Cricut Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 6, 2025

Key Takeaways

  • Paid subscribers grew by 6% year‐over‐year to 2.97 million in Q1, fueling a 2% increase in platform revenue and lifting operating income by 16%.
  • The board approved a $0.75 special dividend per share, a $0.10 recurring semiannual dividend, and replenished the stock repurchase program up to $50 million, underscoring strong cash flow.
  • Total Q1 revenue fell 3% year‐over‐year, with accessories and materials down 15% and products revenue declining 7%, weighed by softer consumables sales.
  • Management highlighted tariff uncertainty but cited a competitive supply chain shift away from China and plans for measured price increases and data‐driven marketing.
  • Engaged users declined 4% year‐over‐year, leading to initiatives on improved onboarding, personalized push notifications, and a revamped platform experience to boost engagement.
AI Generated. May Contain Errors.
Earnings Conference Call
Cricut Q1 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day, and thank you for standing by. Welcome to Cricket's first quarter twenty twenty five earnings call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone.

Operator

You'll then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Suva, Senior Vice President of Finance.

Jim Suva
Jim Suva
Senior Vice President of Finance, Treasurer & Investor Relations at Cricut

Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricket's first quarter twenty twenty five earnings call. Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website. A replay of the webcast will also be available following today's call. For your reference, accompanying slides used on today's call, along with a supplemental data sheet, have been posted to the Investor Relations section of the company's website, investor.cricket.com.

Jim Suva
Jim Suva
Senior Vice President of Finance, Treasurer & Investor Relations at Cricut

Joining me on the call today are Ashish Arora, Chief Executive Officer and Kimball Schill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host live Q and A. Before we begin, we would like to remind everyone that our prepared remarks contain forward looking statements and management may make additional forward looking statements, including statements regarding our strategies, business, expenses, tariffs, capital allocation and results of operations in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of Cricket's most recently filed Form 10 ks or Form 10 Q that we have filed with the Securities and Exchange Commission.

Jim Suva
Jim Suva
Senior Vice President of Finance, Treasurer & Investor Relations at Cricut

Actual events or results could differ materially. This call also contains time sensitive information that is accurate only as of the date of this broadcast, 05/06/2025. Cricket assumes no obligation to update any forward looking projection that may be made in today's release or call. I will now turn the call over to Ashish.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Thank you, Jim. Let me begin with a few words about tariffs. We acknowledge that tariffs have introduced uncertainty into our markets and into our financial plans. That said, we have spent the last several years moving the majority of our finished goods spend outside of China across all of our product categories. So while we have exposure to Southeast Asia tariffs in general, we feel we have a competitive advantage in our current supply chain configuration relative to competition.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We will discuss the potential impact of tariffs later on this call. Total sales in q one decreased 3% year on year. We are pleased with the increase in paid subscribers in q one, up over 6% year over year. The continuation of positive international sales growth, which increased 8% year on year, and strong profitability with operating income up 16% year on year. Given the confidence in the sustainability of our profitable operations and rightsizing our balance sheet post COVID, the board of directors approved three capital allocation items, a special dividend of 75¢ per share, approval of our recurring semiannual dividend of 10¢ per share payable in July, and replenishing our stock repurchase program up to $50,000,000.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Kimball will provide more details on these three capital allocation items in a few minutes. In q one, platform revenue increased 2% on paid subscriber growth. Products revenue declined 7% as connected machines revenue growth of 4% was more than offset by the 15% decline in accessories and materials. We are pleased with the progress in connected machines as a higher investment in marketing and promotions over the past few quarters appears to be making a difference. Both sell in units to retailers and sell out units to end consumers were up for the quarter.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We are dissatisfied with our results in accessories and materials, which would have declined further but for the benefit of onetime items. While paid subscriber growth is indeed a win, we would benefit from stronger acquisition and engagement. We ended the quarter with just over 5,900,000 active users who cut in the past year, down less than 1% from a year ago, while our ninety day engaged users declined 4%. As I mentioned last quarter, in 2025, we are relentlessly focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth. We are continuing to lean into these investments as we navigate the uncertainty introduced by tariffs.

