Thanks so much for joining us. We're going to be doing a fireside chat with Kits Eyecare today. Quick show of hands, how many people saw my pitch yesterday? All right, everybody. Perfect. We're not going to spend a ton of time on the business, what the company does. More of a fireside chat discussion, and we'll talk about strategy and growth and history and all sorts of interesting things. I think the best place to start, this is Olivia Evans. She is the Director of Corporate Development and Investor Relations. I think the best place to start would be, Olivia, maybe just giving a brief background on yourself, and then we can dive into an overview of Kits, how it started, and some of the problems you're solving.
Yeah, definitely. Happy to. For those who have not met before, Olivia Evans, I've been with Kits for about two years now. I became very familiar with the Kits business back when I was at Canaccord. They were the lead book runners behind the IPO back in 2021. I was working on the institutional cash management side, so working very closely with companies post-transaction, IPOs, and the business stood out to me. I'm a millennial consumer. I wear eyeglasses, I'd been a Kits customer myself, and it really resonated with me how this business was growing and the scale it was growing to. I tested with the Vancouver market and cohort of individuals who had bought from Kits before, majority of the people I talked to had gone through that route.
Joined the company about two years ago, and it's been a fantastic journey so far. The journey itself with Kits started long before that. It was 2018 when we started the Kits business up. It was our two co-founders, Roger Hardy and Joseph Thompson, who started the business out. Roger's background was in optical, his first company, Coastal Contacts, he started in 2000. Very similar business to what Kits is today, selling optical products, glasses, and contacts online. He partnered up with Joe Thompson in 2018. Joe's background was a bit more e-commerce focused, really focused background on Amazon, P&G. The two of them came together and saw this category that four years post the sale of Roger's first business still hadn't been disrupted. There was still a lot of opportunity to make some changes within this industry.
I think it's an important thing to note that optical's a really hard category to disrupt. It's not something where you can just set a website up and make a very easy transition. There's a lot of technical knowledge to have. To be successful, you need a few secrets and ingredients for that. Three that the team had that was really productive was, one, the experience of the team. Two, really the demographic and this changing demographic to the millennials. Third, just the overall timing, the timing was an area that really benefited us. Started the company in 2018, now it's grown in this past year. We're about eight years in now to about CAD 200 million in revenue with growing profitability at about 5.8% this past year.
As you mentioned, a big part of the Kits story is Roger and his background. He built Coastal Contacts and sold it to Essilor for CAD 430 million. Obviously, after that, could have done anything he wanted to, but decided to get together with his team and co-founders and partners and build Kits. Curious if you could just take us inside that decision to build a very similar eyecare company, and maybe we can talk a little bit about how your advantage relative to your competitors.
For sure. When you look at any business or any category, it's a really rare thing to have a team across management, Roger as CEO with experience in optical, and then Ibrahim, our CFO, I think is in the room here with us today, who had experience in a business. I look many of our team members, even our warehouse staff, who had already built a business almost identical to what it is today. The team really had a lot of conviction in starting this model up again. As they looked at the encompassing groups around, the big Essilors, the big behemoths, and they saw these individuals who hadn't really disrupted anything. You looked at Roger's business, that was the ultimate disruptor back in 2000, grow to about CAD 217 million in revenue in 2014. Essilor came in, offered a great price.
The shareholders took it, then really, they worked on winding that business down and then putting individuals back into the LensCrafters and that brick-and-mortar infrastructure. Four years later, you're in 2018, and still so little disruption had happened. The team had a lot of confidence and conviction into starting it again, as at this time, too, it was the perfect timing. When you look at this one millennial consumer, as I mentioned earlier, who now is attuned to buying everything online, and you can imagine starting a business online in 2000 where you're trying to sell optical products, it's a very different experience than what it is today.
The timing worked really well for us, especially on top of that, you had the pandemic as well, and so a little bit of a tailwind on that side to be able to push some of this market online a little bit faster. The team has such deep understanding of this optical market that it gave us a little bit more confidence and a head start to be able to know that this model does work and it'll work even better the second time. What we can do now is, if you look at the numbers back into the Coastal days, it took them about 14 years to grow to about CAD 215 million in revenue. Now Kits, just past seven years in, so about half the time, has grown to that revenue base.
