All right. Good morning, everyone. Welcome to Planet MicroCap Toronto 2026, powered by MicroCapClub. Thank you for being here bright and early at 8:00 A.M. Eastern. Whoa. For all you 5:00 A.M.-ers listening in on the PST, welcome. I would like to introduce our first presenter here today. I would like to introduce Olivia Evans from KITS.
Thanks, Bobby. I'll let him leave the room as I need to give him a little bit of grief for the 8:00 A.M., but appreciate that. Just starting off here, I just want to thank you all for being here. The 8:00 A.M. slot's always a tricky one, and so do appreciate the turnout today. I was reflecting with the team a couple of days ago as where we started with the MicroCapClub back in 2024, first getting invited to Idaho by Ian Cassel, and it's quite a funny thing.
It's been over two and a half years now that we've got to engage with this audience, and it's been a really engaging and fun development for us over this time, being able to see you be and hear from speakers on our team, including Joe Thompson, our previous COO, myself, and then even more recently, Adam Wilk did speak on behalf of our company in Vegas of this year. Just given this, I see a few familiar faces in the audience today, who do know the story a little bit better than maybe some others. I'd prefer to spend a bit more time on Q&A today.
We have had some more developments with the team. I'll give a bit of a five, 10-minute overview of the business and where we're at today, and then if there are any questions, I'll save more time for those at the end. Given that, just kicking off. KITS Eyecare, we started the business back in 2018. It was our two Co-founders, Roger Hardy and Joseph Thompson at the time. It was these two individuals who were looking at this optical category that really had not been disrupted since inception. If you think about, and if I see many people in this room today wearing glasses, if you think about your glasses experience, it's often a bit of a pain to be able to go through. You're going into an optometrist, you're paying CAD 300-CAD 400 for a pair of prescription glasses.
You're waiting anything from two to three weeks, and then you're driving back to this optical shop. Extremely inefficient business. The team looked at this CAD 70 billion category in 2018, where seven out of 10 people require some sort of vision correction, and said, "There still is so much disruption to be able to do." That's exactly what the team did. They looked at this category and said, "Why?" If we're really going to approach the why, it's why not just make eye care simple and make it easy? The team set out with that objective as being our main priority, really since starting the business.
Our thought and process behind this was that if we could remove about 90% of the cost and the waste of the system, all of the lack of innovation, all of the lack of the brick-and-mortar stores, be able to add a technology layer, inevitably draw the shortest line between the raw materials to the end consumer and pass those savings along to customers, well, that would be a really exciting business. That is exactly what we did. Back to 2018, the team started with a bit of experience in this category. Our two Co-founders that I mentioned, Roger Hardy, has great experience in this category. He started a business very similar to KITS back in 2000 called Coastal Contacts. When I say similar, I mean very similar business.
E-commerce, selling contact lenses online, growing that business and using that profit into glasses, then going through a TSX listing to a NASDAQ listing to then in 2014, when the revenue was sitting at about CAD 217 million, selling that business off to the big behemoth in the category, Essilor. Fast-forward four years later, that business had really been shut down. All of the operations had been moved overseas, and once again, that consumer was sitting there with having to go into the brick-and-mortar store. That experience really helped navigate where we started with KITS. In 2018, we started off with the smaller part of the category, which is contact lenses. It is about a quarter of the size of the glasses category.
It is a highly commoditized product, and so often customers are buying their J&J, their Alcon, and it is a much lower gross margin than glasses. If you look at that category and you really look underneath the details, what you will see is a highly reoccurring customer that fast-forward also needs a pair of prescription glasses. We built that business up on contact lenses until 2021. We did our IPO in January 2021 and used those proceeds to build our vertically integrated lab in Vancouver. That was really the start of the glasses side of the business. Now we are eight years in. How are we doing? We just put out preliminary numbers. We will be sharing our earnings next week, and so unaudited at this time. This quarter, we did about CAD 63.7 million in revenue, now surpassing over a CAD 250 million annualized run rate.
A very big achievement for the team. What you will see on this slide, which is more encouraging than anything else, is every quarter, every year since we started this business, we have seen over 60% of our revenue come from repeat customers. That is really the magic behind this industry. If you need prescription glasses or contact lenses or any vision correction, you do need it for a lifetime. This is not something where you wake up any day and decide, "I just do not need to be able to see." The benefit is if you take care of your customers and give them an amazing experience, well, thankfully those customers will come back. The team has been forming well. What you will also see on this slide is that we have seen over now 16 quarters of positive adjusted EBITDA.