Ashish Arora
Ashish Arora
President and CEO at Cricut

These accelerated investments are in hardware product development, materials, and engagement. In q one, we launched two new cutting machines and also more Cricut value materials, and we are pleased with the new launches. We need to reignite our top line to satisfy the expectations of our team and our shareholders. We have conviction in what we need to do to return to growth. We need to attract more new users to buy our connected machines as we focus on addressing affordability, ease of use, and increasing marketing and awareness.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We need to reverse weakening engagement trends and reinject enthusiasm among our users by enhancing and simplifying the making process. We need to take back our share in accessories and materials. I will now talk about four priorities, new user acquisition, user engagement, subscriptions, and accessories and materials. We continue to focus on new user acquisition and engagement growth on our platform, which ultimately drives our monetization flywheel. I'm excited about the recent launch of the next generation of our most popular cutting machines, Cricket Explore four and Cricket Maker four.

Ashish Arora
Ashish Arora
President and CEO at Cricut

These new machines became available at the February in The US and Canada and other locations in March. While these machines were just launched in late q one, we are pleased with the initial feedback, which is positive from both retailers and users. Furthermore, we are seeing an increased uptake with our bundles, where we add increased value to users and make the out of box experience easier. In q one, we focused heavily on tailoring our paid social content across Meta, Pinterest, and TikTok to drive users further down the funnel. This platform specific approach helps strengthen mid funnel efforts across platforms.

Ashish Arora
Ashish Arora
President and CEO at Cricut

At the same time, we continue to see strong results from our streaming TV ads and have expanded our strategy to incorporate sales messaging, further supporting our full funnel marketing approach. Recall, last quarter, we mentioned that we expected to continue marketing spend for 2025 at a similar level to 2024. As we reaccelerate consumer excitement for the brand and category. Given the uncertainty created by tariffs and the potential ripple impacts on household discretionary spending, we will be data driven in our future marketing investments. We continue to experience expected engagement erosion from our large user cohorts from 2020 and '21 and from subsequent years who age on their engagement curve and are not being replenished with as many new users.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Also, our more recent new users tend to create fewer projects and use fewer material types in these projects than crafters in past years. Our initiatives to improve our experience for new users joining our platform or onboarders remain a key focus. We're also increasing our investments to enhance the overall user journey by helping them go smoothly from a project idea to a physical project in their hands. Our growing content library of images and fonts, along with our continued improvements in AI and machine learning search algorithms, continue to be strong value drivers on our platform, especially for our Cricket Access subscribers. Users seek a broad and diverse selection of high quality makeable content, which often fall short when using external sources.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We continue to see a favorable trend in the share of projects cut using our library versus external content. This trend helps retention of our Cricket Access subscribers. We continue to simplify the out of box experience and guide first time users step by step through the most popular project types. This includes new personalized first cut experiences, visualization of digital designs as a physical product preview, adding guided touch points, and leveraging AI assistance all the way through successfully making their creations. In 2025, we will continue to enhance and simplify design space, focusing on specific use cases and streamlining the entire customer journey for each of those use cases, both from a design and assembly perspective.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Q one was also the first full quarter of operating our new engagement marketing platform with personalized push notifications in The US and Canada. Our goal is to bring more users back to the platform to drive inspiration and reasons to make. We are pleased with the increase in returning traffic we are generating. A portion of users came back for the first time in the quarter thanks to these efforts. We are continuing to expand the capabilities of our platform to enable more omnichannel campaigns.

Ashish Arora
Ashish Arora
President and CEO at Cricut

At the end of q one, we also started deploying our new engagement marketing campaigns to countries outside The US. Despite the continued pressure on our engagement metrics, we are confident in our efforts to simplify the design experience, continue to grow the number of images, fonts, and editable designs, and improve our capabilities to bring users back to our platform to make a project. Cricut is a platform company, and Design Space is our core platform. Nothing is more important to us than providing our users with a deeply rewarding creative experience every time they come to a Design Space. We are not there today, but we believe that the focus and resources we are bringing to bear will result in significant improvements over the next twelve months.

