Kits Eyecare Ltd.

Thanks, operator, and good morning, everyone. It's great to be back with you to share the strong start we've had in 2025.

Q1 was a milestone quarter for Kits, demonstrating the strength of our model and the compounding effect of the work we've been building towards over the past several quarters. As we begin 2025, I'd like to take a moment to reflect on just how far we've come.

We started Kits in November of 2018 with a simple idea to make eye care easy. Today, four years post our IPO, we've grown revenue by 128% and gross profit by almost 250% since our first quarter.

Those numbers are a credit to the steady, disciplined execution of the Kits team and the team has been building with a mindset of building something enduring, not just for the next quarter, but for the next decades. Our Kits story is unique one in the landscape of high-growth businesses.

It's not something we take for granted and certainly not something that is lost on us. We are acquiring efficiently, driving repeat purchases, expanding into higher-margin categories and converting customers into lifetime Kits users.

We still have exciting opportunities ahead of us. But when we look back over several years, we can see just how powerful, consistent effort can be.

And that's exactly what we plan to keep doing. It's been an incredible journey so far, and this would not be possible without our Kits team that continues to execute with relentless focus across every level of the organization.

During our last earnings call, we set our Q1 revenue expectations of $46 million to $48 million, with a targeted adjusted EBITDA margin of 4% to 6%. We're proud to report that we've delivered record revenue of $46.6 million, up 34% year-over-year.

All four key segments of our business grew in excess of 30% this quarter, with glasses revenues growing 46%, contact lens revenues growing 32%, while Canada grew 35% and the U.S.A. grew 33%.

This is our 10th consecutive quarter of positive adjusted EBITDA, exceeding our guidance to reach $3.5 million or 7.4% of revenue, our highest margin to date. During Q1, we saw significant improvement on margins.

Gross profit grew over 53% year-over-year, reaching $17.1 million, with gross margin expanding 460 basis points to 36.7% up from 32.1% in Q1 last year. We achieved this while absorbing record new customer growth, which typically carries a lower AOV.

Over time, it's our belief that as we continue to do unique high-value hard things for customers like progressive lenses, branded Kits contacts and branded optical lenses, our margins will continue to expand. This won't be overnight, but there can be no question that the trend is clear.

Our Kits offerings are resonating with customers, driving higher order values, higher repeat purchases and higher margins over time. Performance was driven by balanced strength across both new and returning customers.

We welcomed over 95,000 new customers, a record for Kits and a 28% increase year-over-year. At the same time, our loyal core customers continue to drive meaningful results with 62% of total revenue coming from returning customers.

Our Kits Autoship program alone contributed almost $6 million in revenue, up 11% year-over-year. That's nearly $24 million in annualized annuity revenue.

This is a critical and growing engine of predictable high-margin revenue from our contact lens segment. Additionally, we saw strong early traction in our KITS+ loyalty program, which we introduced to further deepen customer engagement for glasses' customers.

Though still in its early stages, the signals are clear. KITS+ members are reordering faster and at higher AOVs.

These are among our most valuable customers, and we continue to build new ways to serve and retain them. Lens upgrades were another major highlight this quarter, reinforcing both customer demand for tailored solutions and our ability to deliver margin-accretive products at scale.

Revenue from premium upgrades grew nearly 60% year-over-year where margins remained healthy, highlighting the growing preference among customers for higher-end, value-added features that enhance both vision and style. For the first quarter, we surpassed 100,000 glasses units delivering 104,000 pairs of glasses in the quarter, a 39% increase over Q1 2024.

We are seeing consistent behavior across cohorts where initial lower values convert into premium repeat purchases over time. To support this demand, we've expanded our frame assortment to over 6,700 styles leveraging designer partnerships and a just-in-time model that allows us to scale efficiently without increasing inventory risk.

Our combination of selection, quality and vertical integration is unmatched in the market today. Looking ahead to Q2, we expect continued momentum with revenue projections in the range of $48 million to $50 million and an adjusted positive EBITDA margin between 3% and 5%.

Thank you again for your continued support. With that, I'd like to hand the call to Joe, who will provide further details on our operational performance.

Joe?

Thanks, Roger. Powering this revenue growth over the past 10 quarters are a collection of initiatives throughout the Kits platform, many of which have matured into meaningful stand-alone growth businesses.