What we learned from the first experience was first, build the business faster and get to scale as quickly as possible, but then importantly, do it profitably. If you look over the last couple of quarters where the developments really have been in the business, it has been seeing more of a sustained growth and inflection on our glasses side of the business. As you can imagine, as I mentioned, as you move into the glasses category, you are moving into that larger category that is also higher gross margin. On average, the contact side of the business ranges from about a 30%-35% gross margin, where glasses can be 50% gross margin or above. As we have seen more of the glasses business representing a higher % of our revenue, we are seeing more of that inflecting and flowing through to the bottom line.
Now, of course, to be able to have a business of this size, you really need to focus on customers, and that has been the number one priority for our team really since starting the business. As I mentioned, that is the full feeder into this repeat customer. Our team does focus on this millennial and Gen Z consumer, these individuals who know how to buy online, who actually prefer to buy online. We have learned quite a lot about this customer. They have a very high bar, and I mean a high bar. They want speed of shipping, and they want it in a day or two. They are really that Amazon consumer if you think about it, and they want the best price possible.
The team, by focusing on that Net Promoter Score of that consumer and making sure that NPS is high, aiming for about an 80 NPS, what we have been able to see is that customer continue to come back and then also transfer from being a contact lens customer and then move into our glasses side of the business. As mentioned, we have seen a really interesting and great inflection of the glasses business this past year. These are Q2 numbers, but what you will have seen, even more recently in our Q3 preliminary numbers, is glasses growing at about 59% year-over-year, last quarter about 54%, and then the beginning of this year about 60%. As we are seeing this glasses business start to run, it is really getting exciting for the team as to the potential of where this business can go over the next few years.
Our expectation is, what we have shared with the market is, by the end of 2029, we expect revenue to be about CAD 500 million and our adjusted EBITDA to be about 15%, and that is highly driven by more of the revenue % coming from the glasses side of the business. Now, it is important to note when you are looking at this category and working with millennials, as I mentioned, a very high bar. In any consumer business, there is almost two risks, one being opening too many brick-and-mortar stores. As you can imagine, there is lots of costs associated with it. There are already 45,000 brick-and-mortar stores in the U.S. alone, and so opening storefronts is not the strategy for us. The second risk is spending too much money on marketing.
Really, since building the business out, the team's focused on using our brand and our product as the marketing tool itself. When I look back to 2021, when we first launched the glasses side of the business, we looked at this category and through the Meta ads and the cost of doing so, it's about CAD 100-CAD 150 to acquire a vision-corrected customer through these channels. As a team, we sat there and said, "Well, we'd actually prefer to put our product in the customer's hand, given that our cost of goods sold is about CAD 20 on this product." When we launched the business initially on the glasses side, we actually offered first pair free to all customers. If you'd never bought from KITS before, we'd say, "No problem.
We'll send you a free pair of glasses." As you can imagine, no one believes anything's free anymore, so we had thousands of thousands of people reaching out and curious about what this brand was and what we were going to build. Seeing that growth over time, we really decided to lean into the product as the marketing tool and our customer as the marketing tool. Our best marketing comes from word of mouth. I see a few people, and I do have to call out one of my friends here, Gordon, who's not wearing his KITS glasses today. But when you have a product that people are wearing every single day, you have a marketing tool.
Given that our price point on glasses is anything from CAD 28 to CAD 68, including the prescription, what we find is it becomes quite a talking point for individuals, especially on this millennial consumer. They'll go into the office, have a new pair of glasses. They're excited to share about this amazing business that they found where, fast-forward, they waited two days to get the product, and they paid a tenth of the price of what they usually pay for prescription glasses. We've really gone into the marketing strategy in a bit of a unique way. It's important to note that we often get the question as to, "Okay, so you found a sleepy, boring category. You added some innovation. You added some machines and technology.
Why haven't more people done this?" It's a great question, and the reality of it goes is experience really does matter. As I noted, when we first started the glasses business, we actually built the lab out before even selling a pair of glasses. The reasoning behind that is you need to be vertically integrated in this category to be able to take the waste out of it. If you aren't vertically integrated, unfortunately, all of the profit is in the lenses itself. If I start a business, and all of a sudden we acquire these customers, and I'm sending it to a third-party lab, well, you're losing all your profitability. We really put an investment in early on to be able to build this lab to scale to about CAD 500 million in revenue with no major CapEx requirements at this time.
