Okay.
Yep. Good.
Hi, everyone, and welcome to the Cricut Fireside Chat at the Goldman Sachs Communacopia + Technology Conference. I have the privilege of hosting Kimball Shill, CFO, and Chris Belfiore, Head of IR, here at our conference. We have about 35 minutes today, and we will open it up to Q&A if there is any. My name is Kat Murphy, and I cover Cricut and the hardware sector here at Goldman Sachs. It is a privilege to have you both here.
Thank you, Kat. We are excited to be here.
Yeah. To start it off, over the last several quarters, you have focused on a few key initiatives around investing in new products, simplifying the user experience, broadening brand awareness, and introducing some new ways to monetize the Cricut platform. As you look across those various initiatives, what are two or three milestones that would tell you that this strategy is translating into sustainable, profitable growth?
There's four things that I'll highlight. First is consistent platform growth. We have grown every single quarter, I think, since 2021. We expect to grow every quarter this year, and so we're very pleased with our platform business. It's worth highlighting that it represents 80% of our profitability, and it's the part of the flywheel that lets us monetize the users that we bring into our ecosystem. Second, really, is the green shoots of improvement we see in engagement. Engagement's been a bit of a headwind for us for the last couple of years. This last quarter, we saw active users, which are users who have engaged in the last 365 days, increase on a year-over-year basis. That's the first time in a while.
We also have a shorter-term engagement metric for 90-day engaged users, so that's someone who's made a project in the last quarter. We held that. While that's been under pressure, we saw that hold flat. Really kind of green shoots in the engagement area. We've had a number of new product launches this year. We just last week announced the launch of our new Maker 5, which is our flagship cutting machine. We launched two machines earlier in the year with Joy 2 and Explore 5 in Q1. We've also introduced a number of heat press products. Really, the refresh of the product portfolio that we continue to execute on. Even despite some of the headwinds we've seen in the platform side of the business, the sustained profitability that we've been able to drive in the business. Really kind of those four things.
Great. You made reference to the sustained platform growth, and you've talked about expectations for that to carry on into the back half of the year. Also expecting to see growth in the product part of the business in the back half of calendar 2026. What's driving your confidence in that outlook for both segments? I'm sure we'll go into each segment in more detail. What are some key drivers investors should be watching for as we work through the back half of calendar 2026?
So, on the platform side of the business, we've been very consistent in being able to drive incremental growth. There's an element of price levers that we're able to pull at this point that we've been experimenting with. Let me kind of, I can break some of those down now and go into detail in a minute. But we're having price increases, not across the board, but capturing more area under the curve. A couple examples I'll break down. So a portion of our subscriptions come through the iOS App Store. As we were able to introduce a Cricut Pay option within the App Store, we saw a number of, probably the majority of people, go towards that because it kept the same legacy pricing. But we also made available continue with Apple Pay, but you paid a marginally higher price.
And we see a number of people just choosing the convenience of the Apple Pay. The good news is we haven't seen any drop-off of subscriptions in that channel as we've introduced a new higher price with Apple Pay. So that told us there's some room for pricing actions. The second thing that we've introduced this year is a new premium monthly plan. So our standard pricing plan is $9.99 a month, $99 on an annual basis. We introduced a premium plan that is $14.99 a month, and we're seeing a significant portion of our subscribers choose that better plan. The key differentiator there is the number of AI credits and some shop benefits, but it's a couple of examples where we're seeing an opportunity to pull the pricing lever where consumers are willing to pay for that.
That's very helpful, and we can definitely dig into it more. But first, I do want to talk about the launch of the Cricut Maker 5 last week. As you mentioned, your flagship program or flagship platform, it's also coming in at a lower price point relative to history. How are you thinking about managing the mix of some of these new product introductions with the impacts that it could lead to on the profitability perspective, the appropriate marketing behind putting some of these new platforms out, and what are some considerations on platform mix that inform both the revenue and margin outlook for that segment?
