Kits Eyecare Ltd.

Good morning and welcome to the CAITS iCare 4th Quarter 2025 Financial Results 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 V.Q., Chief Financial Officer. Before we begin, I'm required to provide the following statement respecting forward-looking information, which is made on behalf of CAITS 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. Outro 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 drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in CAIT's followings with Canadian Provincial Security Regulators. During today's call, all features 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.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. At KITS, we're building a modern vision care platform, digital first, direct-to-consumer, and designed to serve the customer of today where they actually spend their time and live their lives. Our mission remains simple, make eye care easy for eyes everywhere. What differentiates us is how we execute, combining digital scale, premium product mix, embedded AI, and deep, thoughtfully designed physical spaces that foster community, connection, and deepen engagement. The model and our plan continue to deliver strong results. Combined with disciplined digital execution, this model continues to drive structural growth and improving profitability. And now, turning to our financial performance, In Q4, revenue increased 20% year-over-year to a record $53.9 million, and we delivered $2.8 million of adjusted EBITDA in Q4. In Q4 alone, we generated $6.4 million in operating cash flow. As I turn to the full year, revenue grew 27% to $202.5 million, and full-year adjusted EBITDA was $11.7 million marking our 13th consecutive quarter of positive adjusted EBITDA. We are growing at a premium rate while maintaining profitability and cash generation. Our Glasses business continues to lead growth and expand our profitability. In the quarter, Glasses revenue grew 32.7% year over year, and Glasses units increased 42%. Average order value rose 4%, and returning Glasses revenue grew 42.8%. Sales of digital progressives increased in units by 40% year-over-year, and sales of designer glasses increased 44% year-over-year. Gross margin on glasses increased to approximately 45% in Q4, as the higher value categories are expanding our margin profile and deepening customer engagement. This is a mix-driven, premium-led expansion. Turning to contact lenses, revenue grew 18% year-over-year in Q4 to $45.2 million. While new contacts revenue moderated sequentially, repeat contacts revenue climbed to $30.9 million, up 24% year-over-year. Across our entire business, approximately 66% of Q4 total revenue came from repeat customers, up from 62% in Q3. Average order value for contact lenses increased to $229. And our five-year lifetime value for customers is now at $422. Lifetime value for customers acquired in recent cohorts is accelerating faster than those acquired prior to 2020. This demonstrates the health of our recurring revenue base continues to strengthen due to skilled execution by our team and the unique data capture characteristics of our model. Turning to our kit's daily contacts revenue, it was a growing and profitable part of our business, and it increased 316% year over year in Q4. Average order value increased 10% sequentially, driven by growing adoption of larger pack sizes. Gross margin remained strong at 46.5% in this product. And repeat revenue continues to trend higher quarter over quarter. It's dailies is still early in its life cycle, but the trajectory is highly encouraging. This product deepens our vertical integration, enhances lifetime value capture, while offering customers a great product at exceptional pricing. And turning to our retail model, I'd like to spend a few minutes on the business. Our retail revenue grew 46% year-over-year. Optical revenue in-store grew 65%, and units per order increased significantly during Q4 promotions. Average order value grew 36%. Optometry now operates seven days per week in our clinic, and we launched a contact lens fitting room to bundle prescriptions with KIT's daily trials. targeting a 10% attach rate. Our Toronto flagship is planned for late spring, and we continue evaluating additional locations in key markets. We're not scaling retail for footprint density. We're scaling a model that increases engagement, attachment rates, and cross-category conversions. When I stop into a store at the beach in Vancouver's Kitsilano neighborhood on, say, a Wednesday morning, I'm greeted by a group of polar bear swimmers who do weekly polar bear swims in the ocean. Then come to Kits, sit and have a coffee and talk about challenges and opportunities they face in the world. On weekends, I meet countless guests, often lined up out the door, who have stopped in to see and be seen while evaluating the latest Kits eyewear styles with one of our eyewear fashion consultants. We're building something unique, not just retail storefronts, but genuine community, and it's exciting to see the momentum and talk about the results. For this reason, we plan to expand into additional markets with Toronto opening Spring 2026 and more openings to be announced shortly, all of which we envision doing much more than providing a distribution point, instead providing spaces to connect over coffee and conversations surrounded by beautiful glasses that help them see and be seen. We've found these beautiful spaces can also be very productive. In Q4, our Vancouver store, averaged 300 pairs of glasses sold per week, and delivered annualized revenue of approximately $1,200 per square foot. Turning to product, product design made another big step forward for us in Q4. In the quarter, our team introduced eight new collections, 48 net new silhouettes, and 148 distinctive color expressions, delivering premium contemporary eyewear for KITS customers at a very accessible price point. Product highlights included investing further in proven silhouettes, such as the Clyde Capsule, with optimized sizing and expressive transparencies in acetate, as well as expanding our offering with the New to the World Progressive Readers Collection and the Pangolin 3 AI Glasses Collection, which