Kits Eyecare Ltd.

Good morning and welcome to the KITS iCare 4th Quarter and Full Year 2023 Financial Results Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer, Sabrina Liak, President and Chief Financial Officer, and Joseph Thompson, Chief Operating Officer. Before we begin, I'm required to provide the following statement respecting forward-looking information which is made on behalf of kids and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would, will, and other words of similar meaning. This forward-looking information is based on management's opinions, estimates, and assumptions in light of their experience and perception of historical trends, current conditions, and expected future developments, as well as factors that they currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast expectation, belief, or projection in the forward-looking information. Certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Management cautions investors not to rely on the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or or making a forecast or projection as reflected in the forward-looking information are contained in KITS filings with Canadian provincial security regulators. During today's call, all figures are in Canadian dollars unless otherwise stated. And with that, I'd like to turn the call over to Mr. Roger Hardy. Please go ahead.

Thanks, Operator, and good morning, everyone. Thank you for joining us. I'd like to express my gratitude to the entire KITS team for yet another outstanding quarter and year. In 2023, we maintained our category leadership in revenue growth, with the full year increasing 32% year over year to $120.5 million, and Q4 increasing 21% year over year to $31.7 million, while also delivering very strong gross margin expansion to 33.8% for the year and 35% for the fourth quarter. all while maintaining positive adjusted EBITDA. Reflecting on 2023, it's evident that this year was truly exceptional for the entire KITS team. It's clear we got a few things right back in 2018 when three friends met on KITS Beach in Vancouver to talk about starting a company that could have a positive impact on the planet, our community, our friends and families. As I think about what we got right and what was unique about our approach, a few key things stand out. We identified the intersection of healthcare and technology as the prime opportunity to build a large, valuable, and disruptive company that serves customers while creating value for stakeholders and team members alike. As we narrowed our focus to the $76 billion opportunity in eye care, we could see a category dominated by legacy businesses ripe with legacy providers that hadn't kept up to technology or made the right investments to serve the customer's needs of today in the high touch way they want to and need to be served. But seeing the opportunity to use technology and connecting it to serving customers alone wasn't enough. We needed a unique and differentiated approach that would ensure a deep moat around the business we intended to build. From a moat standpoint, two things stood out. We needed to control our own destiny as it related to manufacturing and customer acquisition if we wanted to have success that couldn't be disrupted by competitors or suppliers. And so, inspired by the likes of Bezos and Musk, we started with the end in mind by first focusing on building out a world-class, high-volume manufacturing and fulfillment center that would form the basis of our customer experience, a place where seconds after receiving an order, we would start the process of custom manufacturing a specific and unique pair of eyeglasses cut to each customer's personalized prescription in the frame of their choosing, chosen from an expansive in-house selection, available to be delivered later that day, often finishing detailed QA in as little as an hour. All this at an automated onshore scale that would render all other competitors' models cost prohibitive. In fact, it felt a little surreal for us to be investing millions of dollars ordering the many high-powered automated machines to build out our state-of-the-art lab before even securing our first-classes order. But such was our conviction. Having built out our manufacturing and fulfillment center, we aptly named our Gigafactory for its ability to scale to over 500 million in turnover. We turned our focus to ensuring we would have a unique way to attract and retain vision-corrected customers that would ensure the most sustainable acquisition possible. With the advantage of a blank canvas and starting in 2018, knowing well the vision category from my previous 20 years plus work in the category, we decided to focus our model around the needs of the customers of today, centered around securing the most valuable customers and the most loyal and valuable segments in the vision category. Knowing full well that traditional optical retailers, chain stores, and others who operate complex retail storefronts requiring heavy capex investments invested into an uncertain underperforming retail landscape would not be able to compete in our segment profitably, we built our platform centered around a high volume automated fulfillment model to best serve and wow these valuable customers. We also knew that the companies with the best customer satisfaction in any category ultimately have the highest value. And so we focused on ensuring a business model that would wow customers and inspire them to tell friends and family of their wonderful experiences. And finally, with our last ounce of conviction, we purchased the kits.com name and URL inspired by this special place in the world where the ocean meets the mountains. Uncertain if we would ever generate a return on this more than $500,000 expenditure. But since then, the results have been spectacular. In five short years, our investments have produced the highest number of customer reviews online and the most positive customer reviews in the category, which even when compared to the legacy players, makes evident our model and our focus on serving the right customers is working better than anything else in the North American market. And as expected, these high-value and loyal customers have continued to purchase and return time and time again for their vision needs. Having secured the most efficient onboarding channel for vision corrected customers, we next introduced our eyeglasses offering. Since then, the results have been equally impressive. As I look back on Q4 in 2023, I'm in awe of the progress we made. It's evident that our customers have permissioned us to move beyond the high trust, super personalized contact lens category into the much larger and more complex eyeglasses category. Looking back on the year, we served more than 275,000 eyeglasses, and served more than 800,000 total vision-corrected customers, an impressive feat for a five-year-old company that grew organically this past year, at the top of its category, all achieved from its own cash flows. Perhaps most inspiring to me is to see that in Q4, when our team decided to focus a little more time and attention on sharing our eyeglasses offering with our existing customers and with the world, the traction and uptick were immediate with our eyeglasses business, It accelerates at over 38% growth year on year. And while it's a smaller business, it's nice to see we have the ability to focus on and scale either opportunity with a moment's notice and at any given time. It tells me that we have so much opportunity ahead of us in both categories. It was also encouraging to see that early eyeglasses customers continue to return in record numbers, as evidenced by our return glasses revenues increasing approximately 108% year over year. To me, this is an extremely important metric that I watch closely. It demonstrates that not only are we permissioned to provide eyeglasses to customers, but that the experience is also such that they are returning at category-leading retention numbers, which we publish and which continue to beat the likes of all other competitors. Finally, I would be remiss if I didn't share my enthusiasm for what's to come at KITS. Having built similar consumer businesses in the past, I've great optimism for this year ahead. In my experience, a young company like ours has had to make many decisions and trade-offs about how best to deploy its limited assets as it grew. At Kits, we are finally at a point where our investments are balanced across our marketing product, fulfillment, and manufacturing portfolios. And this tells me we are nearing escape velocity. Specifically, I'm excited as I see our newest eyeglasses portfolio rolling onto our virtual shelves. This is among the very best product in the category and it's available at prices that no competitor can match, all while being made onshore and delivered at breathtaking speeds. We've built our company in a way that's impossible to replicate. It has many structural and strategic advantages over traditional brick and mortar and even other omni-channel retailers. As we look out into this year, we are encouraged by the trends we are seeing. Growth continues to be very strong in Q1 as we balance the offense We're seeing strong growth in contact lenses and eyeglasses and targeting growth of approximately 22% to 26% for Q1 and positive adjusted EBITDA. Overall, I'm incredibly optimistic about where we sit today. With that, I'd like to pass the call over to Joe to dive into more detail on our operational performance. Joe?

