All right. Good afternoon, everyone. Next up, we have Olivia Evans, Director of Corporate Development and Investor Relations of KITS Eyecare.
Thank you. Appreciate that. Looks like many of us have some lunch going, so I will try and make this quick for you all. Really excited to talk to you today about this big category in the optical space. When you look at the U.S. market, about seven out of 10 individuals require some sort of vision correction, contacts, glasses. It is about a $70 billion category in the U.S., and globally now reaching about $100 billion. As many of you similar to myself who need some sort of vision correction have known, there has been very little disruption in this space really since the archaic times. Everyone knows the process. You go into your brick-and-mortar store, you get your eyes tested.
Fast-forward, two weeks later, you are picking up a pair of glasses and you are paying $400, $500 for these glasses, and then fast-forward waiting two years again to then be able to purchase. When we started the business out in 2018, the team really questioned the why behind this. Why is there so little automation, so little technology? Why is something so big as this category still not been disrupted? That was really the mission of why we started out the business, to figure out how we as a team could make eyecare easy, cut the waste out of the system, remove all the friction for consumer, and just make it a seamless process. Really, that is what we did. Starting 2018, our two Co-founders, Roger Hardy and Joseph Thompson, built the business around this.
Now the hypothesis really was that if we could remove the waste in this system and draw the shortest line from end consumer and raw material, well, it could be a really interesting model. Cutting out all that waste and that friction allows us to pass about 90% of the savings along to customers and sell glasses for as low as $28, including your prescription. Really, the business has been built on that model. We offer through e-commerce in Canada and the U.S. About two-thirds of our revenue is based in the U.S., and we have scaled the business under this functionality of really focusing on this glasses consumer. It is important to note in this category alone, there is a lot of room for disruption, and that disruption really comes from doing the manufacturing yourself.
Instead of going through the legacy chains of brick-and-mortar, when the team built the business out, we really focused on two key hypotheses. The first one being to start with the smaller part of the category, which is contact lenses. It's about a quarter of the size, lower gross margin, extremely commoditized in a lot of ways. But if you look underneath those data points, what you see is a highly repeating customer who requires vision correction, who will also need some sort of glasses in their life as well. That was hypothesis number one, start with the contact side. But then two, more importantly, use that profit core to launch into the glasses market, and before even doing the glasses, building out the lab ourselves.
Back in 2021, when we did the IPO, we used the proceeds from that as well as capital put in from our Co-founders to really scale out this lab to be able to do about CAD 500 million in revenue before we even sold a pair of glasses. If you think of your classic prescription glasses, that lens within it is really where all the profitability and the margin is. If you're sending that to a third-party lab, unfortunately, that's really where you start seeing more and more waste. Right now, we're about eight years into the business. How are we doing? This past year, we did about CAD 202 million in revenue and saw profitability grow to about 5.8% on the bottom line. What's been really more encouraging in the last couple of quarters here is seeing that glasses side of the business grow.
About two weeks ago here, I put out our preliminary Q3 numbers. Still not fully audited, but we saw revenue in the quarter of about CAD 63.7 million and our bottom line of just over 4.5%. Underneath those numbers, that encouraging part of the glasses business is seeing that side of the business growing over 60% the last few quarters. For us, if you're looking at the breakdown of this business, the more customers that we have going into glasses is really where we start to see flow-through of our profitability over time. If you're looking at our revenue split right now, we're still about 80%-85% contact lenses, there's a long way for us still to move into this category. So simple, right? Find a super sleepy category, move into it, and just decide to disrupt.
Unfortunately, it's a lot harder to do than you'd think. When you look at this business and why we've been able to scale it so quickly over the last eight years, a big part of that is the experience of our leaders. Our Co-founder and CEO, Roger Hardy, had a very similar business to this back in 2000. Very similar optical online, e-commerce, different style, as you can imagine, buying contacts and glasses online in 2000 than it is today. But he grew that business to about CAD 215 million in revenue and then sold it off in 2014 for about CAD 430 million cash. It really gave us the conviction to start this business again, as he saw that business bought by the big behemoth in the optical space, Essilor, and they really shut down all the operations.