So, a couple of things I want to highlight. One, again, 80% of our profitability comes from our subscriptions business. The flywheel starts for us when someone buys a connected machine, and that gives us the opportunity to monetize them through subscriptions and accessories and materials. And so when we talk about our cutting machines, it's really about having the balanced portfolio. So, we have an entry price point of $99 for our smallest machine, and we've introduced the newest incarnation of that in Q1. That's Joy 2. We have kind of a mid-price point with our Joy Xtra. That was a couple of years old, and we haven't refreshed that one yet. But then we also have our Explore 5 and then our Maker 5.
We have price points based on what consumers want to do. The other thing that is new this year is our bundle-only strategy. In history, you would buy a bare machine, and then the consumer would have to figure out what bundle of materials and tools I need to buy in addition to be able to go make projects. As we have launched our next generation of machines, we only sell them packaged with bundles, and we have 5 different configuration bundles for each machine type.
That lets us have a compelling opening price point, as well as high value in the box for the larger bundles. It depends on what the consumer is looking for, how much they have to spend, and what they are looking for. It is really about having that balanced portfolio and letting consumers select. Once they are inside the wall, we have the opportunity then to monetize them through accessories and materials.
Correct me if I get these.
Subscription. Sorry.
if I get these numbers wrong, but $350 for the entry-level Maker 5 bundle, and then starting price for Maker 4 at the time was initially $400. How are you driving cost out of the appliance and still able to capture value with these bundles? What is happening inside the business that is allowing you to do that?
So, we have done an excellent job in re-engineering these products. The prior generation, Explore 4 and Maker 4, that we launched a year ago in Q1, was just kind of a refresh of the existing architecture. The Explore 5, Maker 5 is the first time we have fundamentally re-engineered the architecture since 2014. In that re-engineering, we were able to drive significant cost out of the manufacturing cost of the product. It has half as many parts, and still produces a better result than prior generation machines. We are really excited about that. What that enabled us to do is, without sacrificing margins, put a lot more value in the box for consumers. That is important for us because we know through our research that affordability is the single biggest objection that consumers have. We are in a discretionary product.
We know we are an expensive discretionary product, and most of our consumers are in the $100,000 or less consumer households. Those are consumers that have been under pressure for a number of years now. We are focused on affordability. Even as we have navigated tariffs over the last 18 months, you have not seen us raising our prices. We have been focused on that affordability. We are really excited about the value we are able to put in the box, and make it compelling. So either same or lower price points of prior generation machines with a lot more value in the box with these bundles.
That is very helpful. You talked about the hardware appliance as being the introduction, or the cutting machine being the introduction to the flywheel that you are then monetizing through the subscription offering, through the accessories and materials business. But one of the ways you are looking to drive user acquisition is through your rebranded Think It. Make It. Cricut. campaign. Can you talk about some of the early learnings of that campaign and what success you are seeing in expanding the aperture of the type of customer who engages with your platform?
No, very good. Let me talk about the genesis of Think It. Make It. Cricut., because we've been spending a lot of money over the last couple of years as we've accelerated marketing to drive awareness. Last year we learned we were doing a good job of filling the top of the funnel. We needed to do a better job of pulling people through the funnel and helping them understand how we drive conversion.
As we understood how consumers think about the brand, people were aware of Cricut, but they also had a view that, "Oh, it's for my really crafty friend. It's not for someone like me." Yet there's lots of capabilities that are available through our creative platform and you can make with our machines that many people do. The intent behind the new Think It. Make It. Cricut. Branding is to expand the prism through which people view Cricut and, "Oh, it is for something like me because it does something that I'm interested in doing already.
How are you measuring the success of these marketing campaigns and ensuring that you're attracting high-quality users who may be sticky, long-term users of the platform, as opposed to anyone benefiting necessarily from promotions or any short-term pull-forward in demand?
It goes back to the funnel I talked about, where we were doing a great job of making people aware, but we weren't doing a great job of pulling people through. Part of it is getting people to actually get to a purchase decision and convert. Then in terms of the overall quality of user, we are looking for a broader set of users as they come in. One of the things that we've learned with our research on consumers is, and this has been kind of a change that we've seen over the last few years.
