Earnings call transcript: Kits Eyecare Q4 2024 beats EPS expectations

Kits Eyecare Ltd reported its fourth-quarter 2024 earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $0.08, significantly higher than the forecasted $0.0146. The company also reported quarterly revenue of $44.8 million, exceeding the expected $43.64 million. Following the announcement, Kits Eyecare’s stock rose by 1.84%, closing at $8.86. According to InvestingPro data, the company maintains a "GOOD" overall financial health score of 2.55 out of 5, with particularly strong marks in growth potential.

Key Takeaways

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• Kits Eyecare’s Q4 EPS of $0.08 beat forecasts, reflecting strong financial performance.
• Revenue growth of 42% year-over-year was driven by product innovation and expansion.
• Stock rose by 1.84% post-earnings, reflecting investor confidence.
• The company shipped over 1 million glasses, marking a significant operational milestone.
• Continued expansion in product lines and insurance partnerships is anticipated.

Company Performance

Kits Eyecare delivered robust performance in Q4 2024, with a 42% increase in revenue compared to the same period last year. This growth was bolstered by the expansion of its eyewear lineup and the introduction of innovative products like smart glasses and new contact lenses. The company achieved a major milestone by shipping over 1 million glasses, highlighting its operational efficiency and market reach.

Financial Highlights

• Revenue: $44.8 million, up 42% year-over-year
• Full Year 2024 Revenue: $159.3 million, a 32% increase from 2023
• Adjusted EBITDA for Q4: $2.9 million, with a 6.5% margin
• Full Year 2024 Adjusted EBITDA: $6.4 million, up 182% from 2023
• Net Income: $2.7 million
• EPS: $0.09
• Cash Flow from Operations: $3.8 million
• Cash Balance: $19.3 million

Earnings vs. Forecast

Kits Eyecare reported an EPS of $0.08, significantly above the expected $0.0146, marking a notable earnings surprise. The company’s revenue also surpassed forecasts, coming in at $44.8 million against the anticipated $43.64 million. This positive deviation from expectations underscores Kits Eyecare’s effective growth strategies and market positioning.

Market Reaction

Following the earnings announcement, Kits Eyecare’s stock price increased by 1.84%, closing at $8.86. This rise reflects investor optimism driven by the company’s strong financial results and promising future outlook. The stock’s movement is notable as it approaches its 52-week high of $11.75, indicating a positive market sentiment.

Outlook & Guidance

Looking ahead, Kits Eyecare projects Q1 2025 revenue between $46 million and $48 million, with an adjusted EBITDA target of 4-6%. The company plans to continue its focus on customer acquisition and retention while expanding its insurance partnerships, particularly in the U.S. market. No significant increase in capital expenditures is anticipated, maintaining them at 1.9% of revenue.

Executive Commentary

CEO Roger Hardy emphasized the company’s mission to revolutionize access to high-quality eyewear, stating, "Vision care remains non-discretionary, so people need to see." COO Joseph Thompson highlighted the simplicity and affordability of Kits Eyecare’s offerings, noting, "We take an experience that has traditionally put all your shortcomings on display and it’s cost a lot of money and taken a lot of time and we’ve made it simple."

Risks and Challenges

According to InvestingPro analysis, investors should note that Kits Eyecare currently trades at relatively high EBIT and EBITDA valuation multiples, which could impact future stock performance. The company’s comprehensive Pro Research Report, available to subscribers, provides detailed risk analysis and valuation metrics across 1,400+ top stocks.

• Potential supply chain disruptions could impact product availability.
• Intensifying competition in the eyewear industry may pressure margins.
• Economic downturns could affect consumer spending on eyewear.
• Tariff changes might increase costs, impacting profitability.
• Dependence on insurance partnerships could pose risks if market conditions change.

Q&A

During the earnings call, analysts inquired about the company’s preparedness for tariff changes, its marketing strategies, and customer acquisition efforts. Management detailed their "Own This Town" campaign and strategies for enhancing customer retention and acquisition. Additionally, potential capital deployment options like debt reduction and stock buybacks were discussed, reflecting a strategic approach to financial management.

Full transcript - Kits Eyecare Ltd (KITS) Q4 2024:

Conference Call Operator: Good morning, and welcome to the Kids Eye Care Fourth Quarter twenty twenty four Earnings Results Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer and Co founder of Kids Eye Care Joseph Thompson, Chief Operating Officer and Zhi 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 the 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, 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 the kit’s 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. Thank you. Please go ahead.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Thanks, operator. Good morning, everyone, and thank you for joining us today. As we close out another phenomenal quarter and year at KITS, I want to take a moment to reflect on the journey we’ve been on together. Our vision from the very beginning has been to revolutionize the way people access high quality eyewear making it easier, faster and more affordable. Over the years, we’ve built a model that not only resonates with customers, but also continues to gain considerable momentum driving record breaking results quarter after quarter.

