Kits Eyecare Ltd.

Good afternoon and welcome to the KITS-IKR 3rd Quarter 2025 Financial Assault Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer, Joseph Thompson, Chief Operating Officer, and Zhe Chu, Chief Financial Officer. Before we begin, I'm required to provide the following statements 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 similar meaning. This forward-looking information is based on management's opinion, estimates, and assumptions in light of their experience, and perception of historical trends, current conditions, and expected future developments, as well as the 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. And 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 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 a drawing conclusion or making a forecast or projection as reflected in the forward-looking information are contained in KITS filings with the 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. Good afternoon, everyone, and thank you for joining us today.

When we started Kits, it was with deep conviction and enthusiasm. We'd explored several categories and potential ventures, all with intriguing possibilities, but one clearly rose above the rest. We envisioned building a new breed of technology company, one that would serve billions of people around the world who rely on vision correction to function every day. Through countless conversations with vision corrected customers, we uncovered a critical insight. The optical industry had grown complacent. It had forgotten the people it was meant to serve. At its core, the sector relied on a century-old model, overly complex, expensive, and opaque. Duopoly dominating the space had lost sight of its purpose, enabling people to see, work, and live fully. The addressable market was already immense, estimated north of $100 billion globally, but the true potential was even greater. because nearly everyone everywhere will eventually need vision correction of some form. The prospect of transforming such a vital category was profoundly motivating. This was a chance to create something enduring, to build a company that improves people's daily lives in a way that enriches how they live, work, and connect. That ambition inspired our mission to make eye care easy. Today we set out to serve the modern consumer digital first informed and empowered. Someone who grew up with a phone in hand and expected frictionless experiences. We imagined an end-to-end platform controlling every essential component through vertical integration from customer acquisition and retention to manufacturing and fulfillment. It was an ambitious vision, especially starting from zero back in 2018. From time to time, I find it valuable to revisit those original ideals and ask, do they still hold true? Are we executing in line with our mission to reinvent a century-old category? One of the things I love most about leading KITS, a public company, is the rhythm, the relentless 90-day sprint. After more than two decades of running public businesses, it's a cadence I and my family know well and deeply value. At KITS, we operate on a nimble operating system. Every quarter, the metaphorical cannon fires and the sprint begins anew. 90 calendar days, 60 business days to deliver results. Each quarter starts with a clear list of five priorities that our management team aligns on. Of course, there are many other initiatives, but these five are the non-negotiables. Call me traditional, but I like to keep revenue and EBITDA at the top of that list. From there, our focus turns to the customer, how we can strengthen emotional connection, personalize engagement, and listen authentically to feedback. We examine our product to ensure it delights, because our customers have no patience for mediocrity. They want authenticity anchored in quality, selection, and affordability. And finally, we set clear technology objectives to ensure we're operating on a premium stack at the leading edge of innovation. This quarterly cadence gives us a mirror, a moment to reflect, measure, and hold ourselves accountable as we strive to deliver on the bigger, longer-term mission. I'm pleased today to update shareholders and our team on another strong quarter of performance. During our last earnings call, we guided Q3 revenue between $52 and $54 million, with a targeted adjusted EBITDA margin of 5% to 7%. proud to report that we delivered record revenue of $52.4 million, up 25% year-over-year, and 6% sequentially. This marks our 12th consecutive quarter of positive adjusted EBITDA, which rose to $2.9 million, or 5.5% of revenue, up 79% year-over-year, and our net income reached $1.9 million, or 6 cents per share. Gross margins expanded to 34.6% up 170 basis points from last year, a seasonally strong performance. And we welcomed 99,000 new customers in the quarter. This quarter also marked a major milestone, surpassing 1 million active customers, a testament to both our reach and the trust we've earned. It's now our third consecutive quarter averaging 100,000 new customer additions. Here to date, new customer growth is up 37%, reflecting accelerated awareness and adoption. The kit's flywheel is spinning faster. New customers are driving growth today and recurring value tomorrow, returning at higher rates and expanding lifetime values. We have an exceptional product, unmatched selection, a beautiful website powered by state-of-the-art technology, and the fastest fulfillment in optical. all underpinned by a culture committed to purposeful execution. We're now one of the fastest growing eyewear brands or brands in North America. $200 million business with brand awareness concentrated in just one city, Vancouver. Candidly, that underscores the magnitude of the potential ahead. A uniquely attractive growth profile with asymmetric upside. As we begin to replicate our Vancouver success, in other cities across North America. A particular standout this quarter was the strength of our Canadian business, up more than 38% year over year, powered by strong repeat purchases and a robust new customer acquisition, as we tempered our investment in the U.S. this quarter. Our kit's branded contact lenses grew an astounding 380% year over year, with gross margins exceeding 50%. Other segments of our 50-50 club, such as our progressive and designer collections, also posted impressive gains, each with margins near or above 50%. These categories are scaling rapidly and will become increasingly influential contributors to growth and profitability over the coming years. Our glasses segment remains a cornerstone growth engine. Glasses revenue increased 25% year-over-year, driven by both new customer additions and continued premium lens adoption. Our vertically integrated model gives us a structural advantage, controlling quality, speed, and cost to deliver premium products at accessible prices. This translates into higher customer satisfaction and superior margins over the long term. Repeat customers accounted for 62.4% of total revenue, contributing more than $32 million in the quarter, evidence of a deepening loyalty and growing engagement. And premium lenses grew 55% year over year and now represent 44% of revenue, reinforcing the power of our recurring compounding revenue model. We also continued our rhythm of innovation, launching nine new collections and 77 models across 240 colorways, reinforcing our pillars of quality, selection, and affordability. The standout was the oval edit, a strategic expansion capitalizing on the surging oval trend validated by the exceptional performance of our Soarin' frame, our top seller. We responded with agility, introducing 15 new styles across new colors, sunglasses, and shape variations, including rectangular and sport editions. We also showcased the brand through our Gran Fondo activation, a proud moment seeing kits on the podium and across the course. worn by individuals who, like us, are motivated by purpose and progress as they race to Whistler on their bikes along the beautiful Sea to Sky Highway. True to our DNA, we kept testing and learning. As a nimble vertical retailer, we can pilot new ideas with minimal risk and remarkable speed. A small four-frame capsule for children quickly demonstrated strong traction, validating another future expansion path. That speed of iteration powered by real-time customer data is what defines Kits as a forward-thinking brand. These capsules outperform through organic and influencer channels, driving incremental traffic engagement and repeat purchases. Looking ahead to Q4, we expect continued momentum with revenue in the range of $52 to $54 million and adjusted EBITDA margins between 4% and 6%. We also look forward to introducing our new Chief Marketing Officer, early in the new year. With that, I'll hand the call over to Joe and to Zee. Joe?