Before COVID and during COVID, you had people that had a lot of time, they were focused on doing crafting, they were hardcore crafters, and they would spend a lot of time doing it, and they were willing to go through the time investment required to learn a fairly complicated software experience, but it was very powerful and let them make what they want to make. As we have started to go to a broader, more casual consumer, it is much more focused on time efficiency. I do not have two hours that I want to spend making something. I want to do something in 20 minutes.
A theme that we have talked about throughout different parts of our business is, how do we remove friction, how do we make it simpler, and how do we make it approachable so that new people who come into the brand, who have an interest in doing something related to the many things that you can do, it is easy for them to get up to speed and do it.
Can you talk more about that guided flow investment that you are making, that you alluded to, in making easier the use of the platform for customers? Is that resonating both with the existing customer base and keeping them engaged or re-engaging existing customers? Or is this primarily to make easier that first project and the initial engagement of a new user?
It is really both. Let me break it down for you is when we researched with our when we interviewed our consumers who had not engaged in a while, we would ask them, "Why have not you engaged?" And we got three answers back. It is, "Well, I could not think of anything to make," so no inspiration. "I did not have a reason to make." Right? Oftentimes, people engage around a birthday, an anniversary, a holiday. Right? There was not that motivation. And then it was, life got in the way. And when we drilled down in, "Well, what does life got in the way mean?" It is that I do not have an afternoon to spend. I have 20 minutes to spend, and how can I make something in 20 minutes?
It was probably a year and a half, 2 years of investment that really came to fruition as we closed out 2025. We were able to launch a dramatically simplified user experience in the platform, and that's the guided flows that you're talking about. We took the most popular use cases, right? This is all data-driven decisions because we have the connected platform lets us see what kind of projects they're cutting, what materials they're doing, the types of projects. We took the most popular use cases and dramatically simplified them. Then we leverage AI throughout that making process with instructions and guided steps all the way through.
The way that synchronizes with what we're doing this year with new products is with our bundle-only strategy, we're putting the materials and the hand tools in the box that sync with the guided flows that new users are seeing. I get my new machine, I'm excited to do something. I can find the instructions and the guided step-by-step flow in the software, and it correlates with everything I have out of the box in my experience. It's kind of an integrated way we're trying to remove friction for consumers and make it simpler. Why does that matter? We see that the way someone socializes with their platform in the very early days is predictive of how they socialize with it over time. If someone comes in and has a good experience, and they make a couple of projects successfully, that builds their confidence.
They're going to be more active over time. If someone comes in and they couldn't figure out how to connect the machine, or they couldn't figure out how to make the project, or they couldn't figure how to cut it or design it, or then assemble the project, they get frustrated, and they may just put the machine back in the closet and not get it out again. We believe this ultimately gives us a more productive consumer by making it simpler for them.
Got you. That's very helpful. You talked about this investment that you were making over a year or 2 in simplifying these guided flows. You also talked about re-engineering the newest generation of platforms to pull out costs. Should we think about the expense related with those investments as one that should be ongoing on a go-forward basis? Or is the majority of that OPEX step up now behind us? Is there more room to go to make more efficient both the platform and the hardware appliances?
We continue to accelerate investment in hardware development. We have a long roadmap that we are working against. We just announced the Maker 5 launch. We have more to come that will happen this year before holiday. I will not talk any more about it other than to say there is more to come, and there is more to come in the quarters ahead that we are working on. We continue to drive innovation in the business even as we are looking at adjacent spaces beyond just our traditional cutting machines.
That is something that folks can look for in the coming quarters, not all necessarily this year. Then, we continue to invest heavily in the platform. We are constantly evolving the experience to make it better. That is one of the reasons that I think we have been so successful in driving consistent growth in the platform is making sure that we have the right value proposition for consumers, and it is an improving value proposition over time.