Ashish Arora
Ashish Arora
President and CEO at Cricut

In q one, our paid subscribers increased over 6% to just over 2,970,000. Paid subscribers continue to be a big positive for us and increased 77,000 year on year and increased 15,000 sequentially in q one. We are doing a more effective job of capturing a higher percentage of on boarders as subscribers. We are also seeing positive trends on win backs where our promotional offers are driving increased sign ups from prior subscribers. Recall, in the second half of twenty twenty four, we focused promotional efforts on reducing cancellations, and we are seeing improvements in our ability to mitigate cancellations with these promo offers and improved explanation of subscriber benefits.

Ashish Arora
Ashish Arora
President and CEO at Cricut

These efforts continued in q one. We have a rich road map to continually increase the value proposition for subscribers, including over 1,000,000 high quality makeable images and a suite of premium design tools along with the content strategies described above. Our goal is to make it incredibly compelling to sign up as a subscriber to leverage our content and software tools. As our engagement efforts bear fruit, we expect to see a further boost to our subscriptions. Accessories and materials sales declined 15 in q one, which includes about five percentage points of help from onetime items.

Ashish Arora
Ashish Arora
President and CEO at Cricut

In our efforts to return cricket to growth, we know we have to return accessories and materials to growth. We also continue in our relentless focus to drive costs out of this business, including diversifying our finished goods supply base, largely outside of China over the past several years. We're also focused on having the right product configurations in the appropriate channels so Cricut materials are the obvious choice when users want to make. Over the last several years, we have lost ground to competition in material types where there are low barriers to entry. This is manifested in white label brands and retailers as well as new entrants in online marketplaces.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We have embraced the challenge to provide refreshed and cost competitive materials and accessory offerings. As these offerings continue to roll out over the coming twelve months, we intend to reclaim market share and by doing so, enhance the making experience of our users. Recall in first half twenty twenty four, we launched the cricket value line of materials with over 30 SKUs staged throughout the year as a test. Given the success we saw, we are accelerating this business as we launched over a hundred SKUs in late March and early April this year. We have expanded the Cricut value line beyond the initial assortment of iron on, vinyl, and cardstock to include glitter iron on, and there is more to come.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Consumers love the value proposition of Cricut value line of materials with its quality and ease of use. We continue to be optimistic about this product now that we have some history in the market, but it is still a small portion of our portfolio. We have additional innovation, products, and cost reductions coming in the quarters ahead. We also launched ecommerce specific configurations of our main line of materials, which are performing well. Consistent with prior comments, we will continue our promotional cadence in this category to remain price competitive for consumers with a focus on winning share.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We continue to explore opportunities to increase Cricket's market share within our omnichannel retail partners. Also, we believe our more diversified manufacturing footprint gives us an advantage relative to competitors as tariffs are rolled out, giving us an opportunity to potentially capture more open to buy dollars from our retail partners. For some accessories, we recently focused on being more price competitive. This may create some near term margin pressure for these products, but as our accelerated hardware strategy bears fruit, we should see an increase in their profitability over time. We are intensely focused on the overall customer experience, and we are motivated to work with those retailers that help us create a great experience both on the shelf and for actual use of our ecosystem.

Ashish Arora
Ashish Arora
President and CEO at Cricut

It's our fundamental belief that when we give people more reasons and inspiration to make things easily and affordably, we will see a lift to materials consumption. We are driven to continue to innovate while exhibiting both long term focus and current discipline. With that, I'll turn the call over to Kimball.

Kimball Shill
Kimball Shill
CFO at Cricut

Thank you, Ashish, and welcome everyone. In the first quarter, we delivered revenue of $162,600,000 a 3% decline compared to the prior year. We generated $23,900,000 in net income or 14.7% of total sales in Q1. Breaking revenue down further, Q1 twenty twenty five revenue from platform was $80,000,000 up 2% year on year. We ended Q1 with just over 2,970,000 paid subscribers which is up 177,000 or 6% year on year and up 15,000 or 1% from Q4.