For them, of course, as you'd expect, they want all of their customers in that brick-and-mortar stores, in the LensCrafters, in the Oliver Peoples, spending CAD 500, CAD 600. When they shut down that operation, the team really sat there and said, "Well, could we do this again, and could we do it faster and smarter than what we did it in the first time?" Within eight years, we've now surpassed what the Coastal business did in 2014. A big part of that, and the encouraging part, has been this customer of today, as we call it, this millennial consumer that's really drove the market online for us. When you look at the millennials, there's about 75 million in the U.S. market. Predominantly, they're purchasing online. They have no appetite to go into that legacy brick-and-mortar store, pay the large dollars for their glasses.
What we've heard from them is they want the selection, they want the speed of shipping, and they really inevitably want a large selection of a few pairs of glasses. When you're paying CAD 300, CAD 400, it's just so far out of reach to imagine having more than one pair. The team building this business has really structured it for this millennial Gen Z consumer. The exciting part of this customer is once you need vision correction, it's not something that you can just decide to turn off tomorrow. You often need it for a lifetime. By bringing a lot of these customers in, we have over 1 million active customers now, just surpassed 1.1 million. The exciting part of this customer is millennials are very loyal with their brands.
What we've found time and time again, it's every quarter since we've done the IPO, over 60% of our revenue comes from repeat customers. It almost acts as an annuity style, as you can imagine, contacts being highly reoccurring. As our revenue base has grown on the glasses side, we've continued to see that revenue over 60%. For us, that's the exciting, almost software annuity-like style of the business. If you can bring these customers in, if you can give them an amazing experience, that's really where the model starts to get exciting. Fast-forward now, we built the active customer base. We more recently shared with the market that we just opened our second store. We are based in Vancouver. Our manufacturing's in Vancouver.
We have now two retail stores, very different than many of the kind of optical shops you'd think. The way that we view these retail stores is a brand awareness play and really to incite traffic and trial within our customer base. Both stores that we have have a coffee shop within them. It's very much a brand activation more than anything else and allows us to connect with our consumers in the local bases. As we look out to the next few quarters here, we're expecting to expand to a few more of these flagship stores, most likely focusing on the Canadian market first in our backyard, then earning the right to move into the U.S. and more likely opening up a few flagships in the West Coast, moving east in the U.S.
For us, if we have, let's say, 15 flagship stores across North America, that feels like a very strong position for us to be in. We talked a little bit about our repeat customers and really one of the most exciting metrics that we track on a regular basis, and this is the retention cohorts of these individuals. When we look at the industry kind of standard, one of our competitors shares, and every single cohort that we see these customers coming back, we see the repeat metrics almost double than our competitors. It's not something that we've hacked that all of a sudden we have a better repeat profile of our customers. It's just really focusing on the customer and giving them a good experience. When we talk about our key metrics, that NPS, Net Promoter Score, is something that the team focuses on religiously.
We aim for an 80 NPS for our glasses and contacts customers. As mentioned, if we're able to retain these customers and have them come back every year, every quarter, well, then fast-forward, they'll be a customer for a lifetime. The business has been very simple since we started out. We did the IPO back in 2021, raised about CAD 55 million at that time. We've done no transactions since, and so it's been a very relatively simple, and as we like to say, boring business. It's all common shares. We're about 34 million shares outstanding, and we now have zero debt on our balance sheet as well. Generating cash flow from operations last quarter was about CAD 7.7 million. We're starting to see more of that profitability flow through within the business. Fast-forward, we have no real need for major CapEx.
As mentioned, when we built the lab out in 2021, the goal was to really invest early on and then be able to do it scale within to the footprint that we've made. About CAD 30 million now cash on hand, no debt on the balance sheet, very little need for CapEx in the coming quarters and years. The business has really been set up to get to this point now where the test is really on us. Can we continue to give a customer an amazing experience? Can we continue to push a little bit harder in terms of getting our shipping times faster? Can we continue to give this really strong experience to these customers? In our view, if we continue to be able to do this is a really interesting business.
