Warby Parker Inc.

Hello and welcome to today's Warby Parker first quarter 2024 conference call. My name is Bailey and I will be the moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I'd now like to pass the conference over to Jacqueline Berkley, head of investor relations. Please go ahead.

Thank you and good morning, everyone. Here with me today are Neil Blumenthal and Dave Bilboa, our co-founders and co-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.warbyparker.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's latest annual report on Form 10-K. These forward-looking statements are based on information as of May 9, 2024, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release, and our slide deck available on our IR website. And with that, I'll pass it over to Neil to kick us off.

Thank you, Jacqueline, and good morning, everyone. The momentum in our business continued to build throughout the first quarter, primarily driven by strength in our retail channel and glasses business. We are pleased to have delivered record high quarterly revenue and adjusted EBITDA in Q1, along with improvements to gross margin. Our Q1 net revenue of $200 million was up 16.3% year-over-year, and adjusted gross margin was 56.9%, up from 55.2% in Q1 last year. We also delivered adjusted EBITDA of $22.4 million, representing an 11.2% margin. Over the last couple of years, in spite of challenging industry dynamics, we continued strategically investing in the business for the long term, including expanding our store footprint, hiring optometrists, scaling our contacts business, introducing new frame and lens innovation, and more recently, reinvesting in marketing. Our Q1 results are evidence that these investments are bearing fruit and demonstrate our team's ability to execute and deliver incremental growth and profitability. Based on our first quarter performance, we are raising our full year guidance for both net revenue and adjusted EBITDA. Steve will provide more detail on our financial results and guidance, but first Dave and I will review our progress against Warby Parker's strategic priorities, as well as the drivers of our Q1 results. I'll start first with the positive inflection in our glasses business, where we saw strength in single vision glasses and progressives. In Q1, Glasses overall drove approximately 70% of our revenue growth for the quarter. And as a product line, Glasses grew over 13% year over year, compared to average growth of 8% over the course of 2023. In addition, Glasses are our highest margin product and the primary driver of gross margin expansion in the quarter. We attribute the improvement in Glasses growth to many of our core strategic investments, including marketing, the expansion of our store fleet, and scaling of our exam business, as well as positive e-commerce growth. We were particularly encouraged by the improvement in single vision glasses, which continue to make up the majority of our prescription glasses business. A key contributor to this growth was our marketing efforts to drive customer growth, especially within acquisition channels like paid social and streaming, which cater more to our single vision customer. More broadly, we continue to see strong adoption of higher price frames and more complex lens types like precision progressives, which offer customers better visual quality and comfort at a fraction of the price of what similar products often cost elsewhere. Progressives overall still only represent approximately 22% of our prescription glasses sold in Q1, and we continue to believe there's a significant opportunity to increase penetration over time. Underpinning single vision strength and glasses performance overall is our ongoing product innovation, which involves regularly introducing new designs, colorways, materials, and sizes. In Q1, we launched four collections featuring a variety of innovative frame constructions and price points ranging from our core $95 up to $145, $175, and $195. This included our Terra collection, a unique capsule assortment, then incorporated our signature graduated rivets alongside metal detailing and polished cellulose acetate. We continue to see customers opt in to higher price frames and lens enhancements, including anti-fatigue and light responsive, which have contributed nicely to average revenue per customer. Scaling our eye exam business, including exam utilization, has had and will continue to have a direct impact on our glasses business. We find that exam stores drive higher sales than non-exam stores, and industry-wide, approximately 75% of prescription glasses are purchased at the same location an eye exam takes place. As we've increased the number of stores offering eye exams, we have seen strong growth in average revenue per customer driven by eye exam revenue, a higher penetration of progressive lenses, and contact lenses. While we have yet to see evidence of a return to normalcy in the optical industry, we've observed encouraging trends within our business, giving us confidence to invest in customer acquisition to drive growth and profitability amidst a dynamic consumer environment. The second driver of our growth was expanding our highly productive store base, coupled with further improvement in our e-commerce channel. We saw strength in our retail channel in particular, with retail revenue increasing over 24% year-over-year compared to store count growth of approximately 20% year-over-year. Since Q1 of last year, we've added 41 net new stores, including eight in Q1 in 2024, all of which were expansions within existing markets and in largely suburban markets. We added additional stores in the southeast near Atlanta, Miami, and Orlando. as well as in the Mountain West region near Salt Lake City and Las Vegas. To further contextualize the opportunity ahead of us, over 50% of the major metropolitan areas we operate in only have one store. With an ending store count of 245 in Q1, we still have a long runway before reaching our longer-term 900-store potential, which would still represent a small fraction of the 45,000 optical shops in the U.S. We continue to see strong returns from our new stores and remain on track to add a total of 40 new stores in 2024. In Q1, our e-commerce channel continued to improve, growing 2% year over year and contributing to overall top line growth and fixed cost leverage. We saw strength in contact lenses from both new and returning customers, as well as improvement in our single vision glasses business. As we shared on our last call, the composition of our e-commerce channels evolving with home try on driving a smaller percent of our orders as we've scaled our store base and as customers are increasingly comfortable purchasing directly online with the support of our virtual try on feature. Given this overall channel growth is benefiting from a positive inflection in direct glasses purchases, which is being offset by an ongoing but diminishing headwind from our home try on program. Looking ahead, We believe that our e-commerce business is on a path toward long-term sustainable growth. And now I'll pass it over to Dave to talk about additional growth drivers.