Each one plays a critical role in supporting both our topline trajectory and growing margin profile and a few are even passing the 50-50 number, 50% year-on-year growth and over 50% gross margin. I'll share a few examples today.

On our core franchise of Kits frames and Kits contact lenses, we expanded our selection further in Q1, contributing to revenue growth and an expansion in gross margin dollars. Kits Daily contact lenses, in particular, continues to grow quarter-over-quarter with very strong gross margin percentage.

The momentum and economics to date point to a highly profitable long-term opportunity here. Expect continued innovation and expansion from both of these branded franchise in the quarters and years ahead.

Next, our premium lens category, which includes digital progressives, blue light, high index thin lenses and others continues to expand, now accounting for approximately 40% of total glasses revenue. While being gross margin accretive, this category also delivers significant savings to customers.

Lastly, our insurance integrations continue to expand with the addition of our U.S. insurance integration as well as the addition of the Medavie Blue Cross partnership in Canada during Q2.

These channels have proven to be highly recurring, generating a steady drip of growth each quarter with impressive economics. The choices to build these profitable, growing franchises within the Kits platform are not arbitrary.

Our vertically integrated digital platform allows us to leverage over 10 million unique data points each day to guide us on where we can add the most value to customers and identify and scale the categories that matter most. As we convert more new Kits customers into loyal repeat customers across these verticals while doing so at industry-leading retention rates, we are encouraged to continue to invest in our growth engines while simultaneously driving greater operational efficiency.

And that is a great segue to Zhe, our CFO, to share details on our Q1 financial performance. Zhe?

Thanks, Joe. Q1 had a strong start to the year, driven by sustained customer demand, disciplined execution and continued gains in operational leverage.

In Q1 2025, we continued to scale efficiently while optimizing costs. Fulfillment expense as a percentage of revenue improved to 10.9%, down from 11.9% in the same period last year.

This reflects increased efficiency, particularly in labor as total orders delivered grew by yearly 20% to 244,000. Marketing expense represents 13.5% of revenue compared to 13% in Q1 last year.

This modest increase reflects our continued investment in acquiring new customers with volume record of 95,000 new customers who contributed over 38% of revenue. Our average order value rose to $191, a 12% increase from the prior year and repeat customers contribute approximately 62% of total revenue.

As brand awareness grows and our customer base becomes increasingly loyal, we're expecting continued efficiencies in our marketing efforts. General and administrative expenses improved year-over-year, decreasing from 6.9% to 6.3% of revenue.

This improvement reflects disciplined cost management and efficient resource allocation, allowing us to leverage scale and support our growth objectives while maintaining strong operational control. Gross margin improved to 36.7%, up from 32.1% in the prior year period.

This was driven by a more balanced product mix and target promotions aimed at sustaining both new customer acquisition and repeat purchases. This quarter marked 10th consecutive quarter of positive adjusted EBITDA which increased to $3.5 million, up from $0.6 million the prior year.

At 7.4% of revenue, adjusted EBITDA is within our revised guidance and reflects a 560 basis point year-over-year improvement, demonstrating our ongoing focus on driving efficiency across the business. Our growth strategy continues to be supported by deliberate investments that aligns our long-term vision.

With a strong foundation in operational discipline and a clear focus on customer experience, we are confident in our ability to drive further growth and deliver lasting value to our shareholders. I'll now turn the call over to questions.

Hi, good morning everybody, and congratulations on a wonderful quarter. First question, so the contact continues to grow at an exceptionally strong rate.

Could you just talk about what do you think the key drivers are there? And Joe, I know you touched on the branded daily contacts.

Can you just put a bit more color upon that?

Yes. Great.

Hey, good morning, Doug. It's Roger here.

Doug, our aspiration at Kits has always been to make eye care easy for customers everywhere. And I guess our belief continues to be that there is a secular change continuing.

Kits sees that the category has been resilient in terms of eye care, people need to see in good times and bad. And so that contact lens business continues to be something that customers are looking for value, they're looking for savings, they're looking for convenience.

And I think Kits is delivering all of them. Joe, anything you want to add there?

Thanks, Roger and good morning, Doug. Yes and the key drivers just continue to be more of the same in Q1.