This past year, we pushed the bar higher than ever before, whether it was sharing numerous record breaking revenue weeks, launching new innovations and partnerships or expanding our offerings in both glasses and contact lenses. Every milestone we’ve achieved has been a direct result of our team’s relentless dedication, creativity and execution. I want to take a moment to extend my deepest gratitude to the entire KITS team. Your passion and commitment are what drives this company forward and our success is a reflection of your hard work. This strong foundation base combined with the team’s continued execution has resulted in reaching nine consecutive quarters of positive adjusted EBITDA.

Now turning to our financial performance. During our last earnings call, we set expectations for Q4 revenue to be between $43,000,000 and $45,000,000 with a target adjusted EBITDA margin of 3% to 5%. I’m pleased to share that we delivered $44,800,000 in revenue, representing 42% organic year over year growth. For the full year, revenue reached $159,300,000 up 32% from the prior year. We also exceeded our Q4 adjusted EBITDA goal achieving 6.5% or $2,900,000 with full year 2024 adjusted EBITDA reaching $6,400,000 an increase of 182% compared to 2023.

We closed the quarter with net income of $2,700,000 and earnings per share of 0.09 Additionally, we generated $3,800,000 in positive cash flow from operations and ended the year with approximately $19,300,000 in cash, providing us with significant financial flexibility as we move into 2025. Our momentum has been driven by several key factors including the growing awareness and strength of Kits brand, a commitment to continuous innovation and strong customer demand. In 2024, we significantly expanded our Kits branded eyewear lineup providing our customers access to over 7,500 eyewear style. Highlights through the year included introducing smart glasses and launching tailored collections like Kits Pixa and the Kits Classic Sport line, enhancing both style and functionality for our customers. These strategic moves resulted in over 60% year over year growth in our glasses segment.

We also saw continued strength in our contact lens business led by innovations like Kits Dailies and Kits Colored Dailies. Our auto ship subscription program played a key role in driving category leading repeat revenue and further cementing our relationships with customers. Customer loyalty remains one of our most powerful growth drivers with 63% of our Q4 revenue coming from our existing core customer base demonstrating the stickiness of our brand. At the same time, we welcome 79,000 new customers in the quarter contributing a record $16,600,000 in revenue, a $6,100,000 increase year over year. This reflects not only the strength of our value proposition, but also the trust our customers place and kits as their preferred eye care providers.

Beyond product innovation and customer growth, we’re also leveraging technology to enhance every aspect of our business. AI driven efficiencies are now embedded in our marketing, customer service and fulfillment operations, allowing us to better anticipate customer needs, streamline the purchase journey and improve satisfaction. Early results are highly encouraging. We’ve seen higher customer engagement, improved conversion rates and a noticeable boost in our Net Promoter Score, which remains our North Star for customer satisfaction. Looking ahead, we remain focused on executing against our long term vision.

For Q1 twenty twenty five, we expect our momentum to continue with revenue projections between $46,000,000 and $48,000,000 and an adjusted EBITDA margin of target between 46%. Once again, I want to thank our customers, our partners and most importantly, our incredible team of kits for another record setting year. We are more excited than ever about what to head for Kits. With that, I’d like to hand the call over to Joe, who will provide further details on our operations performance. Joe?

Joseph Thompson, Chief Operating Officer, KITS: Thanks, Roger. At Kits, we are building a culture of growth. With the guidance for Q1 that Roger just shared, we are on track for a tenth consecutive quarter of greater than 30% organic revenue growth on average. And alongside this revenue growth, we’ve added growth in other critical parts of our operations. We focused on building a strong working capital mindset and have grown at industry leading rates while generating $13,000,000 in cash flow from operations in 2024.

On top of this consistently improving platform, Kit saw a number of operational milestones in Q4. We passed the 1,000,000 mark in glasses shipped since inception in Q4, only a few years after the launch of our glasses business. And in a competitive Black Friday and Cyber Monday period, we celebrated a record breaking week with $4,300,000 in revenue order highlighted by a $1,000,000 day of revenue ordered on Black Friday. But having a growth culture doesn’t just mean delivering the year or the quarter, it means investing now for the growth to come in 2025, ’20 ’20 ’6 and beyond. In 2024, we planted a number of seeds that we believe will bear fruit for years to come.

For instance, in Q1, we expanded our Digital Progressives offering, extending our range of industry disrupted selection at the $28 to $38 price point, which includes a prescription lens. And we saw breakthrough in influencer marketing, which drove word-of-mouth led revenue growth while keeping marketing costs low. In Q2, our refreshed virtual try on tool saw another record with over 1,000,000 sessions. We launched our KITS daily contact lens full lineup and we announced our breakthrough API led partnership with TelesHealth. In Q3, we launched our smart glasses category, including the KITS pangolin smart glasses.

