Kits Eyecare Ltd.

Good morning and welcome to the KITS iCare Third Quarter 2024 Financial Results Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer, and Joseph Thompson, Chief Operating Officer, and Jia Chu, Chief Financial Officer. Before we begin, I'm required to provide the following statement respecting forward-looking information, which is made on behalf of KITS 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, 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 can differ materially from a conclusion, forecast, expectation, belief, or projection in the forward-looking information. And certain material factors and assumptions were applied in the 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 making a forecast or projection as reflected in the forward-looking information are contained in kits filing 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. Good morning, everyone, and thank you for joining us. It's been an exceptional quarter at KITS, and I'm extremely proud of our results this quarter as the team has done an incredible job filled with records and achievements across the KITS organization. I'm pleased to share several highlights that have further solidified our market-leading position and strengthened our commitment to providing accessible, high-quality eye care. But before I jump into the numbers, I'd like to extend my thanks to our dedicated team, whose hard work has driven our performance and continued innovation across every segment of our business this quarter. Looking back over the last six years, Kits has built a leader in the optical category by creating a platform focused on making eye care easy for the customer of today. Our performance over the last two years has further solidified our leading position as our products and service standards drove incredible customer experiences that resulted in category-leading retention and growth metrics fueled by customer word of mouth, something that's very difficult to achieve and replicate. This strong foundational base, combined with the team's continued execution, has resulted in reaching eight consecutive quarters of positive adjusted EBITDA. And finally, this past quarter, which we are announcing today, showed growth continued to accelerate as we've achieved record performance across virtually all parts of our business, culminating in record quarterly revenue and customer engagement, building on the foundation we've carefully constructed. Building a model that combines product leadership, constant innovation, affordability, speed, and great service has taken years of insights combined with carefully constructed strategies to serve customers, and we're now starting to see the results of the team's complex work. At our core, our focus has been on delivering ease of use along with a range of high growth and customer satisfaction initiatives. During our last earnings call, we set our Q3 revenue expectations at $39 to $41 million, with the target adjusted EBITDA margin of 3% to 5%. I'm proud to report that we exceeded these expectations, delivering nearly $42 million in revenue for the quarter, equating to 34% organic year-over-year growth and an annual revenue run rate of over $167 million. We achieved our adjusted EBITDA goal of 3.8% or $1.6 million, with net income of $0.1 million and earnings per share of 1%. Additionally, we generated $2.2 million in positive cash flow from operations and reduced our debt principle by $1 million, leaving us with a favorable low debt balance and more than $19 million in cash as we head into the next quarter. The complexity of executing these intentional components has been a worthwhile investment as we are seeing the benefits of these moats begin and the flywheel they create contribute. Some of these moats include but are not limited to our membership and subscription business, our Kits branded contact lens and eyewear branded initiatives, providing one of the largest direct billing networks in the country, our endless aisle offering with access to more than 5,000 styles of eyewear, our tech-enabled Pangolin smart glasses, which quickly sold out during the quarter, as well as our latest launch of what we expect will be an exciting product, our Kits Pixa collection, allowing personalization of eyewear all of which combined to better serve our increasing base of returning customers and enable acceleration of our disciplined approach to new customer acquisition. As these moats gained traction, we achieved a record nearly $36 million in contact lens sales this quarter, and even more impressive was our eyeglasses segment, our fastest growing segment in the quarter, increasing 43% year over year. We also enjoyed great traction in both of our primary geographies where our U.S. business grew by a record 39% year-over-year in the quarter and our Canadian business achieved a healthy 24% growth rate. These achievements are a testament to the complexity and strength of our model. As we scale, our efficiency gains continue to improve our overall operational metrics. Quarterly, the marketing team delivered solid execution with marketing expense as a percent of sales declining year over year from 13.7% to 13.4% of sales. Our team continued to make strides in operational efficiency driven by streamlined production processes, allowing us to continue to maintain rapid fulfillment rates. We successfully reduced fulfillment expense as a percent of sales by 180 basis points, decreasing to 10.8% in this quarter. This disciplined approach extends to our general administrative expenses as well, where we maintained a lean cost structure that saw G&A expenses improve to 6.2% of sales. Maintaining tight fiscal discipline is core to our strategy. This quarter, gross profit dollars grew 29% year-over-year to $13.8 million, with gross margins finishing at 32.9% for the quarter. As we identified efficiencies across our operations, we passed many of these savings directly onto our customers, focusing on retention and growing our loyal customer base. As we continue to grow and over time, our experience is that gross margins will trend higher as higher margin products become a larger percent of revenues. It's a delicate balance between efficiency and taking share while staying profitable in this exciting market. Our approach is paying off with our two-year active customer count rising to over 890,000 customers, marking a year-over-year increase of more than 7% and underscoring our ability to serve the diverse needs of our expanding community. It's our expectation that we will soon surpass 1 million active customers, which we look forward to celebrating as an exciting milestone. We generated over 62% of our revenue from our loyal core customers reflecting their strong affinity for our brand and ensuring a steady revenue stream. Our team achieved a record revenue contribution of $15.9 million from our 77,600 new customers in the quarter, representing a 41% increase year over year. This success is a testament to the effectiveness of our value proposition and the trust our customers have in Kits as their eye care provider of choice. This robust customer loyalty forms the basis of our growth trajectory, giving us a solid recurring revenue stream to build upon. At KITS, we've continuously focused on building up programs designed to serve the customer today and the highest value customers in the category. A highlight as we look across our customer segments is the emergence of a high-value hyper-customer, one that uses us consistently as part of our membership or loyalty program that we've seen spends in excess of $10,000 over the six years we've been in business. To those of us at KITS, we take this as a strong validation that we are doing things right for this customer group. Over time, it's our expectation that more and more customers will begin to join this cohort as they discover the convenience and savings of KITS and our many unique offerings. Looking at the bigger picture, our presence in the optical industry still represents less than 1% of total market. With a $70 billion category still left to address and seven out of 10 individuals who rely on vision care, we believe we're just beginning to scratch the surface of this opportunity that's in front of us. This market presents tremendous room for growth and we're well positioned to capture a larger share through our unique, highly differentiated platform. As we look to Q4, we expect our momentum to continue. With revenue projections in the range of $43 million to $45 million, and an adjusted EBITDA margin target between 3% and 5%. We are confident in our path forward, underpinned by our unique strategy, strong customer loyalty, streamlined growth, and expanded product lines. Thank you again for your continued support. With that, I'd like to hand the call over to Joe, who will provide further details on our operational performance. Joe?

Thanks, Roger. In Q3 2024, we continue to demonstrate the leverage our model can deliver. while improving the experience for customers and introducing innovation across our business. Our operational moat seems to grow every quarter. Fulfillment expenses, a percentage of revenue dropped to 10.8%, a reduction of 180 basis points year on year, led by a decrease in both labor and shipping costs as a percentage of revenue. Inventory turns increased in Q3 versus a year ago as our team leveraged our significant data infrastructure to optimize inventory management. Our speed from order to delivery accelerated as well, with the majority of orders now made and shipped the same day they are placed. Accordingly, net promoter score improved again in the quarter versus Q3 2023. On the marketing front, the team decreased marketing expenses of percentage of revenue by 30 basis points year over year, and remaining G&A also saw leverage, declining 30 basis points year on year to 6.2% of overall revenue. We feel the best companies get more efficient as they grow. Our $500 million infrastructure is a key moat for Kits and leaves us ample room for continued growth and leverage in the years ahead. The Kits team also introduced several innovations in the quarter, helping us deliver record numbers on new customer revenue and repeat customer revenue. In Q3, we expanded the Kits lineup on both glasses and contact lenses. On glasses, the team introduced 190 unique new styles this quarter. On the contact lens side, we expanded our kit's daily silicon hydrogel line to include color contacts in five different shades, which are off to a very strong start. These new kit's additions allow us to offer greater value and selection to our customers while contributing to improved margins. We also launched our new blockless surfacing technology for digital progressives and polarized lenses. This innovative technology increases our capacity for premium lenses while reducing labor costs and consumables usage by over 30%, underscoring our commitment to both efficiency and sustainability. Finally, our subscription offerings also expanded this quarter beyond auto-ship to include the Kits Plus membership program, specifically for our eyeglasses customers. This premium membership program allows customers access to additional benefits, discounts, and free shipping all year. Kits Plus is off to a blazing start. Stay tuned for more innovation coming in Q4, highlighted by our pixel line of personalized eyewear and a dramatic expansion of designer frame selection for customers. I'll now turn the call over to our CFO, Zee, for an overview of our third quarter financial results.