So our return customers, this contact lens market is almost a software like in its annuity stream. Customers just continue to come back if you take great care of them, and we saw that again in the quarter, over 60% of our overall revenue came from repeat customers.

And then we're happy with our Kits Daily contact lens business as well. I think one of the things that we talked a little bit about on the call is, this is a great business that's growing rapidly, offering great value to customers and a very good margin to Kits and part of our newly minted 50-50 club, about 50% growth year-on-year and about 50% gross margin.

Okay. Just a follow-up question.

Just on the Q2 EBITDA guidance of 3% to 5%. To get there from the Q1 results, it would seem to me that you got to be pushing harder on the marketing lever.

So if that goes to 15% of sales from 13.5% this quarter, what do you expect the payback to be in terms of new customers and the value of that customer?

Sure, Doug. And in Q2, we are accelerating new customer growth to Kits.

And maybe a little background and then we'll talk about return on investment. In Q1, we saw some favorable trends.

You see them in the numbers, new customer growth up 28% to $95,000. CAC was actually flat year-on-year and down quarter-on-quarter by about 18% to 20%.

And gross margin percentage of gross margin dollars are growing, led by repeat customers. And so in general, what we see – what we believe we're seeing – continue to see is the trend of customers more open than ever before to switching to Kits in this environment.

And so given our strong history of converting new customers to repeat and the profitability of these repeat customers, we see Q2 as an opportunity to invest in new customer growth at an even higher rate than we saw in Q1. So to your question in terms of flow-through to EBITDA for these new customers, we see a slight increase as a percentage of revenue in marketing and fulfillment.

And typically, for some customers coming at a slightly lower gross margin percentage, but absolutely no change whatsoever in our view to build to a 15% to 20% EBITDA over the next 5 years. In fact, we were encouraged that Q1 is just an example of what we are capable of in flexing up EBITDA while still growing 34%.

We have full confidence that we control the dials and that the return on investment that we see from new customers comes back in spades on the return. Let me just see if there's anything I missed from the team.

Okay. And Roger, one final one for me.

It seems to me everything is coming full circle again. Q2, if you hit the $50 million, you're closing in a $200 million revenue run rate, that seems basically the same point where Coastal got acquired by Essilor and according to recent press releases, EssilorLuxottica is back on the M&A train.

Just thought it was ironic or full-circle. Maybe just a comment, and I'll leave it there.

Thanks.

Yes. Sure, Doug.

I mean at Kits, our aspiration is to become the largest eye care provider in North America, helping people, making it easy for people to see everywhere. So it's no time to hold back.

We're leaning into growth in Q2 with a lot of confidence. As Joe mentioned, we're seeing a lot of upticks in many of the things we've been working on, initiatives.

And so job one for us is just to deliver for customers, make eye care easy for them. and we'll continue to deliver value for shareholders.

So we have our heads down working hard to serve customers. And for us, it's really – it's very early in the going here.

We're seeing so many positive inside what I called in the past, the shots on goal. Joe has now coined the 50-50 term, which is – I think it's an upgrade on the shots on goal, so we'll go with that one.

But our progressive business growing more than 50%, delivering more than 50% gross margins and delivering incredible value for customers. Our Kits branded lenses, same story.

And we've got another couple of good ones that are doing the same thing. So as all those continue to grow and accelerate, we couldn't be more excited about coming to work every day.

So we don't spend any time thinking about anything but delivering for customers, Doug. Sorry if that disappoints you.

Thanks guys. Thank you.

Thanks.

Yes, thanks. Good morning everyone, Congratulations on the results in Q1.

I wanted to ask about marketing and then specifically the success of your Own This Town initiative thus far. I mean, how has it progressed to date relative to expectations?

And maybe secondly, how have, if at all, have you adjusted the strategy over time in order to make sure that you're in dialing in and optimizing that spend? Thanks.

Hey, Luke. Yes, I'll start quickly and then turn it over to Joe.

But really, you're seeing us achieve growth across all segments in glasses and in contact lenses. Glasses revenue up 46%, contact lenses up 32%.

All geographies thriving, Canada up 35%, U.S., up 33%. So growth across all segments and across all geographies.

So number one, check the box on great execution by the marketing team. And then as we kind of drill down into different segments and different markets, I think we've started that program.