More of these customers are turning online every single year, and it's our job to be able to give them the optionality to say, "There's a better option than just going into your brick-and-mortar store. You can have more." That's really been the focus for the team. Maybe just as we're closing off here, the balance sheet has been a really big focus for the team. As mentioned, paid off our debt. We do like to kind of start seeing more, let's say, operating leverage within the business. As we continue to scale this glasses side of the business, we'll continue to see more leverage on the G&A and fulfillment as we scale out the glasses side of the business. Then marketing really will start to hit an inflection point for us, where the brand awareness will start to play in a bit more.
As you can imagine, working with a pair of glasses, you have almost a walking brand advertisement for every single pair that you get into your customers' hands. Really the focus in the last few quarters has been scaling that glasses business out to help lower that marketing over time. Maybe I'll close off here. Just as a quick note as well, I always like to highlight our insider ownership with the company. I mentioned our CEO, Roger, has done a very similar business to this in the past. When we built this business out, we were really thoughtful to keep a very high insider ownership. Of the 34 million shares outstanding, we're about 62% insider ownership. Majority of that held by our kind of our two members on our C-suite. A very simple balance sheet on that side.
A lot of opportunities for us moving forward, bu t now this is kind of the start of the next few years for us as we work towards our long-term targets of about CAD 500 million by the end of 2029, with Adjusted EBITDA moving forward to about 15%-20%. Maybe I'll close off there and save more time for some questions here.
Talk through the economics of the contacts business versus the glasses business. You talked about the higher gross margin in glasses, but maybe sort of like, okay, starting at the gross margin level, obviously the service and glasses side of the business is going to be much higher, returns are going to be higher, your capital in plant to produce it is going to be higher. Just maybe walk those down two different ways.
Yeah, definitely. It's a fun way to break down, and so we don't fully break out the margin of both, but generally speaking, on the contacts side of the business, you're about 30%-35% gross margin. As mentioned, very highly commoditized. It's the big brands you think of, the Alcon, Bausch + Lomb, that really you almost act as a commoditized product in reselling those. The glasses side of the business is really that higher margin product. Glasses, on average, is about a 50% gross margin or above. As we've been scaling that business across, that's where we've been seeing our gross margin really step up. When we did the IPO back in 2021, our gross margin was sitting around 25%, and the front half of this year, it's sitting between 37%-39% gross margin.
Really moving into that side of the business. Now to your point, it is a great question when you are looking at the returns. We follow a lot of amazing consumer companies, especially on the e-commerce side, there is a large risk to returns. All of a sudden, fast-forward, you are really throwing off your revenue lines. We are proud to say that we have one of the lowest standards of return rates in the optical industry. When you are looking at a pair of single vision frames, which is just one prescription within, on average, it is about a 10% return rate. For us, it is about half. When you are going into the digital progressives or what used to be known as bifocals, the industry standard sits around 20%, and once again, we are about half on that.
Now it is not that we have cracked the code for these customers or figured out how to remove all the friction beyond what another store is able to do, but it is really the automation I mentioned that is allowing us to remove that friction. As you can imagine, you go into your normal brick-and-mortar store, someone writes down your prescription, you pull a frame off the wall. That then is shipped to a local lab, often very manually done. You have someone either punching in your prescription or even at worst, hand grinding it. For us, the biggest risk there is all that human intervention. You as a customer can go onto our website. We actually ask customers to upload their prescription.
It is the optical industry, they try and make it more difficult than it needs to, but as a customer, you have your OD, you have your OS. For us, just take a photo of it, upload. By the time it rolls off the printer on our side at our lab, all of our machines now already know what prescription is coming in, the frame that you are actually buying, where your PD is on that, there is no manual intervention. The number one reason for returns is that in optical, even if you are the slightest measurement off on your prescription, we have all gone through it, you are almost walking, you feel like you are on a roller coaster. Just removing all of that manual intervention has allowed us to keep the return rates low.
Yeah. Just if we go from gross margin to more of an operating margin basis, how do they compare today?