That is very helpful. You have mentioned monetizing opportunities outside of just the traditional cutting machines. Publicly, you have talked about offerings like Direct to Film and patterns as being new ways in which you are looking to engage with and monetize the customer outside of necessarily just that engagement on the cutting machine. What success are you seeing there? Maybe at a high level, could you talk to the types of characteristics of what some of these adjacent opportunities could look like that you would deem as successful or adjacent to the core kind of crafting motion?
On the services and just the content play that you talked about. It is a small team, small investment, so really some tests that we are doing. The primary goal there is to keep engaged subscribers more engaged. We know that our users do other things and have other creative outlets than just making something on their cutting machine. We want to become the platform of choice. With crochet patterns, with paint by number, with coloring pages, and some of those things that you mentioned, we are giving an opportunity to do things they are going to go find. They are already finding how to do those things other places. We want to bring more value to our subscription and keep them engaged. The single biggest reason people stop subscribing is they are not seeing the value in that subscription. So we are looking at bringing the value in subscription.
The dollars we've invested so far are very small as we test this and figure out how we want to scale it. Ultimately, we think it becomes an opportunity to bring creative people into our platform that may not have a cutting machine or may not be interested in that, but they're interested in some of these other things that we offer. We'll learn with that over time. But today, it's small. The early data suggests that our subscribers who use it, use it on a repeated basis, and they see value there. We're encouraged by that.
You mentioned earlier the three reasons why customers were not engaging as often, being no inspiration, no reason, or life got in the way. Does that adjacent opportunity that you just talked about address the no inspiration and finding more reasons for a customer to stay engaged with the platform? Or there are other ways in which you're looking to help customers find more use cases for your products?
There are a number of ways that we're helping people find that inspiration to become engaged, right? Yes, some of these services offerings is part of that. But also, even within our platform, we have millions of images that are optimized for high-quality cutting to be used in projects. It can be really difficult to sort through a couple million images and figure out, what do I want to put in my project? We have AI in our search algorithms to help understand user intent, user interest, and then we're serving up images that they would be interested in. That's part of the inspiration. We also have generator AI, so if I don't find an image I want, I can use text prompts, and I can generate an image.
More recently, we've introduced AI Project Designer, where it will not just give you an image that you then put into. Think of an image as an ingredient in a recipe and a project is your complete recipe. We can generate just that one ingredient for you, or we can generate the whole project for you, including all your instructions and how to give you a finished design, tell you how to cut it out, give you instructions on how to assemble it. There's a range of things that help the consumers find what they're looking for.
You mentioned the premium tier of the subscription is one that makes more AI credits available to your customer. It sounds like those are three potential ways in which a customer could spend their AI credits, maybe two, through the image generation and through the Project Designer.
Through Project Designer, image generation, and patterns, paint by numbers, all of the Cricut Creative Labs type of things use AI credits.
Are you finding that the customers who understand or see value in the AI credits tend to be more highly engaged customers? What's the profile of a customer who wants to engage with Cricut in that way?
On the Cricut Creative Labs side, remember, it's set up as a test, so the whole world isn't seeing it. It tends to be a subset of users. The ones that engage with it come back and engage on a repeated basis. At this point, we are talking in the hundreds of thousands of uses, not in the millions of uses yet on that, where we have users doing hundreds of millions of projects a year.
That is a tiny piece that we are learning with. We do see it very promising on the engagement front because we see repeated use of it and people coming back and, for example, on coloring pages. A significant number of the-- Where I take a photo and I upload it, and I say, "Give me a coloring page that I can give to my kids." The large majority of people who do it are downloading that page. They are printing that page to use it. So they are finding value in that.
Got you. Platform growth margins have consistently remained in the 80% range, even after all of these investments that are being made in the platform, as well as these incremental investments in AI credits, which we have talked about a lot in this conference, can be very volatile and can cost a lot depending on usage. How should we think about these new platform services, AI usage, as factoring into your medium and long-term outlook for platform segment gross margins?
