life those machines when normally scheduled. In Q4, we were comfortable enough with our supply chain going forward that we elected to make plans to end of life those in 2022. We took a reserve on those plans. The final one, and that was about 3 percentage points.
If you look at those two non-recurring items, machine gross margins would have been basically in the range of, for Q4, where we saw Q4 2018 and 2019, pre-pandemic. Add on top of that, though, the inflationary pressures across the board, the supply chain that we're experiencing, particularly in freight and warehousing, and you get something closer to where we would expect it to be normally. That being said, if we look forward, we saw freight and warehousing levels peak in Q4, and we don't see any relief from that, at least through the first half, and probably moving into 2023.
We are implementing price increases to help offset some of that. We expect those to likely take effect somewhere around, somewhat, mostly in the second half.
Let me just add to that, Mark. I want to just double-click on the promotional strategy and why it was a little bit of an anomaly. You know, we have a great partnership with all our retail partners, and we plan these promotions six-nine months ahead of the holiday season. During the holidays, we had one major retail partner that actually was a lot deeper than we had anticipated. We, at that point, you know, given the hyper-competitive environment, chose to support our retail partners with additional POS dollars to make them competitive. You know, we put in place processes to help avoid or mitigate these in the future.
That is one event that, you know, was really kind of a surprise event that happened, and we had to just manage it during the quarter. There's, you know, a couple other things that Marty mentioned that I think will help. One is clearly we're, you know, changing. We're gonna be impacting pricing both to our retailers as well as to the consumers that will help drive the gross margins up. You know, as we go into the second half of the year, our mix of the product, especially on machines, will gravitate towards the higher price points and the products with better margins. I think those. We're, you know, we think that all of those combined, you know, will start to gravitate back to the long-term margins in the longer term. What we saw was a trough in Q4, yes.
Thank you for all that detail. Maybe to follow- up, you know, Ashish, we saw the announcement yesterday on some of the new products. I guess to what extent is some of this innovation geared toward greater monetization of some of your current users, your power users, I guess, I think the Autopress has a $1,000 price point on it, you know, versus attracting new users to the platform? More generally, Ashish, any details you're willing to share on the innovation pipeline for 2022 beyond those announcements would be great. Thank you.
You know, I think you're very astute in terms of, you know, first and foremost, our strategy with all of the launches, including the lamps that we had announced earlier in the quarter, are really geared first and foremost towards our current Cricut users, right, is to help drive monetization of the existing install base. We do believe that, you know, over time, as you know, as we've said in the past, a certain percentage of our users like to sell. We believe that in addition to the enthusiasts and the hobbyists, there will be some of our users or we'll attract new users who actually come at it more from a commercial perspective. I think it's probably a combination of both.
You know, we're really excited about all of these launches, and we've had some really good signals of consumer passion and demand around that. You know, from an innovation pipeline perspective, you know, first and foremost, one of our fundamental, because we're a platform company, you know, we continue to invest significantly in the platform, right? Which is the data, the content, the community, the services, and the software across desktop and mobile. That's gonna be a continued ongoing investment that we'll pursue. I think, you know, we've kind of said we will continue to believe that the current category, we're still in the early days.
From our connected machines for cutting, you know, we still have a lot of runway ahead of that, and we will continue to innovate in that area. Finally, I alluded to this, we are investing in because we're a platform company and these connected machines sit on top of the platform. We are continuing to invest in other types of machines that are different than what we do today. We're really excited about that. Those are, again, medium to long-term investments.
Great. Thank you.
Thank you. Our next question comes from the line of Jim Suva from Citigroup. Please go ahead.
Thank you so much for the details. It's Jim Suva. I have a question. I think it was Marty mentioned that inventory levels were a little bit higher than normal in the neighborhood. I remember right around $35 million. I might be wrong or right on that. What was the reason for higher inventory levels? Was it retailers were expecting another kinda COVID growth year, or they were concerned about supply chain issues and kind of double ordered? The reason why I ask is a lot of the industry is seeing shortages of inventory, and it sounds like you're talking about extra inventory. If you could help us with that'd be great.