Kimball Shill
Kimball Shill
CFO at Cricut

Platform revenues were up less than paid subscribers due to more promotions, mix shift more toward annual versus monthly subscriptions, and geographic mix shift more international, all of which are targeted efforts. ARPU increased 2% to $53.10 from $52.26 a year ago. Q1 revenue from products was $82,600,000 down 7% year on year. Connected machines revenue increased 4% driven primarily by more units sold combined with fewer legacy machine sales. Selling units to retailers and sell out units to end consumers were both up for the quarter.

Kimball Shill
Kimball Shill
CFO at Cricut

Accessories and materials decreased 15 and included about five percentage points of help from one time items. In terms of geographic breakdown, international revenue for the quarter was $35,100,000, an increase of 8% compared to Q1 twenty twenty four and included about 2% of foreign exchange headwind. As a percentage of total revenue, international was 22% in Q1 twenty twenty five compared with 19% of total revenue in Q1 twenty twenty four. We saw strength in our UK, Germany, META and Latin America markets. We are experiencing continued softness in Australia.

Kimball Shill
Kimball Shill
CFO at Cricut

We are increasing sales and marketing resources to further fuel momentum in international markets. We ended the quarter with just over 2,970,000 paid subscribers, up over 6% from Q1 twenty twenty four and up sequentially. This continues to be a bright spot for us and Ashish detailed our efforts that are gaining traction in this area, but I do want to mention as discussed in earlier calls there are some natural subscriber attrition so subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition. Recall this could result in a seasonal pattern of quarter on quarter paid subscriber growth in Q1 and Q4 but flat to declining quarter on quarter subscriber counts in Q2 and Q3. Moving to gross margin, total gross margin in Q1 was 60.5%, an increase from 54.7% in Q1 twenty twenty four.

Kimball Shill
Kimball Shill
CFO at Cricut

The improvement reflects a higher amount of subscription revenue as a percentage of total revenue and higher product gross margins. Breaking gross margin down further, gross margin from platform in Q1 was 89.2% compared to 88.8% a year ago. The increase in platform gross margin for the quarter was primarily related to lower amortization of software development costs. Gross margin from products was 32.7% compared to 24.8% in Q1 a year ago. The increase in gross margin for the quarter was primarily due to selling previously reserved inventory and a more favorable product mix as we launched new products.

Kimball Shill
Kimball Shill
CFO at Cricut

The uplift from these items more than offset our increased promotional activities. Total operating expenses for the quarter were $69,000,000 and included $10,200,000 in stock based compensation. Total operating expenses increased 4% from $66,400,000 in Q1 twenty twenty four. Recall we increased our marketing efforts during 2024 by $20,000,000 and continued at a similar rate through Q1. As Ashish mentioned, we will be data driven in our future marketing spend as we navigate the uncertainty from tariffs and potential impact on consumer spending.

Kimball Shill
Kimball Shill
CFO at Cricut

We will continue to lean into our physical products and platform investments to drive future growth as we continue to manage our business through a long term lens. Operating income for the quarter was $29,300,000 or 18% of revenue compared to $25,200,000 or 15.1% of revenue in Q1 last year and was benefited from the one time items by almost four percentage points. The tax rate in Q1 twenty twenty five of 26.7% was lower than the 30.6% in Q1 twenty twenty four primarily due to fully vested RSAs in 2024 which increased the prior year tax rate combined with higher RRD credits in 2025. For the quarter net income was $23,900,000 or 11¢ per diluted share compared to $19,600,000 or 9¢ per diluted share in Q1 twenty twenty four. Turning now to balance sheet and cash flow.

Kimball Shill
Kimball Shill
CFO at Cricut

We continue to generate healthy cash flow on an annual basis which funds inventory needs and investments for long term growth. In Q1 we generated $61,200,000 in cash from operations compared to $56,700,000 a year ago. We ended Q1 with cash and cash equivalents of $357,000,000 We remain debt free. During Q1, we paid approximately $21,000,000 for the declared $0.10 per share semi annual dividend on 01/21/2025. We used $12,000,000 of cash to repurchase 2,100,000.0 shares of our stock.