We're seeing good early results, and I'll let Joe hit on any other finer details he wants to.

Hey, good morning, Luke. So first on your traffic question, we look at marketing customer trends in general.

We look at traffic as a bit of a leading indicator in Q4, we mentioned traffic up significantly. Same is true in Q1, up in the neighborhood of plus 70% in terms of overall sessions and even higher growth on our Virtual Try-On tool.

And so for us, these are good leading indicators for future growth. We're seeing a lot of exploration on the site, people trying out new frames, passing – sharing those with friends and an impressive correlation between things like Virtual Try-On usage and conversion rates.

The results on marketing, I think, as Roger said, in Q1 really speak for themselves in terms of CAC, new customer growth, marketing as a percentage of revenue down quarter-on-quarter and 34% growth. So we have a number of tactics.

You saw a little bit of first pair free execution in Q1, much more from influencers – and on this sound just continues to build and scale and we'll update, and you'll see those – the impacts those have in our results, specifically in our glasses results, up 46% and we'll have more to share still in quarters to come.

That's great. Thanks.

And then for my follow-up here, and then I'll pass the line. It was mentioned in your filings this slight uptick in inventory that you expect to work down in the coming quarters.

Can you just shed some light on? I mean, first, what specifically that's referring to?

And then secondly, maybe the cadence of when you expect that to normalize? Thank you.

Yes, you bet, Luke. So typically, we see inventory levels increase in Q4 at the end of the year and then moderate down in Q1.

And this year, really, I don't know out of an abundance of caution given some macroeconomic and supply chain volatility. We held inventory levels a little higher for a little longer.

And as a result, you're right, inventory levels were higher this Q1 than last Q1, even adjusted for growth and inventory days on hand increased as well. And so we're in a position now, we worked with the team and you have our commitment that in Q2, this is going to moderate down, and by Q3, really be back in line with historical levels.

And this should generate at least $2 million to $3 million incremental cash flow from operations. So more to come on that.

That's great. Thank you very much.

Thanks, Luke.

Yes, good morning. Just wanted to see if you could maybe touch on the underpinnings of the growth drivers for the second quarter outlook?

Looks like a really strong growth rate despite a tough macro. Can you sort of talk about where you're leaning in the current acquisition and additional opportunities that are underpinning the outlook?

Hey, Matt, yes, I mean, I guess from a high level, again, the marketing and growth is primarily coming from existing customers, word of mouth and then some of the traditional channels. So as we've – as you've always heard us say that the best way to build a business is through word of mouth.

It's to wow customers. So we focus on NPS, Net Promoter Score, fairly relentlessly here.

We hear from customers that they love our products. They love their selection.

They love the service. They love how fast we get them to them.

They love how easy we're making it with insurance connections so that they can easily click through and bill directly to their insurance companies. They love our branded selection, now more than 6,700 styles of glasses, including brands from companies like Safilo and Luxottica, names like Ray-Ban, Oakley and so on.

So – and I guess, finally, worth adding that they come to us for high-value products like progressive lenses, progressive eyeglasses, which typically could retail anywhere from $800 to $1,000 for a digital pair of progressives like we make, and we're selling those at prices around $200. So I think all those things are adding up to driving word of mouth, driving our growth that is beating the market by somewhere between 8x and 10x.

And the tailwind is, of course, a secular change. Customers are leaving traditional optical, confused by pricing, unhappy with the pressure sales tactics of the traditional optical retailer and looking for better, better selection, better service.

And so all those things are adding up to growth. So continues to be our view that, like I said earlier, the category is resilient.

People need to see in good times and bad times. So we're out here trying to exceed their expectations and wow them with the Kits experience and Kits is resonating.

So yes, we're excited as we run into – as we head into Q2. It's just – it's no time to hold back.

We're really leaning into the growth, and we're excited about Q2 and we're getting it with a lot of confidence. Joe, anything you want to hit there?

Sounds great.

Okay. Matt?

Okay. Appreciate that, Roger.

Thank you. And then maybe just for the follow-up.

Curious if you guys can touch on the latest with the tariff situation. Just give us an update in terms of how you see it playing out.

I know a lot is in flux right now. But it seems like last I understood you guys were probably a little bit less impacted than the rest of the industry.

Maybe just talk about how that positions you competitively going forward?