We expanded Kits contact lenses to color and we introduced a membership program for glasses called Kits Plus. And in Q4, we expanded our selection of designer frames and we launched a customizable line of frames with the Kits Pixel lineup featuring Kits Bits. We continue to be driven by the mission to make eye care easy and for us that means having a deep understanding of what it is that customers love about the Kits experience, making sure customers get that experience every time, ensuring that the experience will scale as we grow. At Kits, this means making it possible to find and buy a fabulous pair of prescription glasses or contact lenses in under five minutes. It means having access to almost any prescription lens and frame for under $50 And it means getting your order in one to two days and loving them on first sight.

There’s a magic here when we do this. We take an experience that has traditionally put all your shortcomings on display and it’s cost a lot of money and taken a lot of time and we’ve made it simple. With consistent execution at this level, we believe we will continue to earn the trust of customers for life. I’ll now turn the call over to our CFO, Zhi for further details on our fourth quarter financial results.

Zhi Chu, Chief Financial Officer, KITS: Thanks, Joe. We are very pleased with strong financial performance in the fourth quarter driven by operational efficiency across our business. In Q4 twenty twenty four, we continue to scale efficiently, while optimizing cost fulfilling 14% more orders compared to Q4 twenty twenty three, while reducing fulfillment cost from 12.6% to 10.6% of revenue. This operational improvement since again enhanced cash flow generation reinforcing our disciplined expense management and overall financial strength. Our fulfillment team executed well with fulfillment expense as a percentage of revenue declining to 11.1% for the full year 2024 compared to 12.6 in 2023.

By optimizing shipping logistics and order consolidation strategy, we leverage higher order volumes to drive greater operation efficiency. Our vertically integrated optical lab remains a key competitive advantage, ensuring high quality production, while mitigating broader industry supply chain disruption. Marketing expense as a percentage of revenue was 14.6% in Q4, driving a 41.6% year over year revenue growth, demonstrating strong returns on customer acquisition and engagement. Despite the traditional promotion nature of Q4 advertising campaigns, we effectively increased brand awareness and customer acquisition. New customers contributed approximately 37 of revenue, up from 33.5% in the prior year.

For the full year, marketing expense as a percentage of revenue declined to 13.7%, down from 14% in 2023. This reflects our disciplined approach to marketing spend optimization and our focus on executing targeted brand campaigns to drive awareness. In 2024, we served over 300,000 new customers, while continuing to strengthen our market position. G and A expense continued to decline as a percentage of revenue from 6.7% to 5.8 in Q4 twenty twenty four and from 6.7% to 6.5% for the full year. This demonstrate our ability to scale efficiently and leverage on our existing infrastructure while maintaining disciplined costs and resolve allocation.

This efficiency enabled us to support business growth while effectively managing operational costs. Our gross margin improved to 36.3% in Q4, up from 35% in the prior year period, driven by targeted discounting and promotion aimed at acquiring higher value new customer, while retaining repeat buyers. Despite intensifying competition and pricing pressure in the industry, we maintain a gross margin of 33.7% for the full year compared to 33.8% in 2023. Our ability to manage pricing, product mix and promotion enabled us to drive both new and repeat purchases, while preserving strong financial results. This quarter marks a nice consecutive quarter of positive adjusted EBITDA, which increased to $2,900,000 compared to $900,000 in prior year.

At 6.5% of revenue, adjusted EBITDA exceeded our outlook range, reflecting a two eighty basis point increase year over year, a testament to our focus on driving efficiency across the business. As we continue to scale, we are committed to making investments that aligns with our long term vision of sustainable growth and enhanced financial performance. We are committed to operational excellence, innovation and customer centric strategies. This positions us to drive long term shareholder value and strengthen our competitive advantage. I will now turn the call over for questions.

Conference Call Operator: Thank you. Your first question comes from the line of Najeeb Islam from Canaccord Genuity. Please go ahead.

Najeeb Islam, Analyst, Canaccord Genuity: Sure. I’m speaking in for Luke. So on the new pricing strategy, is the migration towards the higher priced tiers primarily coming from customers that were purchasing glasses at $28 a pair or from customers that would have purchased branded frames otherwise?

Joseph Thompson, Chief Operating Officer, KITS: Hey, good morning, Jeeb. Yes, thanks for the question. It’s a mix. So we did see a number of new customers come in, in the quarter. And what you see in the notes is revenue from new customers in Q4 in particular was up over 50% year on year to about $16,000,000 And that was led in part by a big AOV growth led by glasses, which was AOV growth on glasses was up over 75% in the quarter.