It's a really exciting time for the team to be starting this back up again.
I think that trajectory is really important, and when you think about the age of the business, it's founded in 2018, IPO'd in 2021. If you were to line up Kits at the January 2021 IPO, is there something you think would surprise shareholders the most if you're looking at the business from that point to today?
Wow. Five years in market's a really fun thing for us, and five years of game tape, and there's been a lot of changes. I'd say the biggest thing that would maybe surprise or be the biggest change that investors would see wouldn't be in the Kits business itself, but would be probably in the overall market. When you're looking back to 2021, it was a frothy IPO market. It was almost impossible to turn down capital. It's important to highlight that the team's done one raise, and it was the IPO back in 2021. You look at this time where there was just so much capital in the market, everyone deciding that growth is the only option. That trajectory's changed as when you look at the last few years, this room knows better than any, you started to see the slowdown of capital.
You started to really see that change in evolution. With the Kits side of the business, you can read our IPO prospectus from 2021. The business itself hasn't fundamentally changed that much. Yes, we've taken some learnings from the last five years, but the overall strategy and business hasn't changed. What we hope to do is in five years from now, the business not to have changed that much, just focusing on those core fundamentals and continuing to execute across the board.
What's exciting is that there is one part of the business that's changing, and that's glasses. It's becoming a much bigger key growth driver for the company, which is exciting. When thinking about the history there and how Kits started as a contact lens business, can we just talk about the logic behind that and how that sets up the future glasses growth?
It's a funny thing, the contact lens industry. It's a smaller part of the category. It's a fraction of the size of glasses. It's a commoditized product, and so it's often overlooked, and it's also lower gross margin to glasses. What we've heard time and time again is, Why would you start with that part of the category? For us, and it was really the education from the likes of Ib and from Roger, was that the contact lens customer is one of the best customers. First of all, you have a highly reoccurring customer that's coming back every three to six months and inevitably has some sort of vision correction. No matter what, that customer still requires a pair of glasses, just even to give your eyes a day of rest or even just to find your contacts in the morning.
If you start with the smaller part of the category and build up a profit core of those customers and then use that to launch into glasses, well, really it's an exciting way to start a business. One of the early learnings from that, too, was before even selling a pair of glasses, what the team did was built our vertically integrated lab in Vancouver and focus on scaling that even before selling a pair of glasses. Now, why would you do that? It's a crazy thing to think about, if you don't build the lab yourselves, and if you don't do the hard work first of putting in that investment, well, inevitably, one, you're losing all your profit. You look at a pair of glasses and all of the profit margin is in the lenses.
If you're able to do all the manufacturing yourself and bring that in-house, well, you start off as a technology company. You start as a manufacturing company. You're not starting as a marketing agency, growing and then trying to figure out how you can add margin after the fact. That's really been the exciting thing for us. We started with contacts in 2018, built up that profit core, and added that customer base, and then in 2021, launched our vertically integrated lab in Vancouver. I always recommend if anyone's in Vancouver anytime, we love to give investors a tour of the lab. It's a pretty cool thing, walk by and see all the machines, build your own glasses.
What we're able to do is by having the shortest line between raw material and ending at the end customer and having that short line, we can pass the savings along to customers. We don't need to charge CAD 350, CAD 400 for a pair of glasses. We can make a pair of glasses for you, ship them to you in a day, have them out of our warehouse in a couple of hours. We can charge you CAD 58 for them. That's really been the exciting thing for us. Now we've already invested the CapEx. The question isn't about growing the manufacturing side. It's about scaling the brand awareness and really growing that side of the business.
You mentioned your customer or your ideal customer and targeting the millennial consumer, I'm curious if today versus when you started, are you acquiring a different, more valuable customer than a few years ago? Maybe we can just talk about who the core customer is and what that millennial cohort expects from a company like Kits.