Sure thing, Matt. Yes, no impact on our business to date.

Our team continues to invest a lot of time in this. And our view just continues to be that we have a lightweight infrastructure.

If we stay lean, if we keep the layers out, between raw materials all the way to customer, this offers us the ability to move fast and potentially even increase the value delta that exists between us and the rest of the market. And so we saw some recent data from The Vision Council that approximately 3/4 of the glasses sold in the U.S.

last year were made in China. And so you think about the layers in this big category and the size of the players and the impact and the time it's going to take to work through 12, 18, 24 months.

And so our view is that we'll be moving very quickly. We're looking for clarity on what the definition is, and that's still a work in process.

But once that's identified, expect us to move very, very quickly in weeks, worst case a month or two to get into a steady state and then really hit the gas pedal. And maybe the last thing is given everything we know today, we believe from a cost basis, any one-time cost that we could incur would be very manageable and completed within 1 quarter and that in any scenario, that we've evaluated so far, our 2025 CapEx as a percentage of revenue will be in line or below our 2024 levels, which is about 1.8%, 1.9%.

Again, for clarity, Matt, yes, no impact to date. Thank you.

Yeah, super. Okay, guys, best of luck.

Thank you.

Hi, good morning, guys, and congrats on your great results.

Thanks, Martin.

My first question is I'd like to dig a little bit more into your Q2 guidance, especially on the EBITDA margin guidance of 3% to 5%. I did hear you guys say that you want to lean on the marketing and acquire customers.

But I feel like that's what you've also done in the last 2 quarters. And just Q1, you've realized a phenomenal or an impressive margin expansion on the EBITDA line.

And so I have a hard time understanding how we can go back to lower level of profitability despite the fact that you're going to have higher revenue run rate in Q2 versus Q1 and Q4?

Martin, yes, thanks for the question. If we roll the clock back a little, the Q1 original forecast was to come in at around 3% to 5% for EBITDA and no question the team outperformed in the Q, incredible traction like we've talked about across progressives, across our Kits contacts, across branded, across insurance.

So there was some outperformance there. You also see marketing basically ticked down in Q1.

The first half of our year, we've always forecasted around 3% to 5% as a normalized EBITDA run rate. Our expectations in the back half of the year to start moving that up, and we'll give you more guidance and clearance on that as we get into the end of Q2 and start into Q3.

I think you're right to pick up on. There are some fast-growing segments of our business with much higher gross margins than sort of the steady business is at today.

We've talked about how over time those will become a bigger and bigger factor. And so our expectation is the same as yours and the same as Joe outlined earlier.

Over time, we see the business yielding 15% or more of normalized EBITDA. That doesn't change our hypothesis that we are investing and growing today.

We want to secure the best high-value customers for now and moving forward. And so we're happy continuing that steady state build at 3% to 5% for Q2, focused on the best customers, focused on delivery, focused on making all the right investments and really working hard to wow customers.

So that's the focus. Like you said, over time, margins are trending up.

EBITDA will trend up. And so nothing there has changed.

I guess I'd urge you, Martin, to take sort of a longer-term view than just a daily or weekly or maybe even this quarterly number and think out longer term and we share your insight that margins are headed up. Joe, anything you want to add there?

Martin, I appreciate the question. I think maybe just one more data point on it.

I think just echoing Roger's point, in some quarters, you expect us to see us dial up EBITDA further. And in some, we're going to invest a little bit more of it into future growth.

And so maybe with the Q1 incremental flow-through of EBITDA as an example, and in Q1, we added almost $3 million year-on-year in incremental EBITDA, revenue was up almost $12 million year-on-year. So that's an incremental flow-through of about 24%.

And for us, very healthy and gives us confidence that we are in control of the dials and can flex the number up and down. And so really, I think what you hear from us this morning is, this is a confident lean in on acquiring customers at an opportune time to build future growth for this year and for the out years.

And so – and that's the opportunity that we see.

Yes. And Martin, one last point that I think might help with the modeling is to think about the fact that the glasses average order size is lower.

And so our investment is obviously in acquiring a larger number of first-time glasses customers. Again, we're seeing that secular shift.

We're seeing people move to our model. And our belief is that now is really good timing to make sure we get our glasses offering in front of customers.