Thanks, Roger.

The KITS team has been hard at work in the quarter building infrastructure to deliver results for years to come. Infrastructure that tracks carrier and delivery performance and allows us to systemically shift orders to the best carrier, providing faster delivery for customers. We're systems that optimize every layer of the customer journey, from how customers move through the site to how orders move through our system, increasing convenience to customers and reducing bounce rates. As we invent, large language models are helping the team build these systems even faster and with less G&A investment required. And of course, building infrastructure around our 50-50 initiatives. our top-performing innovation delivering approximately 50% growth year-on-year and approximately 50% gross margin or higher. We were delighted to recently welcome kids' contact lenses to the 50-50 Club that already includes initiatives like digital progressives, premium lens upgrades, and more. And the team now feels we are building what may be the biggest of these initiatives yet with the beta launch of Optician AI. As AI is moving commerce from search to conversation with agentic commerce, KITS is helping to lead the way in eye care. Optician AI is our digital optician designed to make buying glasses easier and faster, replicate the guidance of an in-store optician, and be accessible anywhere. Still in beta, the team has rapidly iterated the technology, now on version 10. The most recent release, AI Vision, introduced major user experience improvements. Based on customers' unique attributes, they can now receive interactive and personalized recommendations as they explore new frames. Further optimizations to our virtual try-on are creating a step change in the consumer experience with the introduction of a dual try-on view that lets shoppers compare two frames side-by-side and the ability to adjust colorways within seconds. It's an experience that removes the friction of in-store shopping and offers a level of confidence and convenience unmatched in traditional brick-and-mortar retail. Still in early days of adoption, these enhancements are increasing conversion, lowering drop-off rates, and delivering a shopping experience that feels both intelligent and human. Consumers are the heart and soul of KITS. And as customers use Optician AI, they help shape an even better shopping experience for millions more customers in the future. We believe there's a lot more to come from this initiative as Optician AI continues to evolve. That's a great segue to Zee, our CFO, to share details on our Q3 financial performance. Zee?