We would expect, as AI utilization increases, that it would put some pressure on platform margins. I do not expect that to be-- That is maybe a point or 2. I do not expect it to be a significant headwind. So far, where we have seen AI utilization, it has driven more new subscribers than it has cost us to provide those AI credits. So it has been accretive at this point. But at some point, I think there will be broader adoption, broader usage, and ultimately, we will see that as a good thing. Because, again, we are trying to derive value in that subscription so that the subscribers want to continue subscribing.
We talked at the top of the conversation around some of the experimentation you've been doing with price, both in the iOS App Store and the payment methods, as well as with introducing the new premium tier. What are you seeing as opportunity to take price further and introduce other monetization mechanisms, maybe a purchase by AI token or purchase by AI credit type model that would enable you to extract even more value while you're offering more services to these customers?
What we haven't done yet is just an across-the-board price increase, right? We're still at our legacy price. As we've talked before, that we would want to see engagement solidly up and to the right before we considered something like that. We've been selective where we pull that price lever. Today, the premium price plan that I talked about is available only in the U.S. We're rolling that out in international markets, so that's an opportunity for us. We're also experimenting in some of the international markets with lower-priced plans that are priced in line with what GDP and consumer spend is in those categories. Those are just tests. We'll understand what that helps us drive in terms of penetration and subscriber growth, as well as overall revenue growth for the platform.
Can you talk more about your strategy to go after international markets? North America is your leading location today, but you do have a presence in several other major countries. How are you going after that opportunity? What does that sales motion look like? How much of an investment do you need to make and go to market in order to build a meaningful presence there?
We're active in 50 countries around the world today. The largest markets outside of the U.S., are U.K., France, Germany, Australia, and New Zealand. We've been in those markets for quite some time. What we've talked a number of times about over the last couple of quarters is we're seeing very strong growth in Latin America. We're seeing very strong growth in Asia, particularly Philippines, and then also in our Middle East, Turkey, Africa region.
That one's been a little more bumpy with what's been going on in the Middle East this year. We see very promising shoots of growth in all those markets. It's worth calling out that in the developing world, where in North America and Western Europe, it's primarily a hobby use case. I want to be creative. I have a hobby. In developing world, it tends to be a prosumer first use case where I am looking for a way to have a home base or a small business and provide income for my family.
That is very helpful. On the hobby front, especially in your legacy North America business, or not legacy, but your core North American business, you have benefited historically from word of mouth and virality in that way, which has limited what you needed to spend on marketing dollars in the past. Does that viral sales motion to build an initial customer base still apply for the prosumer-type opportunity? Or how are you targeting the prosumer use case in some of the emerging markets?
The playbook as we go into a new market is very similar and it has proved very durable over time. It takes a while to develop because we go in, and it is social media based, it is local ambassador influencer based. But very quickly that helps us build. It may take a couple of years to get to critical mass, but we have seen that work very consistently over time. Word of mouth continues to be an important avenue for us. The reason that is important is this can be a complicated product to learn and understand, and we find that people want to either touch it and feel it or know someone who has touched it and feel it and talk about it. Right? So it is that and then social media. On the training side, it is a lot of YouTube.
It is a lot of coming to cricut.com to understand the product and how to use it before someone makes a purchase decision. You asked earlier the question of how are we gauging the success of our marketing spend. One of the things that we look at is driving traffic to cricut.com, not because we are trying to monetize them through our own direct-to-consumer channel, but because of that research function, they are coming to our website to learn about which machine is right for them and how to use it. We have seen a significant uptick in traffic since we have launched that campaign back in June.
Helpful. I want to go back to the new opportunity you've talked to or the new focus that you've alluded to around going forward with a bundle-first sales motion. Why is this bundle-first sales motion important to address some of the headwinds in the accessory and materials market? How does that change some of the unit economics that have impacted that segment historically or that sub-segment historically?
The primary motivation of doing the bundle is the user experience, the out-of-box, getting people up to speed quickly. It's also around addressing affordability. How do we get people into our ecosystem and have them start making things and making things successfully? Because if that happens, over time, they'll make more things. In the past, when we'd sell a bare machine, they may buy Cricut materials, but they may buy competing materials. In all of our major retailers, there are white label brands that we're competing against. In our online marketplaces, there's lots of no-name brands. There's a low barrier to entry for the commodity side of this business for the materials. This gives us an opportunity to introduce them to Cricut materials out of the box and from the start.