Yeah. Sure, Jim. Let me just draw a distinction between our inventory and channel. The comment that you're talking about is channel inventory. Just very quickly, we've been talking over the past few quarters about our own intention and practice of carrying higher levels of inventory than we normally would to mitigate against supply chain challenges. We ourselves ended the year about on target with where we planned to be. We watch metrics very closely. We have predesignated metrics to look at relative to certain risk factors. We mentioned in last quarter's call that we had seen defensive buying similar to what we were doing on the part of a few of our retailers.
We saw that buying continue all the way through the end of Q4. We estimated the pull forward of that defensive buying into Q4 from future periods of about $20 million. As we look at the balances, the channel inventory balances that existed at the end of the year looking forward into 2022, based on what we would estimate to be normal levels of inventory, we saw about $35 million in additional inventory that was being carried.
Perfect. Just to clarify, the $20 million that you mentioned and the $35 million that includes the $20 million, I assume-
Yes.
Is it uniquely different?
Yes, it does. I'm sorry. I should have clarified that. The 20 is within the 35.
That's what I thought. Okay. The last question is, if we compared to, say, two years ago, again, kind of taking out the COVID year a little bit, accessories, you know, how should we think about, you know, why accessories are trending what they are versus, accessories and materials, versus two years ago? Is that, is there some type of trend we should extrapolate? I don't wanna compare it to one year ago because I think that's an unfair relationship. What's your thoughts about versus two years ago for accessories and materials and the direction of such?
Yeah. We agree with you that comparing to a year ago is not valid just because of so many things going on last year. I'm talking about accessories and materials ARPU specifically. If we look at accessories and materials ARPU at the end of 2019, so pre-pandemic, relative to accessories and materials in 2021, ARPU declined about 7%. Now ARPU is, for us, a measure and a yardstick of our production and profitability of every person who has ever registered a machine, whether they put it in the closet or not. Because that's the denominator. We look at revenues from accessories and materials divided by that entire user base.
Over that same period, we increased our user base by 153% or 4 million people. You know, we feel pretty good about that 2021 ARPU number because increasing the numbers that quickly and only declining 7% feels pretty good.
Thank you for the details and clarification. Yes, indeed, all our Christmas mug presses did come out for all of our family members in a great manner. Thank you for that experience.
Jim, let me just add one comment to Marty's statement. One of the things, you know, I think it kind of informed the question you asked as well, which is we are continuing to see a lot of beginner and intermediate crafters, Gen Zs, and millennials. Which is actually exactly what we want, right? Which is broadening the market, going after the highly engaged enthusiasts. As we've added retail channels, as we've added use cases, we are seeing the broadening of demographics. Now, what will happen is initially when those demographics come in, the engagement will, you know, will not be as high as somebody who lives and breathes crafts. However, the total number of engaged users will be significantly higher, but on a per user basis, that'll go up.
They'll, that'll put some pressure, and over time, we think that's been, again, an opportunity for us to continue to bring them down the funnel and increase engagement and drive monetization. I do wanna, I think your question, you know, there is an element of the broadening demographics, which speaks to the market opportunity, but it will impact the actual numbers of materials going to.
Great. Thanks so much for the additional color.
Thank you. Ayesha, next question comes from the line of Erik Woodring from Morgan Stanley. Please go ahead.
Hey, good afternoon, guys. Thanks for taking the question. I guess, you know, we have the guidance for 8 million users at the end of 2022. Is there any way that you can put additional kind of framing of how 2022 might look either from an ARPU perspective, margins, you know, OpEx? You know, really what I'm just trying to get at is, you've left 2022 a bit open, and I'm just trying to give you a chance maybe to help guide us as to how we might think about 2022 across any of those metrics. Then I have a follow-up.
I'll let Marty talk about, you know, one of the other key concepts that we introduced was seasonality, and I'll let him talk to that. Let me kind of give you my perspective on the 8 million. You know, if you calculate the numbers, that basically means that we're gonna add another 1.6 billion users in 2022. You know, given the promotional strategy and the pricing, we feel really good about that number. You know, just to give you some context, that'll be twice as many users that we added in 2019, and it builds on the roughly 3 or 3.8 or 4 million users that we acquired in 2020 and 2021.