And so, what we did see was a lot of digital progressive new customers coming in. We saw a number of new customers coming in and taking lens upgrade. Both of those categories were up over 60% year on year. And we saw a number of repeat glasses customers that were coming in and we’re seeing lens upgrades with them and multiple purchases. So really a mix.

Najeeb Islam, Analyst, Canaccord Genuity: Sure. Got it. And I remember you touched on this a bit on the prior quarter. So has any of the sourcing channels changed now that tariffs are in place? And what’s kind of going on there?

Joseph Thompson, Chief Operating Officer, KITS: Sure. Yes. No, we’re it’s something we’re watching closely and evolving by the day and really by the hour. So, the work that our team has done is to identify for every source channel and component we buy, we’ve identified clear alternatives and we’re ready to execute those alternatives as necessary to ensure no disruptions to our customers or our business. In some cases, that means alternative sources.

In some cases, that means having products and suppliers in The U. S. But expect us to be on top of any change and our goal is to be well ahead of the market on this.

Najeeb Islam, Analyst, Canaccord Genuity: Got it. And then last question. So on the AI initiatives you’re rolling out, are there any financial targets you can share on how much costs are expected to take out of the business?

Joseph Thompson, Chief Operating Officer, KITS: Yes, we’ve and we touched in the prepared remarks on some of the initiatives that we’ve already seen. And it’ll be a blend of initiatives that drive leverage on our operating lines. We saw continued leverage in fulfillment and G and A. And we expect to blend that out with additional AI initiatives in 2025 and 2026 that improve ability for customers to find the product they’re looking for quickly, find the fit they’re looking for quickly. And we’ll see our anticipation and our view is that we’ll see AI continue to drive more upsell opportunities, more gross margin opportunities and to make it easier for customers to repeat as well.

So I think on this one too, it’ll be a blend of gross margin appreciation and repeat appreciation together with a little bit of leverage on the operating line. So let me just pause there and see and check with Roger and see if there’s anything else to add.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: No, I think it makes sense. We’re also thinking that we’ll see some improvements in the overall customer journey, customer experience. So, yes, I think that covers it. Thank you.

Najeeb Islam, Analyst, Canaccord Genuity: Thank you.

Conference Call Operator: Thank you. And your next question comes from the line of Kyle MacPhee from Cormark Securities. Please go ahead.

Kyle MacPhee, Analyst, Cormark Securities: Hi, everyone. I just first I want to get a little bit more details on the tariff question there. So Kits has pockets of the business that are not impacted at all and then pockets of the business that are impacted. Can you address the supply chain changes you plan on implementing to circumvent the tariff impact for that main impacted pocket, which is your contact lens sold in The U. S.

So what are you going to do? What kind of timing is it? And what would the budget for something like that be?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Hey Kyle, it’s Roger.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Kyle, we are not at this moment anticipating any impact from any of the tariffs that have been discussed up until now or implemented. We’re not seeing, as Joe said, we’ve got a number of different scenarios in place that will manage any tariffs that come on stream. We think that probably costs stay consistent and we’re not expecting any increased costs if tariffs come in line. So just want to make sure we’re clear on that. We’re not expecting any impact as of now.

If that changes, we’ll certainly update shareholders and investors.

Kyle MacPhee, Analyst, Cormark Securities: And once you already have a way to basically keep all the contact with lenses in The U. S. Before selling them to your U. S. Client or are they still kind of crossing the border

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: place? We’ve got enough scenario set up that we’re not anticipating any impact whether it’s in Canada or within The U. S. Thank you.

Kyle MacPhee, Analyst, Cormark Securities: Got it. Okay. Thank you. And then can you speak to how your marketing spend and marketing campaigns will may play out during 2025? In the past, you’ve talked about a lineup of city takeovers, city’s marketing blitzes.

What’s the timing for that type of tactic? And do you have an updated view on how this tactic might impact your marketing budget? We’re seeing nice EBITDA margin expansion. Do you think that reverses at all on account of this type of test?

Joseph Thompson, Chief Operating Officer, KITS: Hi, Kyle. Yes, it’s a campaign that we call Own This Town and you bet it’s still in our plans for 2025 and and we’re excited as we continue to roll out new markets with Own This Town to share that news and to share those results. To your question on marketing costs, we’ve been pretty stable on marketing costs. They didn’t go up moderately in Q4 and this is something we had anticipated as Q4. We were up about 40 basis points year on year in Q4 on marketing.