Thanks, Joe. While in a strong first half, Q3 results reflects our continued ability to deliver consistent growth supported by steady execution and meaningful contributions from both new and loyal customers. In Q3, we continue to see meaningful operating efficiencies. Fulfillment expands the percentage of revenue input of 10.2% down 60 basis points year-over-year as our vertically integrated lab and distribution network deliver greater productivity at higher volumes. We fulfilled approximately 266,000 orders this quarter, highlighting the operational discipline and consistency of our team. Customer acquisition continued to drive our performance in the third quarter. We welcomed more than 99,000 new customers, contributing over 37% of revenue for the period. Even with this strong growth, we reduced marketing spend by 110 basis points quarter over quarter, bringing it down to 14.1% of revenue. This improvement reflects the growing strength of our Omi Channel platform and increased recognition of the kit's brand. Importantly, despite a higher mix of new customers, average order value rose to $197 up from $190 last year, showing continued demand for higher basket sizes and premium lenses. As these new customers return for repeat purchases, we expect to see further gains in both average order value and lifetime value. General and admin expense also improved to 5.7% of revenue compared to 6.2% last year, reflecting discipline overhead management even as the business scales. We achieved a gross margin of 34.6%, a 170 basis point improvement from 32.9% last year, while gross profit increased 32% to 18.1 million. These results show the strength of our integrated model and our ability to fine-tune pricing, product mix, and promotions to attract new customers and keep them coming back. Turning to profitability, adjusted EBITDA was $2.9 million, representing a 5.5% margin, an improvement of 170 basis points from last year. This marks our 12th consecutive quarter of positive adjusted EBITDA, highlighting our consistent execution and focus on profitable growth. That income increased to $1.9 million compared to $0.1 million last year, a strong improvement year over year. We ended the quarter well capitalized with $19.7 million in cash, giving us a strong foundation to continue investing in growth while maintaining financial discipline. We have built a strong foundation for long-term growth, supported by continued innovation in digital eye care and discipline execution across the business. As we move into the fourth quarter, We remain confident in our ability to deliver sustained profitable growth and create long-term value for our shareholders. I will now turn the call over for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, it is star one if you wish to ask a question. Your first question comes from the line of Martin Landry from Stifel. Your line is now open.

Hi, good afternoon, and congrats on your results. Good afternoon. My first question, I'd like to, if you could discuss how the quarter evolved. Some retailers have seen a strong start of the quarter in July, and they've seen the momentum abating a little bit in September. I was wondering if you've seen a pattern like that evolve during the quarter.

Yeah, thanks, Martin. For us, it was a fairly consistent quarter on the demand side. And I think we talked a bit about it at the pre-release, but we saw in September a number of others be highly promotional. In our own case, it was fairly business as usual. So we saw heavy promotion all around us, particularly in September. As you can see from the results, our margins improved and it was fairly consistent. Probably the one side note would be that for us the postal strike did come in late in the queue and did have some although nominal effect and we don't want to really make an excuse of it but the post office shut down for the last couple days of the quarter and it obviously had some effect but no real change in pull demand on that side.

Okay.

And then I heard in your prepared remarks that you talked about, you know, you've tempered your customer acquisition in the U.S. this quarter. Can you expand a little bit on that? What prompted you to do that?