sold out quickly. We ended the quarter with over 530,000 frames in stock and more than 16,600 styles in our product portfolio. Maintaining the highest quality eyeglasses and constantly raising the bar each quarter has been our focus since the launch of our first collection. From the highest grade material to our German engineer hinges to the latest in lens puck technology, our team knows that a repeat customer is earned and maintained after they've tested kits frames every day. And the quality is as good on day 365 as it was on day one. Now turning to technology and AI integration, The optical category is now in the midst of its most important shift in 100 years. AI glasses are rapidly becoming the newest form factor in technology. Looking ahead, we believe eyewear is evolving beyond just vision correction into a connected AI-enabled interface. HITS has been at the forefront of this movement to AI and to AI glasses as a future driver of health and human performance. We now have 18 months of in-market experience with AI glasses and have sold out three generations of KITS pangolins. In 2026, we will launch Gen 4 pangolin, incorporating camera, video, voice, and powered by a KITS app with full AI integration. Over 75% of AI glasses ordered on KITS have been ordered with a prescription lens, and the average order value of AI glasses is over 3x our current glasses AOV. Yes, it's exciting. We believe that our strong start in AI and AI glasses has been dramatically aided in KIT's vertically integrated model. It's designed for where the market is going, not where it's been. Customers looking for AI glasses in every corner of North America can find the widest selection of AI frames on KITs. They can add a prescription lens with the click of a button and can receive them delivered right to their home in as little as a day. We can pass on the savings from our lack of reliance on thousands of brick and mortar locations and from our onshore automated lab to our customers. We see AI glasses as an emerging long-term trend and growth vector and a natural extension of our vertically integrated model where performance, innovation, and prescription expertise converge. In addition to AI glasses, in Q4, we brought our Optician AI technology directly into product pages and lens selection flows. Optician AI, still in beta, on our site is increasing frame discovery improving lens upgrade attachment, and is driving conversion. It's still early days for Optician AI, and we're excited to bring you more updates in the coming quarters. On our core business, in Q4, the technology team enhanced product discovery across both glasses and contact lenses, improved insurance UX in the U.S. and Canada, implemented an endless aisle of automation, enabling an additional selection of more than 3,500 frames, and introduced readers as a simplified new category. Our team has ensured that the latest technology is embedded throughout our funnel, not layered on top. Finally, as we grow at industry-leading levels, our operational discipline remains strong. Gross margin was 35% in Q4. Margins were affected by the timing of supplier rebates. However, excluding the timing difference, our underlying margin performance remained stable and supported by mixed expansion in glasses. Glass's gross margin continues to expand structurally. Fulfillment improved as a percent of revenue, and GA improved by 160 basis points year over year. Marketing increased to 16.3% of revenue in Q4, driving 88,500 new customers. As repeat revenue grows, we expect marketing efficiency to improve over time. We are balancing growth investment with operational discipline as we continue to take meaningful shares. As we look at the capital markets momentum, we're now in our fifth year as a public company on the Toronto Stock Exchange. In FY 2025, our stock appreciated over 120% and trading volume reached record levels in Q4. Liquidity improved meaningfully. And we now benefit from broad analyst coverage and strong external validation of our growth trajectory. For Q1, we've outlined that our 2026 targeting 58 to 60 million in total revenue 10.5 million of that to come from glasses, and 48 million of that to come from contact lenses, with gross margins of approximately 35%. This quarter, priorities remain clear. Accelerate our glasses and our AI glasses growth, strengthen our contact lens retention, expand prescription product offering with progressive readers, and further integrate optician AI across the funnel. In closing, KITS is executing on a powerful, simple strategy. With that, I'll turn things over to Joe.

Joe? Thanks, Roger. Since becoming a public company in January 2021, we focused on delivering balanced and consistent performance across our business and our financial statements. 2025 might have been our best year yet. Growth continued and the quality of the growth improved. We've gone from investing heavily to build the platform to a business that is now generating meaningful, and growing profitability along industry-leading top-line growth. This gives us the flexibility and the confidence to continue investing in the growth opportunities ahead. 2025 growth was broad-based and balanced across the business. Glasses revenue grew 36% year-over-year, driven by premium mix expansion and the continued scaling of our optical lab. Contact lens revenue grew 26%. powered by the recurring nature of our customer base and strong retention economics. Our Canadian business grew 38%, reflecting increasing brand awareness and the momentum of our Vancouver retail location. And importantly, working capital more than doubled, up 142% year-over-year to $15.3 million. We repaid our BDC term loan ahead of schedule, ended the year in a strong cash position, and today carry zero long-term debt. The balance sheet is in the strongest position it's been since we went public. This isn't a business that's trading off one metric for another. We're delivering growth, profitability, cash generation, and balance sheet strength simultaneously. And that's by design. The vertically integrated model we've built is designed to compound across all of these dimensions as we scale, which is a good segue to Z2 to review our financials. Z?