When it's time to make that replenishment decision, hopefully, that helps them choose Cricut. There is an element of it lets us capture more of the purchase basket up front. There is a significant discount that we're giving, but we're paying for that by what we engineered out of our product. That doesn't really harm our margins overall from a physical product standpoint. But we think it's a better overall experience and helps us bring those consumers in more effectively.
You've also introduced a broader range of price points within the materials business. How does that help also address the affordability question?
That's really about having the right price point and the right configuration for the right channel. If I rewind the clock a few years, we were selling the same SKU in Walmart that we were selling in Michaels, that we were selling in Target, that we're selling in Amazon and everywhere else. That created channel conflict. As we re-engineered our materials to drive cost out, we introduced a value line that was engineered to compete specifically in online marketplaces.
If someone's buying a $5 roll of vinyl on Amazon, and that's all they're ordering, Amazon's losing money on every order. That doesn't work for Amazon. It worked great for our consumers. We wanted to make sure we had the right products and the right channels so that consumers could find what they wanted. It would make it easy for them to make and make sure that they were having a good experience, while at the same time making sure that our channels could be competitive and excited about our products also.
I want to ask one on capital allocation. Debt-free balance sheet, you generate substantial cash on the balance of the year. What are the company's capital allocation priorities as we look forward over the next several years, and where do you see the highest return opportunities for shareholder value?
First is to make sure we have the right product portfolio and adequate inventory. As we've already talked about, we will continue investing in driving hardware innovation because that's what brings people into our ecosystem today. We will continue to be investing in platform because, again, 80% of our profitability comes from platform and keeping people engaged and being subscribers, and so it's important for us to continue to drive that. Then we have an opportunity to drive much greater awareness of our product. In our core markets, get deeper penetration, but especially in international markets around the world. We have much less awareness as I look at international markets, and there's no reason that international can't be equal to the North American business in a few years. That's an important vector of growth that we continue to invest in.
After that, we do look at strategic M&A that might accelerate a priority. We will never be a bolt-on M&A shop, but if we see something that will accelerate something that we are focused on in a way that is accretive to the business, we will pursue that through M&A. After that, we do not believe in holding excess cash. It is then how do we efficiently return capital to shareholders? There are three tools that we have used in the past.
We have an active stock buyback program. We are in our third incarnation of that. We have a semi-annual recurring dividend, $0.10, and that pays in July and January, tick-tock-tick-tock. Then from time to time, as we have excess cash beyond that, we have employed special dividends. Our preference would be do everything through stock buyback, but we also are cognizant that we have limited float and we do not want to strain that.
In our last minute and a half here, if you look three to five years out, what do you think investors are most misunderstanding about Cricut's opportunity in the long-term story, and where are you personally most excited?
We are working to get our business back to sustainable growth. We have highlighted that we expect to grow in the back half of this year. We did not expect to grow in the first half for a number of reasons we talked about on our last call, largely related to a pull forward of demand we had related to tariffs in Q2 last year. But those headwinds are behind us. We have the new products we have announced so far, the Maker 5 that we have talked about today, more stuff that is coming. So we are excited that we will get physical products back to growth in the back half of the year. Also we have publicly stated that we expect to continue to grow subscriptions.
I think the thing that is least understood about our business when we talk to consumers is the durability of the platform and the profitability that it drives. We need the hardware component because that's what brings people into the flywheel and continues to feed the flywheel. So we're focused on bringing millions of new users into the platform and then being able to monetize them. Then, as I've mentioned, some of our investments are focused on new categories of stuff. So even as we continue to refresh and maintain our core cutting machine business that we've had for decades at this point, we're looking at what other things can we do with our creative platform that will help us expand our TAM and bring more consumers to us.
Great. Kimball, Chris, thank you very much for both being here.
Kat, thank you.
Of course.