Yeah, sure, Martin. You know, candidly, we've been cautious with the U.S. throughout the last quarter. Lots of moving parts there, as we know, with the border and other, I'd just say, general, some uncertainties. But, you know, our view is now kind of we're returning to a bullish outlook. We feel like it's stabilized, and we're getting ready to turn back on our efforts in the U.S. You know, we were, I'd say, basically on the sidelines for a lot of the queue waiting to see how some of the regulatory and other things might develop. And fortunately, it's not in a position to have a material or an effect on us at this point. So we're looking forward to reigniting, I would say, the US. And as you know, wherever we invest and focus our attentions, we tend to see results. So maybe I'll see if Joe has anything else to comment there.

Yeah, hi, Martin. You know, and I guess maybe the last thing to note is we were really fortunate as we looked at the market. We now have two markets, two business lines, both doing, all doing very well. And we felt we had plenty of room for growth in the Canadian market. And our glasses business continued to perform spectacularly well in Canada, growth north of, well north of 50% on glasses in Canada in the quarter and So I guess that's part of the reason why you're hearing so much confidence, that we delivered a 25% growth in spite of a reduction of glasses investment in the U.S. market. Okay.

Okay, so I guess that explains a little bit. That's a good segue into my last question. I mean, your contact lenses grew faster than glasses this quarter. It's, I think, a first in two years. And I think you probably have answered that question saying that you've slowed down the marketing on your customer acquisition for glasses in the US. Would that be the explanation?

That's the key driver, correct, Martin. I think Raj pointed this out very well a few minutes ago, but where we invested, we saw strong performance. So we focused on high LTV areas, like kids' contact lenses, digital progressives was, again, a big driver, well, well over 50% growth quarter-on-quarter there, and the overall Canadian market with revenue up 38%. And so that was really the driver. You've diagnosed it correctly.

Okay, perfect. Thanks for all the color and best of luck.

Thanks very much. Your next question comes from the line of Luke Hannan from Canaccord. Your line is now open.

Thanks. Good afternoon, everyone. I wanted to dig in a little bit more to the Q4 outlook, and I think you've partly answered it in your responses already. But the revenue growth this quarter is around 25%. It's a little bit lighter than that, what you expect at the midpoint for Q4. I'm sure part of that is you're facing a strong comp. It likely also has to do with the marketing efforts. But specifically what I wanted to ask about is there was – A peer of yours that mentioned earlier today that they were seeing a slowdown in spending specifically amongst the younger cohort. So I was just looking to confirm that that's not what you're seeing in your business right now.

Yeah.

The Q4 guide and then the behavior that we're seeing from consumers. I think, you know, what you're hearing from us is continued high confidence in growth on both new customers and repeat, balanced with a strong dose of conservatism. Some of this conservatism, I think, comes from the fact that, you know, Q4 is increasingly backloaded with Black Friday, Cyber Monday, It's now such a dynamic period combined with year-end, which is always very strong for us, and the ramp-up of returning to more glasses investment in the U.S. So we're as confident as ever in the business, but just maybe a little conservative. Why don't I just pause there? I'll come back to, or maybe just to address the consumer question. Correct, we are seeing consistent strength on customer acquisition. We are not seeing some of the patterns that we have been hearing about in the market. On the key inputs, new customer growth strong, up 37% year-to-date, traffic up, average order value up about 4%, now just under $200. And I guess maybe one point on that, an observation over the last six to nine months, In this sector and others, really what we've been seeing is an increase in market retail pricing in the neighborhood of 10%, 20%, sometimes more, and maybe a pullback on conversion or order levels for those that have. As we look back on our business over the last year, we've really chosen to keep pricing consistent, in some cases even lowering a few price points, and that's really proven unique and perhaps prevented us from seeing some impact.

Yeah, and Luke, I'd probably just, you know, echoing Joe's comments. I mean, the way we think about our business, you know, consumer spending is about 70% of GDP in Canada and the U.S. You know, we're in the non-discretionary part of where consumers play. We show up with great value, as we said, affordability. And so the risk-reward in our kids' business, we think it's compelling. And we're focused on driving a compelling return. So, yeah, we're heads down, continuing to execute on the opportunity, not seeing that softness that you referenced.