Definitely. I don't know if there's many millennials in the room here, millennials have high expectations. I'm one of them myself. You're a customer who realistically has been shopping online for most of your adult life, and it's an expectation where you're in this Amazon world, you're so used to the ability to getting things so quickly and it being so convenient. When we started the business, we started on the contact side, which inevitably is that perfect millennial consumer, often skews a little bit more female. They're coming into vision correction for the first time, and as they're aging, as the business grows, they're moving into other categories within our business, the single vision glasses, moving up into the digital progressives, and having that experience.
What's been exciting for us is, one, we have this millennial consumer who's excited to buy online, two, when you actually look at the numbers, the team's been a bit more thoughtful about acquiring these customers over time. As many of you have probably looked at businesses, when you first start a business out, any customer is a great customer. It's your first customer, your second, your thousandth, the millionth. It's amazing. When you start growing into a more mature stage, you can be a bit more thoughtful about how you're acquiring these customers. What you've seen now in the last few years is the team being a bit more thoughtful on that side and deliberate with that investment.
Moving into areas like the daily modality contact lens customer who's changing their contacts every single day, it's a higher average order value, it's a highly sticky customer, the delta of buying those online is much more significant than something like a monthly. The team being a bit more thoughtful about investing into those individuals. Underneath, we shared some data recently of our LTV profiles, and what we've been seeing is first order for this past year has consistently been higher than every other previous year cohorts. Now we're seeing that LTV expanding from, I think Adam shared it yesterday on his presentation, but from the 2021 cohort of the LTV being CAD 150 to now being above CAD 450.
We're seeing not only these customers coming back, but they're coming in at a higher point or an early point, then they're coming back faster and they're adding more.
As you think about that marketing spend and targeting that customer and those sort of north star customer metrics, whether it's retention, lifetime value, repeat customers are driving a significant amount of revenue. As that base kind of compounds and as you see more favorable unit economics, how does that kind of change how you spend money on the marketing side or the economics of each new marketing dollar?
It's a great question, and it's something that I think the team thinks about a lot. Maybe I'll take it in two separate parts there. When you're looking at the KPI that the team focuses on the most, from day one and continues to this day, it's always your Net Promoter Score, your NPS. That's something that the team strives for every quarter, every year to be improving. What we see is Kits often sitting at an NPS above 80, some of the best in class of any industry. Why that's so important for us is because if you can give a customer an amazing experience and give that high NPS on their first order, well, that attributes to the second order, that attributes to the third, and that customer will continue to come back.
The benefit of vision correction is once you need some sort of vision correction, you need it for a lifetime. You can't just wake up one day and decide, I'm not going to wear glasses anymore. You do need that. If we can give an amazing experience on that first time, that really leads to that recurring revenue stream. It's important to note when you look at our revenue, every quarter, every year, about 60%-65% of our revenue comes from repeat customers. It puts the team in a really differentiated position.
When we look at our marketing dollar spend, if you're starting the year, and I use this year as an example, if the team's sitting there and expecting a hopeful CAD 250 million in revenue, the marketing team then can sit there and say, I'm starting the year with the expectation that about 60% of that revenue is going to become or be coming from that customer base of repeats. If you just do it as a mathematical exercise, 60%, you're about CAD 150 million there coming from that repeat customer. Our team's been very thoughtful and strategic about our marketing spend. We've had about two quarters now where it's slightly elevated, but we're much more comfortable with that 14%-16% range of your revenue being with the marketing spend.
Going back to the math, if you're CAD 250 million in revenue, about CAD 150 million of that's coming from repeat. The team knows about CAD 40 million is going to be spent from marketing for that year. That CAD 40 million now has to only acquire CAD 100 million of new customers, you can be a bit more thoughtful. That's really why that NPS is so important to us. It's to give our team the ability to have that retention coming through.
Something is clearly working with that model. I talked a bit yesterday about how the business is getting better with scale. 14 straight quarters of 20%+ growth, expanding margins, or margins should expand over time. Most companies have to pick one, especially e-commerce businesses. I'd like to talk a little bit about what's in the model operating leverage that kind of lets you do both at the same time.