In Q4, marketing is typically a little bit higher with holiday premiums and particularly during the election year. We do anticipate marketing actually to moderate down in Q1 or Q2 in Q2 as a percentage of revenue. One of the benefits of Own This Town is that we can really consolidate our marketing on one market and really build that awareness and adoption and then rely on our retention engine, which has continues to deliver over 60% of revenue to bring those customers back again and again and turn those customers into lifetime customers. And a bit of an unfair advantage we have is that we start across North America with nearly a million contact lens customers. And so in any given city or market, we already have a base of kids customers buying contact lenses that we start from.

So, in that specific market, there might be an increase in marketing, but across the overall business, we don’t anticipate big increases. Thank you.

Kyle MacPhee, Analyst, Cormark Securities: Got it. Okay. And then one last follow-up. In these regions where you have more penetration, more customer density, are you noticing a materially lower customer acquisition cost maybe because when you have that density something like word-of-mouth really starts to take over in this type of category? Like is there a big spread of customer acquisition cost where you have density versus where you don’t?

Maybe a preview of where this metric goes overall for kits going forward?

Joseph Thompson, Chief Operating Officer, KITS: Yes, you bet. That is and that’s one of the drivers to the On This Town campaign. And as the movement starts and if you see one or two other folks wearing kids’ glasses and they’re talking about the experience, you’re more likely to give kids a chance for the first time. And so, really building that awareness, building that movement, building that density market to market, we have we’re very happy with our glasses business and you heard about the results this morning, up 60% in the quarter and continuing to grow. But really, we only have density in one or two markets right now.

And so as we think about expanding that density and as you said that movement and that efficiency from an acquisition cost across 10 to 20 markets in North America in the coming years, I mean, we’re really excited about that.

Kyle MacPhee, Analyst, Cormark Securities: Okay. Thanks for the answers. That’s it for me.

Conference Call Operator: Thank you. And your next question comes from the line of Martin Landry from Stifel. Please go ahead.

Martin Landry, Analyst, Stifel: Hi, good morning guys and congrats on an impressive year. My first question is on the consumer confidence in Canada. Seems it’s not that strong given the macro environment. And I’m wondering if you’re seeing any changes in your KPIs and any change in churn or in acquisition costs and add ons and upgrades? Just what’s your view of the customer landscape right now?

And is there any impact to your business?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: I think Martijn, thanks for your comments. I think phenomenal fourth quarter, strong end to the year. Just great work by the team in terms of acquiring record numbers of new customers and maintaining record numbers of return customers. To tight control on OpEx, a little uptick in marketing, which you and I talked about somewhat related to more election noise, I would say in the market. And then as it relates to consumer confidence, I think we’re seeing customers trading into value and into innovation.

We’re certainly not sacrificing on quality and anything we do. So customers are choosing us for quality. They’re choosing kits the name for value and I think it’s resonating. So no, I don’t think we’re seeing anything that would lead us to believe that overall the category is resilient, it’s probably worth saying. Vision care remains non discretionary, so people need to see.

As again, you and I have talked about in the past, people wake up and when they need contact lenses, typically a few days later than they would have liked to have had them and time is of the essence. So we’re not seeing any change in that consumer behavior certainly as the year ended and as the quarter finished up so well.

Martin Landry, Analyst, Stifel: Okay. And then how do you see 2025 evolve? Do you have any large investments planned, any costly marketing campaign that could impair your profitability? Or like could we expect your guidance for Q1 in terms of EBITDA margin of 4% to 6%, is that repeatable for the remainder of the year? Any color would be great.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes. I mean, and I guess a good call out, we’ve given guidance for Q1, which again is very steady growth over last year, between $46,000,000 and $48,000,000 with 4% to 6% EBITDA. So those numbers are good solid progress. Historically, we were looking at 3% to 5% EBITDA while growing aggressively. We’re now comfortable moving that up to between 46% for Q1.

Presumably, we don’t anticipate going backwards. Like I said, record number of returning customers continues to fuel high average order values, growing gross margins, growing EBITDA margins. So over time, our expectations are that we keep acquiring new customers in record numbers. We keep returning customers at record numbers and that’ll flow through to EBITDA. So no other catalyst that I see.

I’ll turn it over to Joe in case he’s got something to add there. Joe, anything else you want to hit on?

Joseph Thompson, Chief Operating Officer, KITS: Yes. Good morning, Martijn. I think just in terms of your question on CapEx for 2025, we aren’t forecasting a change in CapEx as a percentage of revenue. In 2024, it was about 1.9%. So no increase in 2025.

The CapEx has largely been deployed and we’re excited to grow into that. And I think as Roger said, we’re delighted to show steady progress year on year each quarter on EBITDA. Each quarter is a little different. And so in Q4, we were 6.5%, up three eighty basis points. And in Q1, on track for this again with our 4.6% adjusted EBITDA guide this morning, which is up from 1.8% in Q1 twenty twenty four.

We’ll just continue on and towards the next threshold and then the threshold after that.