Kimball Shill
Kimball Shill
CFO at Cricut

As a result $10,900,000 remained in our previously approved $50,000,000 stock repurchase program as of the March. As Ashish mentioned, given the confidence in the sustainability of our profitable operations and rightsizing our balance sheet post COVID, the Board of Directors approved three capital allocation items. First, a special dividend of $0.75 per share, which is primarily driven by the inventory reductions, which we do not expect to continue. Second, approval of our recurring semi annual dividend of $00 per share, which is primarily driven by our profitable operations. Both the special dividend and the recurring semi annual dividend will be payable on 07/21/2025 to shareholders of record on 07/07/2025.

Kimball Shill
Kimball Shill
CFO at Cricut

Third, the replenishing of our stock repurchase program up to $50,000,000 which incorporates the unused portion from the prior approvals. Now on to our outlook. Recall we do not give detailed quarterly or annual guidance but we do want to offer some color on our outlook. We are focused on controlling what we can control and we are managing our business through a long term lens. As Ashish mentioned, we are keenly aware of the uncertainty created by changing tariffs and we are proactively assessing and adjusting as needed.

Kimball Shill
Kimball Shill
CFO at Cricut

We are focused on bringing excitement to our category and are continuing to increase our platform and hardware investments to drive future growth. We may take a more measured approach for marketing investment based on potential consumer spending changes in reaction to tariff policies and will be data driven under decisions to rebalance both investments and consumer pricing. We continue to expect total company sales to decline year on year in the first half of twenty twenty five compared to the first half of twenty twenty four due to continued pressure in accessories and materials. We also continue to expect the rate of sales decline should be less than the rates we posted in the first half of twenty twenty four. While we are working with tremendous urgency to get to an inflection point this year, we are aware that the dynamic surrounding tariffs and associated consumer discretionary income impact may put that at risk.

Kimball Shill
Kimball Shill
CFO at Cricut

We continue to expect platform sales to increase year on year on paid subscriber growth. However lower new user growth rates will put pressure on our subscriber growth rates. This could result in a seasonal pattern of quarter on quarter paid subscriber growth in Q1 and Q4 but flat to declining quarter on quarter subscriber counts in Q2 and Q3. Given the uncertainty surrounding tariffs our prior guidance for operating margins can no longer be relied upon and we are no longer providing any color on our operating margin expectations for the year. We expect to be profitable each quarter and generate significant positive cash flow during 2025.

Kimball Shill
Kimball Shill
CFO at Cricut

While tariffs are the reality of today's world, our teams continue to be proactive and nimble with how we execute our strategy as we continue our investments to position the company for growth. With that I'll turn the call over to the operator for questions.

Operator

Thank you. At this time we will conduct a question and answer session. As a reminder to ask a question you'll need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q and A roster.

Operator

Our first question today comes from Tara Wilson with Morgan Stanley. Your line is open.

Maya Neuman
Maya Neuman
Analyst at Morgan Stanley

Hi, this is Maya on for Eric Woodring. Two questions from me. Maybe the first, you just talked about tariffs. So what are some of the levers that you have to mitigate any tariff related headwinds? I understand you diversified your supply chain footprint a lot over the past few years, which is great.

Maya Neuman
Maya Neuman
Analyst at Morgan Stanley

But are you raising prices to offset tariff costs? Are you absorbing some of them? And have you seen any pull forward ahead of price increases?

Kimball Shill
Kimball Shill
CFO at Cricut

Maya, thanks for the question. So on tariffs, me break it down to three parts. First, our supply chain configuration as you called out, because we actually do think it is a help to us at this point relative to some of the competition. Then I'll talk about potential margin impact to the business and then impacts to customer pricing. So over the last several years, we've been moving our finished goods spend outside of China.

Kimball Shill
Kimball Shill
CFO at Cricut

And so we think that positions us well in the current environment. So for example, all of our hardware products, our cutting machines, heat presses and other extensions and those types of accessories are all manufactured in Malaysia. And many of our consumables are produced in South Korea, Thailand and some still come out of China. But overall, the vast majority of finished goods spend comes from countries other than China. And so especially for some of our partners that have more China exposure, we think that represents an opportunity for us.