Ultimately, it's important to remember, glasses will – the size of our glasses business will over time exceed the size of our contact lens business. The eyeglasses business is 10x the size of the contact lens category and the value and the offering that we come to customers with is materially more disruptive to the overall market.

So the glasses business is the one where we are taking the opportunity. You saw it last quarter, like you pointed out, you'll see it next quarter as well, but that will lead to some lower average order size first-time customers.

So hopefully, that's helpful.

Yes, that's great color. And maybe just a follow-up to that.

Are you seeing any change in the competitive landscape online and not on the brick-and-mortar side, but online? Because you do say that now is an opportune time for you to lean in and press and try to attract more customers.

Why now? Is there any change in the landscape that you're seeing?

What makes you think – or like what was the trigger to make you lean a little bit more aggressively on marketing right now?

Sure, Martin. So while I don't have a perfect view of the full competitive landscape, what we do see is some of the typically leading indicators of growth, which are traffic and very impressive CAC progress and traffic really building.

And so we see these traffic patterns. We know customers are exploring.

We know they're using more Virtual Try-On. And so this gives us the confidence that they are in the market.

These are new customers more open to switch than traditionally they have been. Whether that's the macro environment, whether that's our increasing offering, our speed of delivery, it's probably a combination.

And then I guess to your second point on, which is an important one, on the competitive landscape there are a few dominant online players, and we are now, we believe, the fastest-growing in the market. But it's very – the barrier to entry on a business like ours is significant.

If you have a brick-and-mortar dominant infrastructure, someone has to pay for all those brick-and-mortar stores, those hundreds and thousands of stores and typically, that's at least a couple of hundred dollars in cost that the customer is paying for. And so in this environment, when a customer is maybe looking to have two pairs of prescription eyeglass maybe 3 pairs of prescription eyeglasses, and you do have insurance underwriting $200 to $400 of purchase for about two-thirds of U.S.

customers, the value that an online business can offer is significant for these millennial consumers really coming into the category in a big way. And it's just very difficult for traditional players to pivot.

And it takes a long time for a new entrant to build up almost 1 million active vision-corrected customers, the digital infrastructure, the manufacturing infrastructure, it would take easily five to 10 years to recreate that. So that's our view.

That's the confidence, that gives us the confidence. And then the backdrop of the Q1 results really give us confidence that this – we are in control of the dials and this business can continue to grow and be very profitable over time.

Probably just add at the macro level, seeing some of the larger chains in Canada buckle under some of the pressure, to your point, Joe, one of the largest chains in Canada over 100 stores filed for bankruptcy in this Q. And I think that's probably somewhat a reflection of the change in buying habits as customers move from traditional to look for a better way.

And that's what Kits' aspiration, as I said, has been to deliver that better way.

Super. Thanks for all the color and best of luck.

Thanks Martin.

Hi, everyone. So as you pointed out, your rate of new customer adds was pretty good in the quarter and also the cost of customer acquisition came way down sequentially.

Can you explain how you're getting so much improvement for this key customer acquisition cost metric and how sustainable it might be at these types of levels?

Good morning, Kyle, yes, delighted to talk about some of the efforts from the marketing team in this past quarter, but really over the last couple of years. And so I think we saw continued growth on – once you get this influencer model and this referral model rolling, it's almost tougher to slow it down than it is to speed it up because people start posting.

And really, you let the influencers and the customers market the story in their words and let them find the channels that work. And to do that, you have to be confident to put your whole offering on display and to give up total control of how that offering is communicated.

And we have such confidence on the value, the quality and the convenience that we're more than happy to do that. And so that continues to be the big driver, led by Rob and our terrific Katie and [Edith and Roy and Jake and JF] and our terrific marketing team.

And then from there, you see some offshoots. So we saw channels like Reddit pop up this quarter more than most.

And that's organically driven. These are customer sharing with other customers in a channel that didn't exist before.

And so these are just small examples. There's many others that really just have given us the confidence that the unit economics are significantly favorable.

When we acquire a customer, those customers turn into repeat customers at an increasing level. And so that's why we're leaning in even further in Q2.

Got it. Okay.

And is it fair to say maybe this customer acquisition metric maybe reverses a bit versus what we saw in Q1 just as you kind of maybe lean into things like Own This Town and more traditional type of marketing spend? Is that a fair cadence comment?