Martin Landry, Analyst, Stifel: Okay. And then maybe just last question. Your cash is accumulating. Your debt is going down. You’re going to be in a net cash position pretty soon.

What’s the plan with your balance sheet? Like what are the priorities in terms of capital deployment? Would it be M and A? Would it be dividend? And because you did speak about M and A last year and that seems to that narrative seems to have paused a little bit.

So just trying to understand a little bit what’s the plan with the capital. It’s a good problem to have, but I’d like to just know a little bit what are your priorities.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes. I think, Martijn, you make a good point. Capital is starting to accumulate. We’re going to be productive with it. We’ve looked at a number of different possible transactions in terms of M and A.

We’re not seeing anything that really gets us that excited in this moment and certainly not at the pricing that’s out there. I think the key for us is for us to do anything in M and A, it needs to be accretive. And it’s as you probably well know, very difficult to find other businesses growing in the high 30s and 40% range with growing gross profits and growing EBITDA the way we have. And so almost anything that we look at would become a drag on our business. So we really have to we spend a lot of time thinking about synergies, where would there be synergies, what would help us grow and really be accretive to the overall exercise.

So in that vein, as we think about capital, the best use of capital in our mind would be our own stock. You saw us buyback a little bit of stock last Q in the NCIB. Maybe look for us to continue that. But Phase one is like you said, it’s just pay down the rest of the debt. It’s almost gone now.

We’ve got it’s minimal amount of debt under $5,000,000 now. And so we’re pretty comfortable to keep paying off the debt and then we’ll find a productive use of that capital. We’re hopefully that gives you a sense.

Martin Landry, Analyst, Stifel: Yes, that’s fine. Thank you and best of luck.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Thanks, Martijn.

Conference Call Operator: Thank you. And your next question comes from the line of Matt Koranda from Roth Capital. Please go ahead.

Matt Koranda, Analyst, Roth Capital: Hey, guys. Good morning. We just wanted to see if you could speak a little bit more to the first quarter growth guidance. Anything you can call out in terms of trends on AOVs versus unit growth, glasses versus contacts, new versus existing customers that’s built into the first quarter guide, that’d be great.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Hey, Matt. Yes, we’re not going to break I think we’ve given good kind of guidance for Q1 and there’s obviously a number of moving parts inside that. We’re not going to break them all out, but I’d say look for consistent growth in the contact lens business, growth in the glasses business and growth in segments and including that return customers. Like I said, we’re continuing to see return record numbers of customers. So I think we’re just seeing consistent growth across channels and segments.

We’re being selective in acquiring the most valuable customers, the highest valuable customers. Those segments that we think return fastest with the best margins. And I I think the last piece is, there’s a lot of innovation fires, innovation fires burning and any one of them could be a catalyst for increased growth. So yes, I think that’s kind of how we’re thinking about it, but I’m not going to get into breaking out just everything for Q1 at this moment.

Matt Koranda, Analyst, Roth Capital: Yes, fair enough. I did notice, I guess glasses, it looks like unit volume may have picked up in the fourth quarter. So just curious if you can maybe speak to sort of the unit volume in glasses and the improvement there in the fourth quarter and sort of what we’re seeing in terms of trends?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes, sure. I would expect that to continue in Q1 on the unit volume side. We think we have a good engine for acquiring net new customers in terms of lots of influencers, lots of word-of-mouth being generated organically. We’re seeing that uptick. And so that’s steady growth in terms of net new glasses customers, we think will continue.

And, both continue to be strong.

Matt Koranda, Analyst, Roth Capital: Okay. And then maybe just on the gross margins, really good flow through in the fourth quarter. And obviously there’s a mix benefit from some incremental glasses growth in the fourth quarter, but maybe any other levers that you guys have at your disposal for the gross margin improvement line? Maybe just wanted to see if you guys could call out if there’s any scale benefit here in the near term as you sort of get that top line moving?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes, I mean, I think you’re right. There’s really solid flow through from the OpEx, from fulfillment and G and A costs just continuing to come down as we keep scaling up the business. So the business is getting more and more efficient. And it does I think we have a sense that we’ve and that’s why you see the guide to 4% to 6% EBITDA. We don’t think and Joe touched on no CapEx, no additional meaningful expenses.

So the operation is getting more efficient. In fact, we’re just seeing opportunities to continue to scale efficiency. So that’s why we’re comfortable with that 4% to 6% in terms of EBITDA. And yes, I think from a volume standpoint as volume goes up, we’re seeing improved efficiency leverage in both fulfillment and G and A. So I think those are kind of the keys.