Kimball Shill
Kimball Shill
CFO at Cricut

From a margin impact, it's a dynamic situation and still a little too early to call. And that's one of the reasons why we have removed any color or outlook on operating margins for the year. But that said, I want to emphasize that we expect to be profitable each quarter and to generate significant cash flow. When it comes to consumer pricing, we're still evaluating exactly how that plays out. But we do expect the average consumer price to go up, and we'll achieve that through a combination of less deep promotions and some targeted price increases.

Kimball Shill
Kimball Shill
CFO at Cricut

But we'll be very deliberate on how we exercise pricing strategy. So again, recapping supply chain, think is a help margin, too soon to tell. And so we're removing guidance, but expect to be profitable each quarter and produce significant cash flow. And then we do expect some impact on consumers. On the second part of your question on are we seeing any pull forward of orders?

Kimball Shill
Kimball Shill
CFO at Cricut

In Q1, we didn't see any, but recall, Liberation Day came after the end of the quarter. And since the quarter closed, we've had multiple conversations with some of our U. S. Channel partners that have slowed or discontinued receipts from China. And so where we have an opportunity to help stock shelves and support revenues of our partners and we have an opportunity to gain share in profitable way, we have agreed to incremental inventory shipments.

Kimball Shill
Kimball Shill
CFO at Cricut

We're also seeing an incremental consideration for in store placement and marketing from our retail partners. That largely relates to our consumables business and accessories and materials. On machines, where we have a more constrained supply chain with long lead times, we'll continue to support normal run rates to keep channels in balance.

Ashish Arora
Ashish Arora
President and CEO at Cricut

And Maya, let me this is Ashish. Let me just jump in. Just to reinforce a couple of things that Kimball said in the first part of the question about tariffs. On the pricing and promotions front, we're going to be very deliberate on very measured pricing actions if and when we think it's necessary. And also I think we'll be very disciplined on our promotional cadence to the extent that we will probably not go as deep and as broad.

Ashish Arora
Ashish Arora
President and CEO at Cricut

But overall we think that again, even for Malaysia and some of the other countries the TAF situation may change. But at this point given the information we have, we think we are relatively well positioned in this environment.

Maya Neuman
Maya Neuman
Analyst at Morgan Stanley

Great, thank you. And then one last one from me. It was good to see connected machines revenue return to growth in 1Q and the strong performance in platform as well. But can you maybe give us some more details and color on engagement trends? It looked like engaged users declined year over year and sequentially active users was slightly lower year over year.

Maya Neuman
Maya Neuman
Analyst at Morgan Stanley

And I know you've spoken extensively about the initiatives and efforts in place to drive engagement higher. So can you help us understand why and when we should start to see these engagement efforts bear fruit? Thank you. And that's it for me.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Thanks, Maya, for the question. So first of I want to acknowledge, right? We've been talking about this for several quarters now, and engagement continues to be a challenge. So I won't go into too much detail on the reasons why it continues to be a challenge, but let me just kind of quickly recap. The two main reasons are the large cohorts that we acquired in 2020 and 2021, which as as their engagement curve graduates over time, that puts a lot of pressure, especially that we've while our acquisition is improving, are still not acquiring enough to offset that.

Ashish Arora
Ashish Arora
President and CEO at Cricut

The second is, as we position the platform as the category for mainstream users as we get to a broader audience on many cases, it's an advantage, but those new users are cutting less. So let me focus on what are we doing to fix this. So number one is we are really building the platform for on boarders and improving the onboarding experience. So as and when they come on to the platform, they fall in love with the platform, they're able to use it very easily and the learning curve is very low so that they come back more often from the get go, right? To me that is probably the single most important thing that we should be focusing on.

Ashish Arora
Ashish Arora
President and CEO at Cricut

The second, as we commented on in our remarks, right? We've implemented a marketing platform and we're seeing really good results from it, which is how do we bring users, not only do we have to improve the making experience, the designing experience, how do we give people more reasons to come back? And we are doing that through personalized notifications and sending them information or inspiration that encourages them to come back and make a project. And we've seen some really good results for that. So we're going to scale that.

Ashish Arora
Ashish Arora
President and CEO at Cricut

We've so far implemented that in U. S. And Canada, and we're going to scale that internationally as well as amplify those marketing efforts. So that's the second thing we are doing. And the third, which is probably the most important one, we've embarked on a pretty major platform re architect from a user experience standpoint.