I'm happy to share my view on this, and I think we have a lot of conversations about this with investors, many who are in the room today. In my view, I think it's almost a false choice. It's a difficult thing to be able to say. You talk to some investors, and all they want to see is growth. Growth, growth. On the other side, it's about profitability. What you'll see from many companies and many that we would have seen today, where yes, you can be growing at 50%, 60%, but you're doing it unprofitably. You're categorized on one side. On the other side, maybe you're growing at single digits, but then you're adding to your profitability.
What the team has done, and it's a very deliberate choice, is focusing on having that sustainable growth rate. If you look at kind of the game tape from the last three years, it's been anything from 32%, 32%, 27%, but then adding to profitability, and so increasing that margin. For us, yeah, of course, we could spend a little bit more on marketing and really increase that growth rate, but the team would rather be a bit more thoughtful and strategic about how we're putting those dollars to play and where we're putting those dollars to play. Really for us, that deliberate choice is about building a sustainable and enduring business. If we're capable of doing that, then the runway is endless.
This is a CAD 70 billion category, and we did CAD 200 million in revenue last year, and so there's still a lot of ways to go for us.
That's a great segue into this next segment. I want to shift gears a little bit and talk about the runway. When you look at the eyewear industry, just broadly, it's still, from a glasses perspective, still under 20% penetrated online, and you've sized the glasses category at 8-10 times the size of contacts. As you think about the next 5-10 years, what do you think has to happen for Kits to take real market share, and how do you layer in new categories of products, readers, progressives, et cetera, versus going deeper with the same customer group?
I'm maybe speaking on the category as a whole. When you look at the optical category, it's been almost traditionally growing about 2%-4%. It's like clockwork. Every single year, same growth rate, nothing really new on that side. When you look underneath those numbers, that's where things get really exciting for us. Though the category's growing anything 2%-4%, well, underneath that, online's growing about 10% every year, and then brick and mortar's declining the balance. When we look at this demographic coming through, and we speak a lot about millennials, but when we look at this demographic coming through and really focused on buying online, having more comfortable processes on that side, it becomes a little bit easier of tipping the category faster online.
When we started the business pre-COVID, the online glasses sales were about 8% online, and now it's about 20%. Contact lenses were about 18%, and this past year, they were about 42% online. You're seeing this category moving online. For us, it's really being able to offer as much awareness to let people know in the market that it is possible to buy your glasses online, and you can do it at a much more affordable rate than the brick-and-mortar store. That's where we're at.
How's your voice? You holding up okay?
We're doing okay.
All right. Great. The store is an interesting concept as well, and a good transition into the next question, which is, you've now got two stores. They're both open. The Kits Beach store has historically been an excellent customer acquisition tool, a great brand-building exercise, a place where customers can hang out, have coffee, shop for glasses. Now you have a store in Toronto, a different part of the country, a very big market, but you're still a digital-first company. Is physical retail always going to be a selective brand halo for you, or could store count or growth there become a real part of the strategy moving forward?
Yeah, no, I appreciate you bringing it up, and the team's really excited. If anyone's in Toronto in the coming weeks, coming months, it's an exciting time for us. We just opened this new store. Please feel free to go check it out. I think this is important to note, as this has always been a part of the strategy for us. When you look at being a digitally native brand, you can get awareness in many ways. We use influencers, different individuals, through word of mouth, but having a physical retail store is really impactful. If you've never heard of Kits before and you drive by Kits Beach and you see the Kits store, it really has this energy and buzz.
Though we'll always be digitally native, having a brick-and-mortar presence just really helps with the brand awareness, but more importantly, it helps with the community as well. Though we have our two stores now, we did CAD 200 million in revenue and we have two stores, it's likely we could have a couple of stores across Canada, maybe a handful in the U.S., but it'll be more of a marketing strategy for us than an overall actually brick-and-mortar strategy. I think when you have one that complements the other, then it really helps for that individual to be able to test, trial, and have a bit more awareness to the brand. We're quite excited for it.