You know, you take the 3.8 million users that we acquired in the last two years, plus the 1.6 million. We think that's a wonderful platform for us to further monetize, you know, with subscriptions, accessories, and materials. I do think that, again, you know, I want Marty to comment on the other aspects of the question. You know, one of the things that we are seeing is returning back to seasonality that we hadn't seen in the last couple of years.
Yeah. On the seasonality point, I highlighted this a little bit in my prepared remarks, but we're a seasonal business. Year in, year out, pre-pandemic, it was pretty consistent that about 40% of our revenues would come from the first half and about 60% in the second half. The pandemic kinda turned everything upside down, and specifically 2021 was a front-end loaded year with about 50% coming from first half and 50% in the second half. Now, as we exit the pandemic and we are moving back to a more normal seasonality pattern, what that means is that we're moving from 50% revenues in the first half last year to 40% is our expectation this year.
When we're looking at comps or year-over-year growth rates by quarter, it means that the first quarters are difficult comps for us to meet. The second half, though, if you're looking at that, the comps will be a bit easier. I just wanna make sure that you're thinking about that in your analysis as well as the additional channel overhang that we believe. We think that will probably work itself out in the first half of the year.
Okay. Thank you. That is, that's helpful. Then, you know, one just clarification question on the channel inventory. Marty, you talked about the $35 million, $20 million of which was estimated pull forward. What's the incremental $15 million from? Just so I have a better understanding of how we get to that $35 million total. Thank you.
Yes, that would have been prior to Q4. In other words, we had seen some defensive buying in advance of Q4.
Just to clarify, essentially, you know, the channel was elevated going into 4Q, and now with that defensive buying.
Yeah.
You know, you add up those two quarters, and you get to that $35 million.
That's right.
Okay. Perfect. Thank you so much.
Thank you. I saw our next question comes from the line of Rod Hall from Goldman Sachs. Please go ahead.
Hi. Thanks for taking my question. This is Bala on for Rod. I wanna kick it off with linearity through the quarter, in the December quarter and also in the months of January and February, you know, both in terms of engagement and also the user additions. I got follow-up.
Let me answer what I think you're talking about. I think you're looking at how Q1 is shaping up so far. Just keeping in mind that there are a couple of the two items that I mentioned that are the dynamics that I mentioned that are impacting the first half. One is a reversion to normal seasonality, and the other one, channel overhang. As we look at Consumer demand and we look at it relative to the first quarter of 2020, which was pre-pandemic. We feel good about the demand. The demand is strong. At least from that perspective, as well as search and other things, we feel good that consumer demand is strong.
Okay, thanks for that, Marty. I guess what I'm wondering is, some companies in the space here kind of flagged this slowdown, especially last month in February. I'm just wondering, what are you seeing in terms of new user activations, in the context of your full year user growth of 1.6 million users? I'm just wondering, comparing back to last year. I understand last couple of years there was this, you know, COVID work from home impact, but given the addressable market is so huge, I'm just wondering if the slowdown in user additions in 2022 versus 2021 is a dynamic of maybe what you've been seeing lately or the last couple of months.
Yeah. I think, you know, Bala, let me take that. You know, one is, you know, we are clearly first of all, you know, the trends that shape our business, we feel are very much intact, right? Personalization and digital tools and everything that's driven our business are very much intact, and we don't see anything changing dramatically there, right? We've given the number of 1.6 million adds for the year, which again, you know, at this point, given all the dynamics of the marketplace or the market, we just, you know, we are basically comfortable with that 1.6 million add number. The third is, which is, you know, like what we saw in the last year, or at least in 2021, was something that is uncharacteristically not seasonal, right?
I think the comment that Marty made is relative to the seasonality that we've seen in a typical year coming into COVID or prior to the pandemic. We feel good about the demand. At this point, we are not giving further guidance or information on that, at this point.
Thanks, Ashish. I got one follow-up, if I may. On price increases that you're planning, I guess I'm wondering how you're thinking about these price increases, potentially impacting user adds, you know, in the context of this normalization on demand. Because I was thinking, I suppose your goal would be to prioritize user acquisition over profitability, especially in the medium term. Is that still right thinking? Any color there?