Ashish Arora
Ashish Arora
President and CEO at Cricut

So our goal is to create some transformational experiences in design space. And the way we are doing that is through these very specific use cases. So in addition to making changes to the platform, our goal is that when a user comes in, how do we uncover their intent? They're here to make a t shirt. They're here to make a vinyl decal or a card or another project, how do we make it easy for them to make that in three or four easy steps?

Ashish Arora
Ashish Arora
President and CEO at Cricut

So I think we will continue we'll actually be delivering those use cases throughout the year. We think that it will not only improve the experience for onboarders, but it also will give us a reason to bring back many of the past users that are not coming onto the platform as often. So we are pretty I know it's been we've been talking about this for a while, but we have this tremendous amount of conviction and confidence that we are working on the right things. And as some of these things converge, we expect to see those engagement numbers go up.

Operator

Our next question is from Mike from Citigroup. Your line is open.

Michael Cadiz
Michael Cadiz
Assistant Vice President, Equity research at Citi

Hi there. Good afternoon. Thanks for the message. This is Mike Cadiz for ASEAN Merchant at Citi. I have a couple questions myself.

Michael Cadiz
Michael Cadiz
Assistant Vice President, Equity research at Citi

The first is it's good to see that you continue to mention an inflection point or aspire to an inflection point this year. So my question is, what gives you the confidence that such an inflection point can be reached this year? That's number one. And the second is profitability was much stronger than expected. How should we think about that going forward? And that's it for me. Thank you, folks.

Kimball Shill
Kimball Shill
CFO at Cricut

Hey, Mike. Thanks for the question. So first on the inflection point.

Kimball Shill
Kimball Shill
CFO at Cricut

I mean, as we called out in the prepared remarks, given the uncertainty of tariffs, that may put that at risk. But let me share some of the breadcrumbs that we see in our business. First of all, our machine business is improving. We were up sell in revenue on machines. We were up sell in units for the quarter and we're up sell out units for the quarter.

Kimball Shill
Kimball Shill
CFO at Cricut

That's only the second time that's happened since 2021. And so we think it's signs that our marketing efforts are starting to bear fruit and we're reaccelerating with consumers. Our platform business continues to grow. Paid subscriptions is up. And while accessories materials is still challenged and was a headwind in the quarter, we continue to see our value line doing well.

Kimball Shill
Kimball Shill
CFO at Cricut

And again, small part of the portfolio. Last year, we launched about 30 SKUs over the course of the year as a test. We saw it perform well. In late Q1 and in April, we launched over 100 new SKUs in Value Line that we think will have an impact on the year as we focus on gaining share materials. And then final point is, we do believe our supply chain configuration helps us as we lean in with our retail partners and with the opportunity to potentially gain share there in the short term.

Kimball Shill
Kimball Shill
CFO at Cricut

So that really goes to the signs of positivity we see in the business. In terms of the profitability, there was about four points of help in the quarter that we called out, four percentage points of help in the operating margins that we called out. Let me kind of break that down into pieces. There's kind of stuff above the line and then one below the line. So our gross margins for the quarter were 60.5%.

Kimball Shill
Kimball Shill
CFO at Cricut

And in our product segment, we had some new product launches that carry higher gross margins. We had some excess inventory that we were able to monetize during the quarter. And if you I'll call out footnote five in the queue, it'll show you that we worked through about $5,000,000 of our excess and obsolete balance there. And then we also had the benefit of some duty drawback as a onetime item that was a help in the quarter. And then on the other side of gross margin, platform continues to be a significant portion of our revenue and it carries about 89% gross margins.

Kimball Shill
Kimball Shill
CFO at Cricut

And so that really explains kind of the higher gross margins for the quarter. And then below the line in G and A, we had some bad debt related to Joanne's bankruptcy that we were able to unwind based on a favorable court ruling.

Michael Cadiz
Michael Cadiz
Assistant Vice President, Equity research at Citi

Excellent. Thank you.

Operator

Thank you for your question. Please press 11 on your telephone. Our next question comes from Adrian Yee with Barclays. Your line is open.