Great. Thank you both for the answers there. Roger, I also wanted to follow up. You did talk about the Canada post-strike as well. I think it impacted you for basically the last week of the quarter. Can you quantify if at all? It sounds like it was immaterial, but is there, call it a million bucks, two million bucks that you would have lost in revenue or that got shifted from Q3 into Q4?

Yeah, as I said, we don't want to pull out a specific value. It's a highly complex thing we do at Kits on most days, and so that just added one more component to it. But it definitely got our team activated in finding alternative ways to get the product out into customers' hands in a timely way. you know, it's not, it obviously doesn't help when the post office goes on strike or when Trump announces a new regulation at the border that, you know, even the border agents aren't familiar with. And so that also takes a couple of days to trickle down. So there's always many moving parts. You know, our job here is to solve problems, not make excuses. So, you know, I was kind of pointing it out to say, hey, it was a factor. It blends into that quarter. And as Joe said, you know, From our standpoint, we're going to keep being conservative as we look out into the next coming quarters. We're confident in growth in our business right now and going forward. The business has grown, you know, 29% so far this year. Canada growing 38%. So, you know, we're optimistic. When we look at investing time and energy in different markets, in different sectors, we're getting returns. So, our expectation is that will continue and we're definitely not quarter to quarter as focused as you are. My apologies, Luke. But we're thinking, you know, we take the long view and we're kind of thinking out, you know, about next year and the next two to three years and just building consistent, great, great business. So, yeah, no excuses. That's a long way of saying we're not making excuses, but we'd appreciate if the post office didn't go on any more strikes. We'll put it that way. Fair enough.

Fair enough. I wanted to ask also about just Black Friday, Cyber Monday expectations. I was looking around on your site earlier. It looks like there's some promotions that you already have in place right now. Can you remind us, was it this early last year that you started your Black Friday, Cyber Monday promotions? And then what's your overall expectation on the levels of promotion in the channel? You did mention some other peers, it seems like, have been more promotional towards the end of Q3. Has that persisted also thus far into Q4?

Yeah, thanks, Luke, for asking about it. You know, this Black Friday, Cyber Monday period has really kind of become a whole season in itself. And so to answer your question, yeah, it's consistent with last year. We do see more customers coming into the market earlier than ever. Here we are a couple weeks before Black Friday. And so, you know, we've seen just an incredible start to The event that the team launched on Monday, and we're super excited for these next two months are just so fun. You see more customers in the market. Insurance premiums for a lot of customers run out at the end of December. Folks are looking to refill before they go away on holidays. So it's a really fun time for our team and for our business. That's great.

Last one, and then I'll pass the line to a quick one. The optician AI, what's the rough expectation when you expect to roll that out more broadly?

Yeah, sure, Luke. So, you know, phase one was just testing the early engagement. It's been very strong. So, you know, the rollout begins and continues, I would say. It's in real time. Now on version 10, the team is moving into what I would say the way we capture it is phase two, which is extending the reach into more categories, including contact lenses, and in more parts of the site, including search and a full checkout integration. And then maybe even post-order experience. Longer term, maybe phase three, you could envision this product to be a stand-alone experience. Really, we can hardly contain our excitement on the opportunity ahead of us here. We've got over a million active customers, vision-corrected active customers, and we have the opportunity to offer every one of them a personalized experience with this product, in addition to the millions and millions more that will come onto the platform. So we're very excited. We shared a few initial data points, which we're encouraging, on conversion and satisfaction with the product. Really, this product is a trust builder for customers over the long term. So it's really an LTV enabler where customers can come in, ingest their prescription, have their face shape measured, and have faster navigation throughout thousands and thousands of frames and a more personalized experience.

Great. Appreciate it. All the best.

Thank you. Your next question comes from the line of Douglas Cooper from Beacon Securities. Your line is now open.

Hi. Good evening, everybody. Just a couple ones for me. Just on the... the glasses side of the business. You guys hear me okay?

Yeah, we've got you, Doug. Thank you. Good afternoon.

Just on the glasses side, revenue is 7.1, I think it was, just under 7.1. The quarter before was 7.186. So it was down a little bit sequentially. So I just wanted to dig in to your thoughts there.