Yeah. We're seeing more improvements on that side, so maybe going through the overall COGS line as well, it's probably important to note. We're selling our glasses on average for about CAD 38- CAD 58 for a prescription. It costs me about CAD 20 to be able to actually make these frames, do all the design components of that, and we're really seeing a lot of flow-through on our operating line now. It has taken a little bit of time. As you can imagine, fast-forward as you're moving more into this glasses business, we are seeing more scale within our facility. As we're seeing more scale, it's really supporting us to be able to have more, whether it costs me a dollar to put one pair in or a dollar to put 100 frames through one machine.
There's really that G&A, we 're starting to see more flow-through over this time.
Capacity utilization?
Still quite low. We're sitting probably around 35% on our capacity right now. I see a few people who've been out to our lab in Vancouver. There's no major needs for adding capacity. What you will see from us and what we just invested in is a new machine for premium lenses. The team started to see a pickup of this premium lens, digital progressives, polarized. We decided to invest in one of these machines just to be able to prepare for the foreseeable future. Sitting on average around that 35% utilization. For us, it's really important, and it's always a key metric that the team focuses on, is that speed of shipping. Utilization on a Monday may be a little bit higher than utilization on a Friday.
The biggest thing for a customer, especially on the glasses side, is can we get that product to them quickly? We will be happy to invest in the early days to be able to keep that speed of shipping up for customers, even though we have the low capacity needs right now.
I am sorry if I missed this , are you planning on an uplisting anytime soon?
Great question. We are currently listed on the TSX, and I would say if you talked to us probably three, five years ago, we would have thought by this time we would have done an uplisting. As many in this room know, it has been a slow market that we have watched with IPOs in the U.S. The benefit being TSX listed is by going through the MJDS, it is a very simple process for us, and we can move quite quickly on it. The team is constantly assessing right now about that uplisting. It is one of our hopes, and as we look at M&A out in the future, to be able to tag on an uplisting with some sort of transaction on that side. We will be slow and steady on that.
Obviously there is a cost to being dual-listed, and D&O in the U.S. is a bit more expensive than Canada, so we just want to be careful and slow with how we move into that. Perfect. Anything else?
Maybe-
Yeah.
I wonder a little bit quickly about the founder. You said he sold the business once and came back again. Maybe at some point, but what is he doing differently?
Yeah. There's a couple factors on that. When you look at Roger's first company back in 2000, anyone buying anything online in 2000 is a very different process. Fast-forward to what we've done today is just be a bit more thoughtful of how we've scaled the business out. The biggest difference really being doing the manufacturing immediately. When he started the business initially back in 2000, they took quite some time to launch into the glasses side of the business, and then even took a little bit longer to be able to scale out the manufacturing. Early on when we built this business out, we said within two years we want the manufacturing in place, and we want the glasses business to start rolling. The biggest difference on that side. Another key factor was also starting in the U.S. early.
We are very fortunate to be based in Vancouver and with some amazing optical or some amazing consumer companies. These individuals were able to share insight that you have to start early in the U.S. because all of a sudden you scale in Canada and you tap out quite quickly. One of the biggest differences as well was that, and that's where we continue. I've seen that about two-thirds of our revenue in the U.S. More than anything else, is just being a bit slower with M&A. When you look back to Roger's first company, 2000 start, did the TSX listing within the first few years, did the uplisting to the NASDAQ, and then did quite a few acquisitions. Very successful at that time, but they had locations in Japan, in Sweden, in New Zealand. It really did scale out quickly.
But as you can imagine, there's costs associated with all of that, so we've just been a bit slower this time to assess the market, grow in North America first, then earn the right to move into different regions. And so very productive learnings from that. A key highlight as well is our Chief Financial Officer, who stepped in as CFO about six months ago, had worked with Roger in his first business. So he started in 2006 with Roger, went through to become CFO, then actually stayed on post-acquisition in 2014. So we've been able to take a lot of learnings from both our CEO Roger's experience, and then as well our CFO who stayed on with working under the big banner of Essilor. Fantastic. Okay. Close off here. I appreciate it.