Executive Summary

Q2 2025 delivered a clean beat: revenue $172.1M (+2% YoY) and diluted EPS $0.11 versus Wall Street consensus of $158.6M and $0.065, respectively; strength was driven by accessories/materials pull-forward and expanding platform economics . Estimates from S&P Global: Revenue $158.6M*, EPS $0.065*.
Gross margin expanded sharply to 59.0% (53.5% prior year), with product margins aided by selling previously reserved excess/obsolete inventory and lower amortization in platform; operating margin rose to 17.5% (15.7% prior year) .
Management withdrew prior color on operating margin expectations due to tariff uncertainty, but reiterated expectations of quarterly profitability and significant positive cash flow in 2025; capital returns continued with $181M dividends paid in July and ongoing buybacks ($49M remaining authorization) .
Key stock narrative: durable platform monetization (paid subscribers >3.0M, ARPU up), moderating engagement erosion, and near-term revenue timing shifts from tariff-driven retailer stocking; watch H2 trajectory and tariff impacts as potential catalysts .

Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

EPS and revenue beat: $0.11 EPS and $172.1M revenue versus consensus $0.065* and $158.6M*, respectively; gross margin 59.0% drove leverage . Values retrieved from S&P Global.*
Platform momentum: Paid subscribers surpassed 3.0M (+7% YoY) and ARPU increased to $53.84 (+2% YoY); platform gross margin reached 89.1% .
International growth: +8% YoY, now 21% of revenue (20% prior year), with strength in core European markets and FX tailwind (~4%) .

Management quotes:

“We posted solid results in Q2 with sales growth of 2%, operating income growth of 14%, EPS growth of 22%, and paid subscriber growth of 7% to over 3 million” .
“We ended Q2 with cash and cash equivalents of $377 million and remain debt free” (noting reconciliation with balance sheet totals) .
“Accessories and materials increased 12%... we had the opportunity to accelerate shipments... which helped us post positive sales growth sooner in the year” .

What Went Wrong

Engagement still declining: 90-day engaged users down <2% YoY (improved from -3% YoY) and active users about flat; management acknowledged more work needed to reinvigorate engagement .
Machines softness: Connected machines revenue down 10% YoY; sellout units down in Q2 (though positive YTD); tariff uncertainty clouds H2 margins/outlook .
Australia softness; potential demand gap risk from Q2 pull-forward of accessories/materials and tariff timing (impact rising into Q4/2026) .

Financial Results

Consolidated Financials vs Prior Quarters

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$209.3	$162.6	$172.1
Gross Margin %	44.9%	60.5%	59.0%
Operating Income ($USD Millions)	$13.9	$29.3	$30.1
Operating Margin %	6.6%	18.0%	17.5%
Net Income ($USD Millions)	$11.9	$23.9	$24.5
Net Income Margin %	5.7%	14.7%	14.2%
Diluted EPS ($)	$0.06	$0.11	$0.11
Cash from Operations ($USD Millions)	$265.0 FY’24	$61.2	$36.2

Notes: CFO stated “cash and cash equivalents of $377M” at Q2-end; balance sheet shows $298.1M cash and $78.9M marketable securities (total $376.9M), reconciling to the statement collectively .

Segment Revenue and Margins

Metric	Q4 2024	Q1 2025	Q2 2025
Platform Revenue ($USD Millions)	$79.4	$80.0	$80.7
Products Revenue ($USD Millions)	$129.9	$82.6	$91.4
Platform Gross Margin %	—	—	89.1%
Products Gross Margin %	—	—	32.4%
International Revenue ($USD Millions)	$53.0 (25% of total)	$35.8 (22% of total)	$36.3 (21% of total)

KPIs

KPI	Q4 2024	Q1 2025	Q2 2025
Active Users (000s)	5,892	5,926	5,901
90-Day Engaged Users (000s)	3,812	3,372	3,482
Paid Subscribers (000s)	2,959	2,974	3,010
Platform ARPU ($)	$53.12	$53.10	$53.84

Results vs Wall Street Consensus (S&P Global)

Metric	Q1 2025 Estimate*	Q1 2025 Actual	Q2 2025 Estimate*	Q2 2025 Actual
Revenue ($USD Millions)	154.7*	162.6	158.6*	172.1
Diluted EPS ($)	0.071*	0.11	0.065*	0.11
EPS - # of Estimates	4*	—	4*	—
Revenue - # of Estimates	2*	—	2*	—

Values retrieved from S&P Global.*

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Operating Margin	FY 2025	Provided “color” previously	No longer providing margin color due to tariff uncertainty	Lowered/Withdrawn
Profitability	FY 2025	Profitable each quarter & significant positive cash flow (color)	Reiterated: expect profitability each quarter and significant positive cash flow in 2025	Maintained
Dividends	July 21, 2025	Board authorized special $0.75 and semi-annual $0.10 in May	Paid $0.75 special + $0.10 semi-annual; total cash $181M	Executed
Share Repurchase	Ongoing	Program replenished to $50M (May 6, 2025)	$49M remaining; $4.7M used in Q2 repurchasing 917K shares	Maintained/Active