Yeah, sure. Again, candidly, as we discussed, we really were cautious in the quarter given some of the rumblings coming from south of the border. We did not want to make big investments in net new U.S. customers with some uncertainty around what would happen at the border, whether it would be changes, additional impacts, no impacts, and so on. And so I think, like I said, we were cautious. We're happy to see that the growth continued in Canada, that as we invest, we see customers coming. And so I think that's essentially where it is. Our expectation is that as we invest in kind of the back half of this year or this queue and into next year, we'll have lots of different opportunities to continue to grow that business. Anything on this there, Joe?

You know, maybe, Doug, just to emphasize, you know, every quarter is a bit different. We had a very strong Q2 in terms of new customer ads. Q3, you know, revenue was still up 25% year-on-year, and we saw, you know, significant growth on unit volume up over 40%. So within the Canadian business, Growth was as strong as ever, actually, I think, amongst one of the strongest quarters we've ever had on glasses, both quarter on quarter and year on year. So where we invested, we saw returns, and now we're excited to lean back into the U.S. market. Okay. So of the 99,000 new customers, what percentage of those were Canadian?

You know, it's not something we break up, but... So, yeah, we're not kind of at that level of detail at this point. Okay.

Go ahead, Doug. I was just going to say, just moving on to the Q4 guidance, 4% to 6%, the midpoint would actually be a decline in EBITDA margins sequentially.

Maybe just thoughts there. Sure, sure, Doug.

You know, I think, you know, just to emphasize, confidence has never been higher, you know, from us and our business. And we're balancing what we saw in Q3 was an opportunity to onboard more new customers than we anticipated. And so with a long-term view and incredible repeat rates, we took it. And so, you know, as opposed to kind of a quarter in, quarter out approach, look at the business. We've just said on a long-term basis, growing new customers by 37% year-to-date is going to vote very well for 2026, 2027, and beyond. And then combined with, as we talked earlier, just a really strong dose of conservatism, knowing so much of the quarter is still ahead of us with Black Friday, Cyber Monday, and the end-of-year peak. So Just know that we're just being conservative, but optimism is strong, particularly on our ability to add more new customers, which does come in at a slightly lower adjusted EBITDA impact driven by slightly higher marketing.

So just a final one for me then, just to continue on the profitability margins. We've talked in the past about targeting a double-digit EBITDA margin. What is your expectation now of the timing of that?

Yeah, it's like it's always been, Doug, slow and steady, consistent quarter-on-quarter, year-on-year progress. And as these high-margin pillars become larger parts of our business, as we continue to gain operating efficiency, as word of mouth continues to fuel our growth, that's where we see ourselves getting to. We're just steady as the business goes. We're still looking out kind of, you know, a couple of years. Like I said, we've grown 29% so far this year. We're optimistic that we'll maintain that level of growth going forward. 25 to 30% is our internal target for next year. And, you know, there's a little seasonality. So we obviously pulled forward a few orders in early Q1 last year. There's lots of one-year you know, people who were able to buy and take advantage of annual orders. And, you know, I think that's a good learning. But our sense is that, you know, those people will be back early in this coming year. And, you know, we've learned a lot from that. So we're looking forward to continuing that growth curve.

Okay, great. That's it for me, guys. Thank you. Your next question comes from the line of Matt Coranda from Roth Capital Partners.

Your line is now open.

Hey, guys. Good afternoon. It's Joseph on for Matt. Just want to see if you guys can answer. It's good to see the good, great contact sales here over a year. Anything to unpack there just in terms of the consumer? Are you guys seeing any different buyer habits, such as, like, short-end time windows instead of customers going for those, you know, year packs, going for, like, the 90-day or 30-day packs, anything on there to, like, a tribute to the strength you see in 3Q?

Hi, Joseph. Thanks for the question. You know, we're not seeing a lot of deviation from historical patterns. We track average order value that's continued to be strong and growing on contact lenses, and that was true, again, Q3 and year-to-date. We also track number of units per And again, no change there, strong and growing. In terms of where have we seen some shifts within this very big and productive contact lens business, we mentioned our own brand of kids' contact lenses, which has performed very well, well ahead of our expectations and continues to grow. So I guess that would be one. And then just what we've probably, you've heard us talk about in previous quarters is is really a continued migration to high LTV opportunities like daily modality contact lenses, and that continues to perform very well. So no real shift.

