Warby Parker Inc.

Thank you and good morning, everyone. Here with me today are Neil Blumenthal, Dave Gilboa, our co-founders and CEOs, alongside Steve Miller, Senior Vice President and Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.wilbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the Company SEC Filings, including its annual report on Form 10-K, which will be filed later today. These forward-looking statements are based on information as of February 28, 2023, and except are required by law we assume no obligation to publicity updates or revise our forward-looking statements additionally we will be discussing certain non-gap financial measures these non-gap financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with the us gaap in reconciliation of these items to most directly comparable to US GAAP measures can be found in this morning's press release on our slide deck available on our IR website. And with that, I'll pass over to Dave to kick off.

Welcome, everyone, and thank you for joining us this morning to discuss Warby Parker's fourth quarter and full year 2022 results. As we reflect back on our first full year as a public company, Neil and I feel a deep sense of gratitude in particular to our team for how they adjusted to the unique set of headwinds that 2022 presented. Team Warby's decisive actions last year enabled us to delight millions of customers, continue to take market share, and distribute millions of pairs of glasses to people in need. We closed the year with a strong fourth quarter and believe the actions we took in 2022 have set us up for meaningful profitability improvement in 2023. But it was also a year where we learned many important lessons. One of our core values is learn, grow, repeat. We are driven by constant improvement, whether that comes from areas of strength that we can further leverage or from setbacks that we want to correct. In that sense, 2022 was a great teacher. When we set our forecast last year, we had just emerged from the acute impact of Omicron and assumed that demand would recover along similar curves to prior pandemic waves. We managed our marketing and expense base accordingly and planned for accelerating growth and recovery in the optical industry. We underappreciated the unique demand tailwinds that we benefited from in 2021 and the confluence of headwinds we were about to face that would continue to disrupt the normally steady and predictable consumer behavior in our category. We subsequently made a series of adjustments in the middle of 2022, some of them difficult, which enabled us to operate in a more flexible, nimble manner and drive adjusted EBITDA improvements. A lesson for us is not that we should place less emphasis on growth, but instead that we should work to ensure that our growth is more sustainable and efficient across a range of economic and industry outlooks, including the most conservative ones. The world is not back to pre-pandemic normal and may never be. However, we believe that our approach for this year and beyond, as Neil and Steve will talk through, is one that will enable us to grow and accelerate our profitability plan, even if tepid consumer demand continues. As a leadership team, We remain as excited as ever about our long-term prospects. We continue to believe in the resilience and durability of our category in spite of recent softness and remain confident in our ability to continue to take market share. When we see demand recover and we are confident that it will, we will be well positioned to take advantage of it, but we are not counting on that to happen until we see evidence of it. While our full year 2022 top line and bottom line metrics aren't where we thought they would be at the onset of last year, What we hope you'll take away from today's call is that we believe we have taken the necessary steps to operate in the current environment and set the business up to achieve incremental top line and bottom line growth in 2023. We also hope the changes we made last year demonstrate the inherent flexibility in our business model that enables us to adjust to external trends. Looking at the full year 2022, revenue increased to a record $598 million, up 10.6%, a pace well above the industry's growth. Full year adjusted EBITDA margins were 4.5%, with second half adjusted EBITDA margins of 6.9%, up 470 basis points above our first half margins. Shifting to Q4 results, we are pleased to share that the quarter exceeded our most recent expectations from both a top and bottom line perspective. We delivered net revenue of $146.5 million, an increase of 10.2% over the same period last year, and $2 million above the high end of our guidance range despite reducing marketing spend by 41% year over year. We were encouraged by the progression of the quarter and our strong finish to the year. December was particularly strong, especially the last week of the month as FSA and HSA deadlines approached. Our stronger top line resulted in higher than projected adjusted EBITDA