Thanks, Roger. With our Q4 results, we have now achieved five consecutive quarters of greater than 20% revenue growth, all with positive adjusted EBITDA. If 2021 and early 2022 were the investment phase for our business, as we built the infrastructure Roger outlined above, we are now in the growth phase. In our view, it is very early days in our growth curve. As we think about the recipe for driving continued profitable growth for our business in the coming years, There are a few ingredients in the kids' business that have us excited. First, we have deployed the capital in our investment phase to grow our business to at least $250 million or double our current revenue level with minimal capex needed. This is an enviable position. As we grow, each order of prescription glasses, digital progressives, and contact lenses becomes more efficient without the burden of requirements. more capital expenditures, and with no near-term ceiling on our capacity. Second, we benefit from, in our view, the best retention rate in the category, with over 63% of our 2023 revenue coming from repeat customers led by eyeglasses. To us, this is the sweetest metric of all. It represents the work done in months and years past to meet the high bar our customers have for value selection and convenience. One of our key cohorts is the millennial vision corrected customer age 25 to 35. These customers have very high expectations, but if we can meet and exceed their bar, we are in the right to serve them for decades. And we're now turning these customers into advocates with marketing efforts like share a pair and other referral programs. Importantly, we are building the future annuity for KITS as well. And in 2023, we welcomed over 300,000 new customers to KITS. With high expectations, most of them will be back. Third, and certainly not least, is our focus on operational discipline as we grow. Orders arrive faster to customers in 2023 than they did in 2022. Our digital progresses business with more advanced manufacturing grew over 80% in 2023. And we achieved these results and many others while our fulfillment expense as a percentage of revenue declined. And while our revenue increased by over 30% in 2023 and we added over 700 new eyeglasses designs in the year, our inventory level held constant, giving us additional turns on our inventory and delivering growth with little burden to working capital. This operational excellence frees up cash for more innovation, more selection, and more convenience for customers. Expect more of the same from the KITS team in 2024. We're built for scale. And we're just getting started. I'll now turn the call over to Sabrina for an overview of our fourth quarter and full year financial results.