No investment discussion or company discussion is complete without talking about risks or setbacks or hiccups, and I think nearly every long-term compounder stumbles at some point, and we're not going to skip over that part. What is a decision over the last couple years that you feel like you got wrong at first, and how did you course-correct from that?
It's a great segue, Adam, I appreciate you bringing it up. Maybe I'll segue into something that's been a big talk with many of our investors recently. This past year, we did share with the market in Q4, I'll give a little bit of background, that the team took in a small allocation of our cash holdings and invested it into an investment vehicle that was a Bitcoin ETF. Now, a little bit of a background is the decision-making, and I see a few investors in here who I had conversations with, but a bit of the background of the decision-making. When you're a growing business, you have to make decisions every single day. I'll be honest with you, as a public company, you just hope that as many of them are right.
I'll tell you, every single one is with the best intentions. What was happening during this time was the team sat down, and we were looking at a growing cash balance. We, in that quarter, had just paid off our BDC loan early, and so we were sitting with no outstanding debt on the balance sheet. We were generating free cash flow from operations. Honestly, nothing in the M&A market really for us was clicking. The team decided, let's put a small allocation into this. Won't think much of it. It'll sit on the balance sheet. We shortly after reported our full year Q4 earnings. What we heard almost immediately from the market was the decision was not appreciated.
It was many calls that we received, and we took a lot of feedback, and we listened a lot. I'll be honest with you, I sat with the team many days, and it was a hard day that turned into a hard week and a hard month. For us, the biggest takeaway from that was really the opportunity to speak with many investors. We have shared, since our recent earnings, that we have removed that position from the balance sheet. We no longer are holding that, and we do not have plans to invest in an asset like that in the future. I think it's important maybe just as we're closing off here to share that as a public company, we're five years in now, we're still learning. We like being students of the market.
In our view, I think the best takeaway that we possibly could have had was the conversations that we had with, I see many of the shareholders that we had conversations with during that time. I think it's very easy as an investor to be able to see something that you don't like and just to drop the position. What we saw on our side was many people picking up the phone and having the conviction in the business and knowing the fundamentals were strong, and being willing to be able to have those tough conversations with us so we can learn and improve. I see many of you, Adam was one of those people who picked up the phone and had those conversations. For those in the room, thank you.
We as a business, we want to be better, we want to learn, time for us to course-correct and improve from that.
Let's wrap up here. Thinking about the longer-term story here, you're guiding on a quarterly basis and have managed a certain range, I think, from revenue growth perspective and margin perspective. How do you kind of manage the gap between occasional lumpy quarterly print and kind of the longer-term story here? You put out a CAD 500 million in revenue target, EBITDA margins above 15% as kind of a long-term destination. What has to go right to get there, and how do you balance those two things?
Great question, I think it's one of the ongoing challenges you have as a company, as you put out quarterly guidance. We're building this business not for 90 days. We're not building it for the year. We're building it for the next three, the next five, the next 10 years. When you make a decision in a quarter, you might not see the benefit flow through. As shareholders, you're looking at the quarterly numbers. Maybe on our side, what I'd say is the sustainability of the business, it almost acts a little bit of an annuity like with some of the repeat. When we're making decisions as a business, we are looking at areas where if we see the benefit three to five years out, then we'll make that decision because we aren't building this for the quarter.
What you'll see from us over time is we'll be as transparent with the market as we possibly can to share when there are those investments. A good example of this would be in Q1 this year. I mentioned that marketing has consistently been at that 14%-16% range, and we had one quarter where it was 18.9%. We had a tariff recovery, and we had many customers in the market that it was a worthwhile investment. We'll make those decisions if it makes sense. It's definitely, I'd say the biggest focus area for us is building for the long-term and building a sustainable and enduring business, and that's really the focus.
Excellent. Thank you very much, Olivia, for being here and for doing this. Thank you everybody for attending. Two quick disclosures. One, my fund, Greystone Capital, is a shareholder in Kits stock, and buy one, get one free on the site is currently live. Go ahead and shop for some glasses or contacts for a discount. Thank you, everybody