for the quarter of $8.6 million and an adjusted EBITDA margin of 5.8% in Q4. This was our most profitable Q4 to date, stemming from the actions we took to realign marketing expenses and right-size our corporate cost structure. We believe these results, alongside what we expect to deliver in 2023, will demonstrate our commitment to sustainable growth and profitability. Q4 was another quarter where we saw consumers shift their shopping preference back into stores as we moved past the peak e-commerce period of the pandemic, and our store teams did a great job of serving the increased demands. Compared with 2019 pre-pandemic levels, store productivity continued to improve from Q2 and Q3 this year, reaching 88% in the fourth quarter. We opened 10 new stores in Q4, including our 200th store, which is located around the corner from Warby Parker's very first New York City office and showroom in Union Square. All 10 stores open in Q4 include eye exam capabilities, which brought the number of locations offering eye exams at year-end to 150, in line with our goal. In total, across 2022, we opened our target 40 stores, bringing our total fleet to 200. Despite softer industry-wide traffic, our stores that were open for the full 12 months in 2022 generated approximately $2.1 million in revenue on average, with four wall margins in line with our historical target of 35%. And our new stores are performing well. Our 2021 cohort of 35 stores is on track to pay back under our target of 20 months. As we've increased the number of stores offering eye exams, we've seen a nice uptake in average revenue per customer driven by both eye exam revenue and a higher penetration of progressive lenses. We closed the quarter with 2.28 million active customers and our highest average revenue per customer to date at $263. Looking at our online channels, our e-commerce three-year CAGR in Q4 was 18.6% compared to 19.2% in Q3, and down 1.6% in Q4 22 versus Q4 21. There are three factors that have impacted e-commerce trends. The first is that this channel is more sensitive to changes in marketing spend, given that our stores enjoy embedded marketing, and we were comping against periods of elevated spend last year. The second is a broader consumer shift back to shopping and physical stores as we move past the acute periods of the pandemic. The third is the impact of new store openings, especially new markets. which immediately increase overall sales in that market, but create headwinds for local e-com sales during the store's first year of operations, after which this effect abates. With our mix of transactions between retail and e-com roughly back to pre-pandemic levels, we expect the first two factors to normalize by the second half of this year, enabling us to return to driving positive e-com growth via sustainable levels of marketing spend. In order to drive future growth, we're continuing to invest in our leading digital experiences and in-house innovation. For example, in Q4, we expanded our award-winning virtual try-on tool to our web platform, which has driven higher conversion alongside a better customer experience since launch. We also continue to provide more access to remote vision care services by driving increased adoption of our telehealth app, Virtual Vision Test. We're also pleased with the operational improvements we made across the business to better serve our customers. We continue to scale our new optical lab in Las Vegas, improving fulfillment speeds and helping partially offset pressure on gross margins. We made progress in the sustainability of our operations as well. In 2022, we launched our first of its kind demo lens recycling program in partnership with Eastman Chemical and have since recycled more than 20,000 pounds of lenses as a result. And through all of this, we continue to deliver exceptional customer experiences while maintaining our industry-leading net promoter score of 80. We find that when people try Warby Parker, they love the products and the experience. Our repeat purchasing behavior has remained remarkably consistent, including our most recent cohorts. While Neil and I are proud of these accomplishments, we're most proud of the work Team Warby has done to execute on our mission to provide vision for all. In 2022, we announced the milestone of distributing more than 10 million pairs of glasses to people in need through our Buy a Pair, Give a Pair program. As a result of this work and the work of our incredible partners, 10 million more people have the tools they need to see and live more productive lives. Before I turn it over to Neil, I want to thank the entire Warby Parker team for their perseverance and focus through a tumultuous operating environment last year. 2022 forced us to lean on our team's biggest strengths, our ability to use data to inform strategic decisions, our agility, and our commitment to deliver remarkable customer experiences. which we believe position us to continue to take market share in the months and years ahead.