And then as always, to the extent we’re doing a great job serving customers, we’ll see that marketing line get more efficient. And that’s probably where the largest multiplier is, Matt, is that as Joe has talked about, we have sort of brand awareness in one or two cities now. And as we see that starting to amp up, the word-of-mouth makes marketing more efficient in those markets. And I think we will start to get more and more efficiency from those marketing dollars. They’ve been remarkably efficient so far, call out to the marketing team, growth in the queue at even in an election quarter of 40 plus 14% marketing, while improving margins, it was solid.

But yes, so all that to say, lots of shots on that and we’re looking forward to executing for Q1 here.

Matt Koranda, Analyst, Roth Capital: Okay, great. Maybe just we touched on marketing for my last one. Curious if you guys could give any color as to how the Own This Town strategy rolls out throughout the year or anything you can give around sort of number of MSAs you might be targeting, how that kind of builds into later this year? I know Joe already mentioned sort of expecting a little bit better efficiency on marketing in the first half of the year, But how does that play into the On This Town strategy for the rest of the year?

Joseph Thompson, Chief Operating Officer, KITS: Yes, Matt, we’re excited to bring the next iteration of On This Town to market. Too soon to share too much on this call, but stay tuned. And we just continue to be excited about going market to market based on data, based on where customers are, not tethered to a legacy brick and mortar network and being forced to drive advertising around those stores. So, we’re very excited about it and really, I would say, stay tuned. And the comment on marketing, I think, could not say it any better than the way Roger just put it.

The team to deliver a 50% increase on new customer revenue in Q4 with limited marketing dollars, a slight uptick, but nothing really significant is an incredible accomplishment. And so and that’s in Q4 where costs are elevated historically and during an election year. And so based on some of those headwinds not being as much of a factor, we do expect the marketing costs to moderate down and word-of-mouth and influencers continue to make the business more efficient. So that’s what I’d share.

Matt Koranda, Analyst, Roth Capital: Okay. Awesome. Thanks guys.

Conference Call Operator: Thank you. And your next question comes from the line of Kean Luka from Keyword Securities. Please go ahead.

Kean Luka, Analyst, Keyword Securities: Hey, good morning guys. Congrats on a solid quarter and great outlook. Maybe I’ll just continue on the margin front. Margin growth is accelerating very nicely. It seems like you’re able to do more with less on the whole.

I’m just wondering

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: like if there

Kean Luka, Analyst, Keyword Securities: are any optimization measures you’re enacting on marketing and if you expect this increased level of ROI to hold or even expand on that this year, Joe and Roger?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes. Maybe I’ll start off and then pass

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: it to Joe. Just from

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: a high level, Gianluca, one of the things that’s interesting as we look at if we look at kind of our web store as a same store sales being up 40 plus percent in Q4, And then we look at our physical store presence was up more than 60% in Q4. So we don’t spend a lot of time breaking out the physical store, but as Joe is talking about kind of the own this town and we look at others in optical and I don’t think they’re seeing this type of it’s just not resonating for them the way ours is. We’ve got a lineup out the door on the weekends. We’re transacting in a day what most retail optical stores do in a week, and that’s in one day. And so just kind of as we think about the Own This Town strategy, there are some benefits to having that physical presence that we’re starting to see, whether that’s in a pop up format or in some other format.

I think the analysis is still being done. But just wanted to give you that color in terms of marketing resonance. It’s not necessarily about the efficiency of the spend. It’s more about acquiring the right customer and then letting them tell the story for us. And that’s what’s really driving that type of traction.

Joe, you got any more comments to add?

Joseph Thompson, Chief Operating Officer, KITS: We just continue in Q1. The confidence we have in Q1 just has continued and the lift the team is seeing from influencers continues to come through. We talk a lot about new customers and the results were really impressive in Q4. The team did an unbelievable job bringing great high value customers into the Kits franchise. But in addition to that, we’re very focused on retention.

This business works in a spectacular way and this category works in a spectacular way when customers come back because once you need vision correction, you need it for decades. And so our team as focused as we are on and as happy as we are on those new customers and that new customer growth, we’re equally focused on that second purchase and the third purchase and the LTV that we continue to see. So just I would say, it’s sometimes overlooked Gianluca, and it’s easier to focus on the new customer and we’re very happy with that. But I think our retention team and just a reflection of what the work that the fulfillment team has done to get those orders to customers in a day or two and to have them be perfect is that’s what’s driving our business as well.

Kean Luka, Analyst, Keyword Securities: Yes, it’s really a phenomenal growth and far exceeds any of the e commerce players and even optical guys that I track. So keep up the great work. And then just secondly, as it pertains to the TELUS Health partnership, Joe Roger, can you give any context or any color on how that rollout has evolved through 2024 up until this point? And it’s just starting to generate meaningful revenues for you guys at this point or is it still kind of early?