Yeah. You know, I'd revert back to my, you know, 1.6 million add, right? I mean, the environment is just there's so many dynamics going on in the market that really kind of isolating the impact on higher pricing or decreased promotions is hard to estimate. You know, given all of that, we basically think that we'll end the year at 8 million users, which is roughly an add of 1.6. From a standpoint of, you know, whether we should be promoting more or less, we believe that, you know, we've always been very long on the business, right?
We believe that, you know, going forward, our promotional strategy is more in line with what strategically we'd want to do, both in terms of user acquisition, but also in terms of where we want the, you know, relative margins to be. So our goal is to, you know, definitely get our margins back to where they need to be. Now, you know, again, nobody can predict inflation right now, et cetera, but very, I think right now, given everything that we know, we feel good about the $8 million number.
I appreciate it. Thanks, Ashish.
Yeah. Again, you know, the one thing that I want to make sure that we remind ourselves of the business model, right, which is that when we talk about user acquisition, right, a key part of what drives our business model is engagement, right? I think, you know, that's one of the top priorities as we highlighted in our release, that it's one of the top fixes of the company. Our goal is to drive engagement and drive monetization with subscriptions, accessories, and materials.
Got it. Thanks.
Thank you. Our next question comes from the line of Paul Kearney from Barclays. Please go ahead.
Hey, guys. Thanks for taking my question. I wanted to go back to one of the things you said was the competitive environment contributing to the need for increased promotions. I'm wondering what you're seeing competitively in the market. Are you seeing promotions from some of your competitors, or has anything kind of changed on how you view yourself positioned? I have a quick follow-up.
Okay. Well, let me clarify. You know, we are the category leader, right? We have significant market share. I would say that, in fact, the competitors that we do have all probably had, you know, lack of inventory and saw significant inventory shortages. At least, you know, again, this is anecdotal because we're just looking at the shelves as our teams are going around. The competitive environment that I talked about was more at the retailer partner level, right? We wanted to make sure, given our strategic partnership with all our retailers, that when one major retailer kind of was more aggressive on the promotions, we took a decision, you know, for the benefit of our partnership with other retailers to support other retailers to compete in the market. It was more enabling our partners rather than us being in a competitive environment relative to other competitors in our space.
Okay. Thank you. That makes sense. My second question is, to harp on it a little bit, but on gross margin is clearly the biggest variance of where at least consensus and we were estimating for this quarter. How should we think about modeling gross margin, at least for the next few quarters, specifically on both connected machines and accessories? When do the price increases that you talked about come through into the model, and should we expect some pressure on this line in the near term? Thanks.
Yeah. I explained the sort of non-recurring items. If you remove those, on an annualized basis, we were, from an EBITDA standpoint, at the low end of our long-term target range. We still are facing pressures from you know, freight and warehousing and other inflationary pressures. We're starting to feel more of the increase in raw materials, and that is the reason why we're working on a price increase. We're working with our retailers now on what exactly that price increase would look like and when it would take effect, but our expectation is the primary impact would be second half. It's hard for me to comment anything beyond that.
Okay. Thank you. Best of luck.
Thank you.
Thank you. Thank you. Our last question comes from the line of Jim Suva from Citigroup. Please go ahead.
Thanks. As a follow-up, is it fair to assume that then margins in 2022 will be lower than 2021 due to all the myriad of things that you're referring to? Or any color, because you know, as Rod Hall and I kind of both, you know, mentioned that there is a lot of concern about gross margin. Any color you can give there, and if not, then I may have a follow-up on a different topic.
We're not giving specific guidance on where we expect margins to be for 2022. What we will say is our long-term target model remains something that we feel good about. Where long-term, we expect gross margins to be in the 37%-38% range and operating margin to be in the 15%-19% range.
Okay. My quick follow-up. The Hat Press, lights, these additional things you've launched, are they consistent with corporate average profitability or above or below or they need volumes to really help out? Or how should we think about your kind of flurry of recent product announcements?
Yeah, no, I think they're relatively in line with where we wanna be. You know, we price them accordingly to make sure that we are in the. You know, and again, the materials and accessories is a blended margin, so there's a variety of things in there. No, those are healthy products with good margins.
Great. Thanks for the details.
Yeah, we just announced them. They're still not in retail. It'll be a few weeks, so.
Thank you. That concludes our Q&A session, and that concludes today's conference call. Thank you all for participating. You may now disconnect.