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024)	Previous Mentions (Q1 2025)	Current Period (Q2 2025)	Trend
Tariffs/Macro	Growing tariff exposure noted; supply chain diversification progress	Majority of finished goods spend moved outside China; tariff uncertainty acknowledged	New tariffs in South Korea/Malaysia/Thailand; pulled-forward accessory/material shipments; margin pressure likely Q4/2026	Rising uncertainty; near-term timing shifts; H2 margin watch
Product Performance (Machines)	Explore 4/Maker 4 launched; product rev down YoY	Products -7% YoY; investing in hardware	Connected machines rev -10% YoY; bundles improving UX; heat press promo strong	Mixed; machines softer; accessories/materials stronger
Platform & Subscriptions	Platform +2% YoY; ARPU $53.12; subs 2.96M	Platform +2% YoY; ARPU $53.10; subs 2.97M	Subs >3.0M (+7% YoY); ARPU $53.84 (+2% YoY); platform GM 89.1%	Strengthening monetization; high-margin mix
Engagement UX & AI	Improved search/personalization; OOB experience	Accelerating engagement investments	Engagement erosion moderating; guided flows; generative AI image feature for Access; lifecycle marketing	Improving trajectory; monitoring
International	+3% YoY, 25% of revenue	+8% YoY, 22% mix	+8% YoY, 21% mix; core Europe strong; Australia soft; ~4% FX benefit	Steady gains with mix fluctuation
Capital Allocation	FY’24 CFO: strong cash flow; buybacks active	Special + recurring dividend; buyback replenished	$181M dividends paid; buybacks ongoing; ample liquidity; debt-free	Shareholder-friendly actions sustained

Management Commentary

Strategy and execution: “We are relentlessly focused on increasing our speed of execution and are accelerating investments... in hardware product development, materials, engagement and marketing” .
Supply chain and tariffs: “We have worked on getting most of our finished goods spend outside of China... we manufacture in South Korea, Malaysia and Thailand, all of which have new tariffs announced” .
Platform focus: “We continue to make improvements to a large language AI model based search... rolling beta launch of our new generative AI feature in Design Space... optimized for cutting” .
Profitability and cash flow: “We expect to be profitable each quarter and generate significant positive cash flow during 2025” .

Q&A Highlights

Accessories/materials pull-forward: Management sees timing shift from tariff-driven retailer stocking; hard to quantify; benefited gross margin given higher-margin category .
Tariff impact: New tariffs across Southeast Asia; mitigation via affordability focus and supply chain nimbleness; more meaningful margin impact later Q4/2025 into 2026 .
Capital returns cadence: Special dividends are periodic; ongoing semi-annual dividends and buybacks remain core tools; inventory normalization reduces excess cash tailwind .
Design Space/UX: Guided flows by project intent; early signs of improved new-user activity; AI-enhanced search and generative image features for Access members .
Retail inventory: Retailers stocked ahead on uncertainty; overall sell-in/sell-out balance viewed as “pretty good” .

Estimates Context

Q2 2025 beat: Revenue $172.1M vs $158.6M*; Diluted EPS $0.11 vs $0.065*; # of estimates: revenue 2*, EPS 4* . Values retrieved from S&P Global.*
Q1 2025 beat: Revenue $162.6M vs $154.7M*; Diluted EPS $0.11 vs $0.071* . Values retrieved from S&P Global.*
Implications: Consensus likely to revise higher on platform monetization resilience and accessory/materials strength, but H2 models should temper for Q2 pull-forward and tariff margin pressure cadence .

Key Takeaways for Investors

Strong quality of beat driven by higher-margin mix (platform, accessories/materials) and pricing/mix actions; margins expanded decisively YoY .
Engagement erosion appears to be moderating; sustained investment in UX and AI features supports medium-term platform monetization and ARPU growth .
Tariff overhang is the key swing factor for H2 and 2026 margins; management withdrew margin color, signaling caution even as quarterly profitability is expected .
Near-term revenue timing tailwind from Q2 pull-forward could fade; monitor Q3/Q4 sell-through and retailer ordering to gauge demand continuity .
Capital return remains robust (special + recurring dividend, active buybacks), underpinned by positive cash generation and debt-free balance sheet .
International continues to be a growth lever with focused investment; Australia softness and FX dynamics require attention .
Trading: Favorable setup post-beat, but tariff headlines and H2 margin cadence are catalysts; medium-term thesis hinges on machine demand recovery and engagement uplift via product/AI initiatives .

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