Thanks, Dave, and good morning, everyone. Our integrated omnichannel approach is unique in the optical industry, and we intend to leverage our inherent advantages to design and deliver remarkable and remarkably priced products, services, and experiences that help people see. Our commitment to delivering sustainable growth is unwavering, and we expect 2023 to instill confidence in our ability to execute and fulfill this promise. To do so, we'll focus on four strategic priorities. We'll continue to scale our omnichannel presence by meeting our customers where and how they want to shop. We plan to open another 40 new stores this year with a continued focus on suburban expansion. Of these stores, 36 will be in suburban markets. and more than 10 markets will be new for us. The remaining four stores will be in urban centers, most notably in the New York market. In Q4, our suburban stores had a retail productivity versus 2019 that was 12 points higher than our urban locations. For these 40 new stores, we'll continue to target 35% four-wall margins and paybacks within 20 months. We expect the productivity of our existing stores to improve from 2022 levels as traffic continues to rebound and we drive further growth and average revenue per customer. We'll also continue to serve customers through our e-commerce channel and plan to drive innovation and enhancements throughout the year. While we're projecting e-commerce growth to be down in the first half of the year, we plan to return to e-commerce growth in H2. Second, we plan to further expand our core glasses business. Since launching Warby Parker in 2010, we've intentionally maintained our core $95 price point. Our simple, affordable pricing structure has been an integral part of our value proposition and continues to attract new customers. And while we'll continue to expand our $95 offering, we plan to launch nearly 20 collections incorporating our $145, our $175, and our $195 price points. while introducing innovative frame construction, new lens types, and more. We also plan to deepen Progressive's penetration within our product mix, building on the momentum we saw in 2022 through store expansion, increased eye exam capabilities, and growing brand awareness. As of December 2022, Progressive's made up 21.7% of our total prescription glasses purchases, but approximately 40% of industry-wide purchases on average leaving significant white space for future growth. Third, we'll continue to evolve our position as a holistic vision care company by expanding our contacts, eye exams, and insurance offerings. Last year, contact lens sales grew 84%, increasing from 4% of our business in 2021 to 7% in 2022. Yet our contacts penetration remains well below the approximately 20% industry average. In 2023, we'll aim to expand this portion of our business that brings us some of our highest value customers, given the replenishment nature of contact and the propensity of these customers to go on to purchase glasses. Like contacts and progressives, our eye exam business grew in 2022. Revenue from eye exams increased 87% year over year, yet we are underpenetrated in the $15 billion eye exam market. Industry-wide, nearly 80% of eyeglass sales occur where an eye exam takes place, so we view eye exams as additive, not only as its own revenue stream, but also as a key driver for eyeglasses and contacts. In addition to the 40 new stores opening this year with eye exam capabilities, we plan to convert another six locations to our PC model, bringing a new stream of revenue to this fleet of stores. We anticipate ending the year providing eye exams in approximately 195 stores, up from the 150 stores at the end of 2022. And we'll continue to lead the way in providing access to innovative vision care services like retinal imaging, which gives our optometrists a closer look at a patient's eye to detect early signs of eye disease. Our exam and contacts offerings also unlock new insurance opportunities, which we'll continue to pursue in order to make it easier for customers to use their vision benefits with us. Warby Parker is currently in-network with over 16 million lives through UnitedHealthcare, the Blue Cross Blue Shield Federal Employee Program, and Versant through select employers such as General Electric. This number increased more than 30% year-over-year, up from 11.9 million lives at the end of 2021. In addition to growing the space of in-network customers in 2023, we'll also aim to make it as easy as possible for customers to use their out-of-network benefits with us. And lastly, our fourth initiative in 2023 will be driving further brand awareness and new customer growth through strategic marketing investments. Our stores not only enable us to offer great experiences for our customers, they also serve as highly efficient customer acquisition tools. New physical locations are very effective at driving traffic and conversion in the month following new market penetration. We believe the combination of the 40 stores opened last year and the 40 openings we have planned for 2023 will significantly contribute to increasing awareness. We intentionally designed the exterior and interior of our stores to serve as striking representations of our brand and draw traffic to our spaces. For example, for our Andersonville store in Chicago last year, we incorporated our very first sculptures. Created by artist Cody Hudson, these six-foot sculptures greet guests as they walk into the space, creating a fun and memorable shopping experience. Speaking to more traditional marketing efforts, we are continuing to invest in effective online and offline marketing programs to reach new consumers and drive traffic. Over the back half of 2022, we purposefully brought marketing spend as a percent of revenue back to pre-pandemic levels. Since reducing marketing spend to low double digits, we've seen our customer acquisition costs come down approximately 36% for the second half of 2022 compared to the second half of 2021, driving increased leverage. And while lower spend will be a headwind to top-line growth in the first half of 2023, especially for our e-commerce channel, we believe it's necessary as we aim to drive sustainable, profitable growth over the long term. We've proven we can drive awareness and growth in new demographics, for example, amongst consumers 45 and older who tend to wear progressives. While we plan to continue to invest in our progressives business, this year you'll see us deploy a more balanced marketing mix and focus more on our younger customers. We'll also continue to launch unique partnerships, collaborations, and campaigns to fuel awareness and brand affinity. We believe the power of our brand and our ability to surprise and delight customers continue to differentiate us within the industry. The opportunity in front of us to tackle the large and growing eyewear market feels as exciting as ever. Before handing it over to Steve, like Dave, I also want to thank Team Warby. I continue to be inspired by their resilience, flexibility, and commitment to creating impact for our stakeholders. Alongside our leadership team, I look forward to building on our current momentum to reach new milestones, drive further impact, and create more shareholder value in 2023. And now I'll pass the call over to Steve.