I think the way that we are looking at Q2 is in Q1 on the backdrop of new customer additions being 95,000 new customers in Q1, up 28%, I think what we're looking at is a couple of metrics, Q2 being even higher than that. So expect us to see even further growth, both on a percentage and an absolute number of new customers coming into the Kits franchise.

And two, to your question, we'll probably see that with a moderate increase in marketing as a percentage of revenue, no change to our plan over time each year to be sub-15%, marketing as a percentage of revenue. But quarter-on-quarter, this may uptick a little bit.

And really, the investment, it's more of the same from us, putting our cost of goods sold advantage on display and really using that as a marketing tactic. And so for these first-time customers for Q2, we might see a moderate kind of plateau or slight pullback on gross margin just for those new customers.

And that's really how we see it coming in to the financial statements.

Got it. Okay.

Thanks for all that color. On eyeglasses, it looks like your eye glasses revenue per unit it was down sequentially after the street gains for that metric throughout the last year.

I mean, what's driving the change for this metric in Q1?

It's back to new customers. So we see new customers coming in, using tools and promotions like first pair free, and that's moderating down slightly on the AOV per glasses customer.

But overall, on our AOV, we're up on glasses in the neighborhood of about 30% year-on-year. You're right to call out down slightly quarter-on-quarter and contact lens AOV continues to increase.

And so really underneath those numbers, there's a new and a repeat line and the strength that we're seeing on the repeat line is so significant that gives us confidence to invest more in the new line, and that's where you're seeing a little bit of the – of that moderating AOV quarter-on-quarter.

Got it. Okay.

So it sounds like customers are leaning a bit into uptake on first pair free. How confident are you with that return rate for customers using that type of promo?

Is that a pretty dialed and predictable metric for you? Is that conversion getting better through time as you dial in your marketing tactics?

Yes. One of the advantages we have with the digital infrastructure and digital first is you really can track by cohort, by region, by customer and what you can expect from us is just continual improvement on that.

So to answer your question, yes, we continue to see great repeat from customers. And aside from just the numbers, which are here, and you see it in Q1, if – adding 95,000 new customers to the franchise in one quarter while decreasing marketing as a percentage of revenue quarter-on-quarter and increasing gross margin percentage, you can see that the relationship exists where new customers might be coming in at slightly lower gross margin but this is being more than offset with the repeat.

It's very clear in the numbers that we posted for the quarter and that gives us the confidence to move forward. But really, it's – if you think about it, and as Roger said at the beginning of the call, we're setting out to make eye care easy.

And so you take a promotion like first pair free and for a customer, there's some skepticism. Nothing is free in life anymore.

And what's the catch? But they see the conversation online.

They see the discussion and they're intrigued. And so hundreds and hundreds of thousands of customers have tried this promotion.

And then they order and then they kind of forget about it and say, okay, well, let's see what happens. And that's when our team gets to work and if we can make that pair of prescription glasses the same day they're ordered, get them flying out to customers immediately in the customers' hands at their door within a day or two, well, for that customer, they open the door the next day.

They see the Kits box on the doorstep, and they can't believe it. They're reaching out to our team to say, I spent – my last pair of prescription glasses, I spent $400.

It took two weeks and three trips to the glasses store. You guys gave them to me for free, and you delivered them in a day or two.

And how is this possible? What's the catch?

And our team just says, the catch is just tell everyone you know. And for that customer three and six months later, when the glasses are still perfect, they're coming back and it becomes a bit of a treasure hunt for these customers.

They've got insurance dollars to spend, $200, $300, $400. And now they're buying one, two, three pairs of glasses.

And for us, that's a great investment in a lifetime customer because once you need vision correction, you really need it for decades. And so that's maybe a little bit more context, not just the numbers, but on some of what we're hearing from customers.

Great. Appreciate all that color.

That’s it for me.

Hi. Good morning, guys.

Congrats again on a strong quarter.

Thanks, Gianluca. Good morning.

Hi, guys. If I could start off on asking for an update to your Own This Town playbook.

Seems like that playbook might be accelerating this year, Joe. Just wondering if you could give us a sense of your expectations from that strategy this year?

Good morning, Gianluca, and yes, happy to jump in. I think what you hear from us is there's a number of initiatives that the marketing team has come up with and is leading very successfully, first pair free.