Yeah, I didn't mean to just kind of just jump.

Oh, go ahead.

Sorry.

No, go ahead, Roger.

Yeah, I mean, I think just to highlight Joe's point and our previous discussion around our kits branded contacts. You know, it's become an interesting little pillar, like we like to say, of 50% growth and greater than 50% growth and 50% margins. And it's, you know, it's one of these things that could really, in a business like ours, where the contact lens business itself continues to be, as you said, you know, it's loyal, it's recurring. It's a very healthy annuity stream. And if we can take those margins, and start to blend them with our own product at 50% gross margin or higher, it makes a compelling case for the future of that contact lens business. It also gives us a little bit of brand lock-in. The reports from our customers, when they switch out of one of the other products that's a legacy product into our own, is that it's a very, very comfortable lens. The initial wear reports are are excellent. And so people like the lens, they stay in the lens, they come back for the lens. We often see other people get into the contact lens business, not really understanding it, not really understanding how important the initial wear comfort can be. And, you know, if you haven't spent the right amount of time or otherwise, you know, you're not going to have those customers coming back. So it can be challenging. But, you know, fortunately, the team here did all the work up front and, you know, it's it's growing at an impressive rate. So for me, that's kind of the key or one of the key parts of the contact lens business. And there remain lots of other interesting opportunities as we think about colors and other value adds that KITS can do from its own platform.

Got it. It's impressive to see and great to hear. And then just kind of my last question here, as you guys talked about the border procedural shifts in terms of the systems and everything that goes around there, Is that all behind us now in 3Q, or should we expect that to continue in a 4Q? Just what are your thoughts there?

Yeah, Joseph, I mean, you know, great question. I think if anybody knows the answer to that, you know, it's sometimes, there have been a number of moving parts. I think that the most important thing is that, you know, the KITS team here does complex things and does complex things pretty much on a daily basis, including, you know, taking an order for something with as many possibilities as, you know, our last calculation was 192 million possible variants when we make a pair of glasses. We start making it for the customer that orders minutes after they order, finish that order 30 minutes later and get it in a box to them the next day or three to five days. So, you know, the border is generally the least of our worries. So, yeah, we're not anticipating any changes, but, you know, the world is a dynamic place today. And so when facing a dynamic place, you're excited to come to work with a great group of people like we work with at Kits that love solving complex problems, that love serving customers, that get up, fired up to make it happen every day. So, you know, that's the best way you can hope to address, you know, the unknowns. And that's kind of how I would think about it.

Got it, and I'll leave it there. Great quarter again, guys.

Yeah, thanks, Joseph.

Cheers. Your next question comes from the line of Frederick Tremblay from the Jordan Capital Markets. Your line is now open.

Thank you.

Good afternoon. Just maybe following up on that last question on the U.S., just curious to get your thoughts on what specifically made you more comfortable to start reinvesting more heavily in the U.S. following the Q3 pause. Is there anything logistically or internally that evolved to spark that change?

Hi, Fred. Thanks for the question. We, I think, you know, maybe a couple comments from our side. Every day, you know, we get, as I think as Roger said very well a few minutes ago, you know, this team just gets better every day, every week on execution, and we learn more and more. And so what you see from us and you'll continue to see from us is a cautious start. and then a relatively rapid scale up on everything that we do once we have confidence and once the data supports the decision. I think this is just another example of that for us. On one hand, we saw ample growth opportunities in the Canadian market, and we took it in the quarter from a new customer acquisition, from a glasses growth, from an overall market growth at 38%. And we wanted to also learn more, which we did. And so the team now has that confidence. With regards to tariffs in general, no change to our thinking here. Every quarter, every month, the situation evolves, but it evolves for the whole category. And our view continues to be that if we have a lightweight infrastructure, if we stay lean, if we keep the layers out between raw material to customer, that offers us the ability to move fast and increase the value delta that we have to the market and offer customers continuous great value.