Joseph Thompson, Chief Operating Officer, KITS: Yes. Strong and steady growth on insurance, a driver of AOV growth, a driver of retention and a driver of marketing efficiency. So, we continue to be delighted with our insurance customers. And in the recent period, up over 200%. And so, we’re continuing to build that out.

But also, our insurance partnerships have been, for the most part, in focus on Canada. And so expect more news on throughout 2025 on expanding this success into The U. S. Market.

Kean Luka, Analyst, Keyword Securities: That’s amazing. Thank you, guys, and keep up the good work. Congrats.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Thanks, Gianluca.

Conference Call Operator: Thank you. And your next question comes from the line of Devin Schilling from Vinton Financial Corp. Please go ahead.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS0: Hello, good morning. Maybe if you guys can just provide an update on the kit’s branded contact lenses. How has the uptake been thus far? And are you guys looking to expand this category further?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes. Thanks. It was a great quarter for the Kits contact lens brand. Good success in the dailies, good success in the colors. We’ve even brought on some dedicated teammate to manage that business who’s had good success out of the gate.

So we’re excited there. Joe, do you want to add anything more specific?

Joseph Thompson, Chief Operating Officer, KITS: Sure. Yes. And good morning, Devin. Great to hear from you. Like all of our all the seeds that we plant, we set a milestone and then work to hit that milestone and then move to the next one.

So we set the initial milestone for kits to be greater than 5% of the category have surpassed that, now on to the next milestone of 10% and then onwards from there. So focused on all the things you’d expect us to be focused on, offering great value to customers, making sure that our retention is at or above the rest of the category and continuing to innovate on new products. And so, yes, delighted with that. Still a small part of our business, but one of the seeds that we mentioned in the prepared remarks that we expect to be a driver of both growth, revenue growth and margin moving forward.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Yes. And probably just to just to hammer home Joe’s point, it’s a next generation silicon hydrogel lens, which is the newest technology, great oxygen transmissibility. So very healthy on a customer’s eyes and very nice high water content. So it gives customers that initial wear comfort that they look for when they try on a contact lens. So it’s a lens that’s resonating with customers, especially when it’s put head to head with a legacy product, more comfortable, more healthier on people’s eyes.

And then it’s a daily product. So ultimately the average order value goes up and it’s margin accretive for us on the first order. So it’s been a nice addition to the toolkit. Thank you.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS0: Yes, sir. Did you break out what percentage of the context revenue is coming from the kits branded or is that not disclosed yet?

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: No, we haven’t disclosed it yet. It’s not yet over 10%. We’ll put it that way. So it’s a complementary, but it’s not yet over 10%. Somewhere around 10%, we will break it out.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS0: Okay. Yes. No, that’s helpful. Just one last question for me. On the glasses side, you guys mentioned from going from a single tier $28 model to a more diversified pricing structure.

Is this referring just to land upgrades or are there other premium features being added?

Joseph Thompson, Chief Operating Officer, KITS: Yes, Devin, we’ll expect us just to continue to bring new products to market. And we have a great selection base of $28 products available to customers that includes a prescription lens, roughly 90% less than what we see on average in the market of on average $350 for a pair of prescription glasses. We also have innovated into a $38 price point and in some cases a $48 price point. And so, still offering and some of those would be like the titanium rimless line of glasses, which has been very successful for us and compares to a $600 or $700 pair that you could find in retail. So expect us to continue to expand selection and going very wide on selection, but shallow on our inventory buy as a style or frame gets traction.

And then continuing to innovate and offer customers in and around 90% savings versus what they could see in brick and mortar. And then you’re right on top of that, we are seeing lots of lens upgrades. Lens upgrades as a category were up over 60% year on year in Q4. And there’s a number of drivers of that. Some customers are choosing thinner lens, some blue blocking continues to be a big driver, blue light glasses and digital progressives, of course, is a growing force in our lineup.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS0: Perfect. That’s all for me and congrats on a fantastic year.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Thank you.

Conference Call Operator: Thank you. There are no further questions at this time. I would now hand the call back to Mr. Roger Hardy for any closing remarks.

Roger Hardy, Chief Executive Officer and Co-Founder, KITS: Thank you, operator, and thanks to everyone for joining us today. We’re grateful for the ongoing support from all our stakeholders as we work to make Kits the leader in the eye care industry. I’m confident that our strategy combined with the exceptional talent across our team positions us well to continue our strong growth momentum. The foundation we’ve built gives us a unique platform to drive innovation, expand our reach and deliver meaningful value to our customers and shareholders. Twenty twenty five is already shaping up to be another milestone year and we remain focused on executing our profitable growth initiatives as we continue to create long term value.

Thank you all for being with us today and have a great day.

Conference Call Operator: Thank you. And this concludes today’s call. Thank you for participating. You may all disconnect.

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