There's a number of other ones, which we haven't even gotten into detail on, on digital progressives, on our premium lens offering. Own This Town is and continues to be an important part of our plans.

And really, while we might not break it out in a tremendous amount of detail on calls like this, you'll see it in the numbers. And you see it in the 46% glasses growth.

We have more execution coming or more activation coming in the quarter in Q2, and we'll have a little bit more to share at the end of this quarter. But it is and continues to be one of a number of tools and the marketing team's arsenal to just continue to grow at 8x to 10x the category rate.

That's Great, Joe, thanks. And then just secondly, you recently inked some partnerships with insurance providers in the U.S.

Just wondering if you could give us an update there and the type of contribution that you expect from the insurance channel this year? Thanks, guys.

You bet, Gianluca. I guess.

So another important foundational element. We've kind of identified this insurance is right up there with digital progressives, with premium lenses, with Kits contact lenses that we see this as really a great potential for our 50-50 club growing 50% a year and generating 50% gross margin.

And so what you saw from us in the quarter was just laying more foundation here. So the launch of our broad-based U.S.

insurance partnership and extending with another provider in the Canadian market. And so what we see in the economics of these customers is it's a consistent, steady drip of new customers coming in very efficiently to our platform.

And we love the economics within. These customers tend to return at a higher return rate and the economics on everything from our average order value to margin profile continue to be great.

And for a customer, it's a great experience. Typically, what we've heard from customers is there's two frustrations on insurance.

One, I'm spending all this money, I have no idea what's covered and what's not covered. And two, I have to do all this paperwork and wait to get reimbursement if I get any.

And so we feel like our offerings that have been built over years, it's been three years in the making for a number of these initiatives, are generating a very positive Net Promoter Score by alleviating both of those concerns. You can see here's the insurance coverage I have and in some cases, you can apply it right in the cart.

And so just expect more foundation from us, more innovation, but this will be a steady drip. It's not going to be one partnership that launches and you see it in the results the next day, it will just be continual.

That's great, Joe. Thank you so much.

And Roger, maybe one last one. Could you give us some insight or a perspective on your expansion plans as you continue to scale up your lab in Vancouver?

Any thoughts there would be helpful. Thank you, guys.

Yes, great, Gianluca. Wow, so many moving parts as we think about expansion.

I really feel I'd be remiss if I didn't call out that the product team, an incredible job they've done in the last quarter. If you haven't been on Kits lately looking at the quality of frames, the quality of product, the newness in our selection.

So the team has just continued to iterate and bring incredible styles to the forefront for customers. You saw some of that connection with customers in Q1.

This newness encourages repeat visit. It's new content for our campaigns.

It makes our social work better, and it serves this broad customer base. So our team has done an incredible job reinforcing the Kits brand and reinvigorating it with brand freshness.

So all those things are the backdrop to your question, Gianluca. And as we put all this product together for customers, I'll hint at a couple of things we have coming.

Everybody's favorite word AI, we've got optician AI, which is a way for us to surface this – the right product for the right customer at the right moment. And so we see the next couple of quarters launching and then refining an AI that will help us deliver the right assortment for customers at the right time as the selection continues to grow.

So that's one of the things you'll see. And I think further, we're talking a lot about the success of the retail store out here in Vancouver.

You've got a line up around the block. It allows people to see and feel and touch the Kits experience.

So as we think about Own This Town in other towns, we're constantly on the lookout for how to do that most effectively, efficiently. So we may see some further steps into what we'll call a further flagship.

So those are off in the distance, off in the future, but things we're also working on, Gianluca.

Very exciting, guys. Congrats again.

Talk soon.

Great. Thank you, Gianluca, all the best.

Thank you, operator, and thanks, everyone, for joining us today. The Kits team is energized by the momentum ahead, and we are grateful for your continued support as we build a global leader in the optical industry.

Our team is scaling the business with speed while expanding margins and deepening relationships with a growing base of loyal, high-value customers. The foundation we have built continues to strengthen our leverage and the traction we're seeing reinforces our confidence in delivering profitable growth and long-term value.

Together, we're building one of the fastest-growing consumer health brands in the world. Thanks again for joining us, everyone, and we look forward to updating you on our continued momentum throughout Q2.