Yeah, and I probably just say, last point on this is that over the last number of months, I'm kind of reminded of Elon Musk in that kitchen sink or that sink. It's like everything in the kitchen sink's been thrown at kind of Canadian, Canada and trade policy. And we've developed so many different contingency plans that at this point we're quite comfortable that we can handle including the kitchen sink coming flying at us. We're quite ready. So, you know, it's really just a comfort that so many things have happened. We've handled them. And then, you know, we've got a contingency plan in place with the group here to tackle just about any problem. So, yeah, we'll look forward to reporting on that progress at the end of Q4.

Yeah, great. That's great to hear. Maybe the last one for me, we noticed in October that you had introduced the Canadian Vision Credit for Canadian customers, both new and existing, which was a bit of a change from the usual per-spare-free approach. So I just wanted maybe to get your thoughts on that promotion and any learnings or interesting feedback from that.

Sure, Fred. Yeah, no, the toolkit continues to grow for the marketing team as as they continue to lead with the product and the product experience. That's really where we're excited is more customers coming in, trying more frames, and having more frames with kits on them out in the market. And you've seen all kinds of initiatives that focus on emphasizing the product, the product experience, including the value. And this was another one that was productive in October.

Yeah. And I mean, you know, I think you point out, you make a great point that, you know, in terms of awareness, a company at our size is always really looking to get above the noise and find ways to reach new customers in an authentic way and form a connection with them. And that's part of what I talked about up front is that we are trying to find out what resonates best for our customer. How can we create an emotional connection with them? We care about their vision. We want them to know it. And that's really what that campaign was designed around, is bringing to life a compelling offering for customers to give Kits a try. Who's Kits? 99% of Canadians don't even know who Kits is. There's a small cohort in Vancouver that do. And like I touched on, you know, we're north of $200 million business growing the way we are, you know, with word of mouth helping, but really only known well in Vancouver. So that's what that campaign was about, you know, trying to share with others that, you know, our mission is to help improve their vision and improve their their access to vision. And so, yeah, we tried to bring it to life there. And I'd say, like Joe said, you know, the team is probably still evaluating how productive it was and whether it did resonate completely. And, you know, please feel free to ask next queue and we'll have more feedback on it given that was a Q4 activity. Thank you.

Great. That's it for me. Thank you.

Your next question comes from the line of Gian Luca Cucci from Haywood Securities. Your line is now open.

Hey, afternoon, guys. Just one question here. Could you walk us through how you're thinking about your marketing spend into next year, just given all the moving parts out there and at the business? How should we be thinking about spend as a percentage of revenue next year, guys?

Hi, John Luke.

Good evening. Great to hear from you. Yeah, so just, you know, probably, as you expect, more of the same from us. Lead with a product-to-product experience. Maintain in the 13% to 15% range, you know, as we've done this year on a fiscal year basis. And continuing to see strong traction, 37% new customer growth this year. We see no fade in that opportunity as we go into 2026. But let me just see, Raj, anything to add?

No, I think that's it. Just consistent. That's one of the metrics we keep tightly controlled. Yeah, we'll stick to Joe's guidance there, about 13%, 15% in that range.

Okay, thanks, guys.

Yeah, perfect. Appreciate the question. Ciao.

There are no further questions at this time. I will now turn the call over to Mr. Roger Hardy for closing remarks.

Please go ahead.

As we close out another record quarter, I want to recognize the incredible team behind these results. Every milestone from passing 1 million active customers to delivering our 12th consecutive quarter profitability, these moments reflect the relentless focus and execution of our team. And while we're proud of what we've accomplished this quarter, what matters most is that we're setting up kits to perform, not just for the next few quarters, but for the years to come. We continue to build a business that's proving what's possible in technology, manufacturing, and customer experience all come together. That integration is what set kits apart. Thank you to all our shareholders and customers for your continued confidence and support. Your belief in kits allows us to keep investing in innovation and growth, allowing us to strive towards our mission of making eye care easy for everyone. Best chapters for kits are still ahead. Thanks, everyone, for joining us today. We look forward to reporting on future quarters very soon. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your