Warby Parker Inc.

Hello and welcome to today's Warby Parker third quarter 2024 earnings call. My name is Bailey and I will be your 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 our host today, Jacqueline Berkeley, Head of Investor Relations. Please go ahead when you're ready.

Thank you and good morning everyone. Here with me today are Neil Blumenthal and Dave Gilboa, 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 November 7, 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. We are pleased to deliver Q3 results ahead of our guidance with net revenue of $192.4 million, representing 13.3% growth year over year, along with 250 basis points of adjusted EBITDA margin expansion, our highest of the year. Driving these strong results is our team's unwavering commitment to delivering on our mission while taking share, growing sustainably, and accelerating growth. We're encouraged by our team's progress against the strategic initiatives we laid out at the beginning of 2024 and believe our year-to-date results, in particular the momentum in active customers and glasses growth, are evidence that our strategy is working. We drove accelerating top line and active customer growth in each month of Q3 and continue to see momentum into October, positioning us favorably as we head into our busiest months of the year. Based on our third quarter performance, we are raising our full year guidance and now expect to deliver approximately 14% to 15% revenue growth and approximately $73 million in adjusted EBITDA. Before Steve provides more detail on that later in the call, Dave and I will review the key drivers of our Q3 performance. Underpinning our Q3 results was our highest active customer growth of the year, with strength in both new and returning customers. We ended Q3 with 2.4 million active customers, an increase of 5.6% on a trailing 12-month basis. while average revenue per customer grew 7.5%. As expected, active customer growth has improved each quarter this year, even as we've maintained marketing spend as a consistent percent of revenue. And we anticipate Q4 being our highest active customer growth year over year. While our active customer count captures purchases across channels, we're seeing the highest customer growth come from our stores, which we believe remain highly efficient customer acquisition vehicles as they continue to deliver compelling unit economics. Similar to the first half of the year, we've been pleased with the efficiency of our marketing spend and the consistency in customer acquisition costs despite a dynamic media environment. We believe our diversified media model affords us significant flexibility and the ability to stay disciplined while testing channels and marketing messages. For example, to drive greater store awareness, we've tested new creative across linear, streaming, and influencer that focuses on the in-store shopping experience. This not only helps to drive awareness with new customers, but also longtime customers who think of Warby Parker as an online-only business. We're also seeing promising results from direct mail campaigns, especially as a way to highlight our eye exam capabilities, annual exam reminders, and new store openings. We continue to see consistent retention metrics and repeat purchasing patterns across cohorts. For the most recent cohort, we had a revenue retention rate of roughly 50% over 24 months and roughly 100% over 48 months. Complementary to our core marketing efforts, we've made progress in being able to serve even more customers through in-network and out-of-network insurance plans. Earlier this year, we announced an expanded in-network relationship with Versant Health, a wholly owned subsidiary of MetLife. I'm happy to share that the integration is largely complete, bringing millions of additional lives in-network with Warby Parker. Given our experience with United Healthcare and other large employer plans, we expect that average revenue per member will expand over a multi-year period as in-network awareness grows and as members realize they can use their benefits at Warby Parker. As a result, we have not incorporated this into our guidance and expect it to be a longer-term tailwind over the next several years. In parallel to our in-network insurance initiatives, we continue to leverage our universal eligibility check tool to help customers easily locate their in-network insurance coverage and average out-of-network benefits across channels. We launched an updated version of the tool for our retail teams this quarter, making it easier than ever for customers to use their benefits with us. As a reminder, most out-of-network plans cover an average of $100 reimbursement for a pair of glasses or contacts. meaning that these customers often pay $0 out of pocket for their eyewear purchase at Warby Parker. Second, we continue to see positive momentum in our glasses business. We attribute the improvement in glasses growth to many of our core strategic investments, including marketing, expanding our store fleet, and our exam business, and our product innovation. In Q3, glasses grew approximately 10% year over year, and we believe our marketing investments within channels like paid social, streaming, and influencer, growth and acceleration in single vision glasses, which represent the majority of our prescription eyewear business. Glasses growth also continues to benefit from progressive penetration and the adoption of more complex lens types. Progressives overall still only represent approximately 22% of our prescription glasses sold in Q3. and we believe there's a significant opportunity to increase penetration over time. Within the progressives category, we've seen strong uptake of precision progressives, which start at $395, including frames, lenses, and coatings, and offer customers better visual quality and comfort at a fraction of the price of what similar products often cost elsewhere. We also continue to expand our lens options to give customers more choice. The ability to customize lens colors, polarization, and anti-reflective coatings, as well as enhancements like anti-fatigue, blue light, and light responsive have contributed nicely to average revenue per customer. On the frame side, our latest consumer insights indicate that customers choose to shop with Warby Parker because of our style and variety. as well as our value proposition and convenient shopping experience. As a style authority, we offer a tighter, more curated assortment than our competitors and focus on building out franchise styles with new sizes, colors, and materials. We are also one of the few retailers to offer extended sizes in the same style. We're not only seeing customers buy more complex lens types, We're also seeing them select higher-priced frames with more complex constructions like those in our recently launched Super Concentric Collection, starting at $195. Handcrafted in Italy, this limited-edition release brings a tricolor construction to a selection of our most sought-after shapes. This quarter, we launched our Editions Collection, an assortment of frames designed in partnership with seven notable fans, each of whom reimagined their favorite Warby Parker frames. Collaborators included chef and restaurateur David Chang, actor, writer, and director Natasha Lyonne, NBA star Jordan Poole, and more. Our launch captured the attention of culturally relevant media outlets like Interview Magazine and garnered some of the highest engagement on our social media channels to date. Just last week, we launched our first-ever foldable sunglasses, engineered for pocket-sized portability and constructed with stainless steel and premium cellulose acetate. While the response to our new frames across multiple price points has been very positive, the majority of our frames are still sold at our accessible, all-inclusive $95 price point. And now I'll pass it over to Dave to talk about additional growth drivers.