Angus Kelleher-Ferguson
Equity Research Associate at Barclays Corporate & Investment Bank

Hi. This is Angus on for Adrian Yee. Thanks for taking my question. I have two questions on product. My first is, could you talk about the uptake of the new fourth gen machines, both from a customer feedback and usage standpoint And then also from a retailer standpoint in terms of timeline to get fully ramped and fully in stock with your key partners, given the uncertain ordering backdrop that you cited when answering Maya?

Kimball Shill
Kimball Shill
CFO at Cricut

Angus, thanks for the question. So we launched in kind of late Q1 the next generation machines, Maker four, which is our flagship, and Explorer four. I'm not prepared to split out exactly how those machines did, but I will say they've been well received with retailers and consumers. And we are not short on stock of machines. And what I was talking about really is we will continue to ship machines on a run rate basis according to forecast.

Kimball Shill
Kimball Shill
CFO at Cricut

And that's really driven by sell out. And so there's not really an opportunity to do a lot of pull in of machines, but we also have sufficient to meet the demand that we see and that we expect. Where we do have more flexibility is on our consumables business. So in the accessories and materials side of the business, where we have more flexibility and shorter lead times and where we have retail partners that have exposure because of shipments that they've either slowed or paused from China, we do have the ability to step in and do more without putting other retail partners at risk.

Angus Kelleher-Ferguson
Equity Research Associate at Barclays Corporate & Investment Bank

Got it. That's great. You kind of touched on it a little bit, but my second question is also on hardgoods segments. How is the value line of materials performing in terms of regaining market share from private label brands? And just taking a step back, anything you could share in terms of how far along that product line is in its journey and where you see it going in terms of percent of your partner doors and websites that it will ultimately be sold in? Thank you.

Kimball Shill
Kimball Shill
CFO at Cricut

So our Value Line Materials is engineered to compete well in online marketplaces specifically. It's the right product configuration so that it's profitable for Cricket and it's profitable for our partners as we compete online. Again, mentioned that last year was only 30 SKUs. This year has been over 100. We have more coming, but it's still a small part of the overall portfolio.

Kimball Shill
Kimball Shill
CFO at Cricut

But we see that growing over time and we see it as an opportunity where we can gain share, particularly online in the materials business.

Ashish Arora
Ashish Arora
President and CEO at Cricut

Just to I'll just add to that, right? We are going to see an enhanced push for the value line of materials. We have 100 SKUs coming. We have more SKUs in the works in the second half of the year and going into next year. We are basically focusing a lot on configurations that make the product affordable to our consumers.

Ashish Arora
Ashish Arora
President and CEO at Cricut

And we ultimately think that will become a meaningful portion of our portfolio, but it's going to be a journey to get there.

Kimball Shill
Kimball Shill
CFO at Cricut

Angus, I'd also like to emphasize though, we're continuing to drive cost out of all of our materials business. So while value line is about how do we gain and win online, we're continuing to be more competitive in how we compete across all of our channels with the materials business.

Angus Kelleher-Ferguson
Equity Research Associate at Barclays Corporate & Investment Bank

Great. Thanks. Good luck.

Operator

Thank you. One moment please. I'm showing no other questions at this time, so I would like to turn it back to Jim for closing remarks.

Jim Suva
Jim Suva
Senior Vice President of Finance, Treasurer & Investor Relations at Cricut

Thank you, Therese, and thank you for everyone for joining us this afternoon. We have a large opportunity over the long term to drive new user growth and increase engagement. The Cricket platform continues to not only strengthen, but also provide increased value to our users. We will continue to manage the business for sustainable, profitable growth and generate healthy cash flows. I'm excited about the opportunities ahead of us.

Jim Suva
Jim Suva
Senior Vice President of Finance, Treasurer & Investor Relations at Cricut

If you have additional questions, please email me at jsuvacricket dot com. This now concludes this earnings call and you may disconnect.

Executives
    • Jim Suva
      Jim Suva
      Senior Vice President of Finance, Treasurer & Investor Relations
    • Ashish Arora
      Ashish Arora
      President and CEO
    • Kimball Shill
      Kimball Shill
      CFO
Analysts
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