What we've seen through that time is that we've been able to offer those products for CAD 28 to CAD 68 and only have cost of goods sold at CAD 20. That end foundation has been a key catalyst. If you are in Vancouver, we always say, "Come out to the lab and tour it yourself. We have some of the best machines in the world." It's a pretty phenomenal process. You as a customer, you go on the website, you pick the frame that you want, you upload your prescription. Two minutes later, that rolls off of our printer. 10 minutes later, that's already in our machines. Your lens are being cut and put into the glasses. We have some assembly, then that will actually go into the shipping and carrier network that same day.
By doing it all yourself, you're really focusing on the customer and the product early on. Now, moving forward, we've had a few exciting developments in the last couple of months here, and one of them being our Toronto store actually right here on Queen Street West. We started the business out really with the fundamental desire to not have a large chain of brick-and-mortar stores. The benefit of having a couple of these brick-and-mortar stores is they act as a great brand awareness play, and we look at it as more marketing than anything else. If you do have a few minutes in the next couple of days here, feel free to go check out the store. Let them know we've sent you, and get some glasses yourself and try out the experience.
What's been really encouraging about this Toronto store that we opened up in July is it's performing at year five levels of our KITS Vancouver store that we opened up in 2021. Very encouraging for the team to be able to see that progress and see that that customer base in Toronto is really helping the awareness. As I see no analysts in the room, thankfully, but there's constantly a push about these four-wall KPIs. What we like to share more is the geolocation and the geo-tracking and the lift that we see of having this location. We'll share more details in the coming earnings, but it's been a very encouraging couple of months. What you can expect from us is maybe a few more of these brick-and-mortar stores in the next few months into 2027.
Ideally, we are planning on starting in the Canadian market, you can imagine maybe somewhere in Alberta, Montreal, opening up a few of these brick-and-mortar stores. Then when we have those flagships in place, moving into the U.S. and using that. As mentioned, we do like to keep a close eye on our operating expenses. Historically speaking, you'll have seen our marketing spend anywhere from about 14%-16%. For us, that's more of a strategy than anything else. We have had a bit of an elevation this year, going all the way up to almost 19% earlier this year.
But what we've seen underneath those numbers is the team strategy has changed slightly in terms of those customers that we're bringing in, the cost to acquire those customers, if the AOV of those customers and the lifetime value is more compelling of these newer cohorts focusing on digital progressives customers, which have a higher AOV, those daily modality customers that also have a higher AOV and a higher gross margin. If we can focus on acquiring those customers and spending a little bit more on our marketing spend, it's a worthwhile investment. Moving forward, what you can expect is working towards getting back to that more sustained level of 14%-16% in the coming quarters. But for now, just important to flag that important investment that we have made. Now closing off in short, when I look at the model itself, maybe I'll slide back here.
We've been able to build this business out over the past eight years by having one capital raise, which was the IPO, and acquiring a little bit of debt in 2019. What you'll have seen from us in the last couple of quarters is now we've paid off all of the debt, and so we have no debt on the balance sheet. We have about CAD 30 million in cash on hand. As we're excited to share, we actually repurchased some shares last quarter with our NCIB. So really focusing on how we can have a thoughtful and strategic capital allocation strategy moving forward. We have no major CapEx needs as well, as we have invested already in the lab. Opening the storefronts that we've mentioned, we can do for under CAD 1 million per store.
So our CapEx plans moving forward are to continue at sub 2% of the business. Closing off, we do have seven analysts covering us. I do know that Haywood's here. There's some reports on their desk as well. So if there's any questions for myself or from the Haywood team, we're always happy to be able to answer that over the next couple of days. Maybe I'll close off there and save a little bit of time for questions here.
Two questions. The average selling price at your retail store versus like a median competitor, first. Then you mentioned, I think I saw 4.5% adjusted EBITDA margin. What's the end state you kind of would expect to get to?
No, great questions. Within the storefront, the cost of the glasses in the store is very similar to the cost of glasses on our website. It is actually exactly the same. Still ranging from CAD 28 to CAD 68 for a pair of single vision glasses. The experience in the store is very similar to online, except for it allows customers to have the opportunity to touch, to feel the product, to try on a variety of different styles.
It is like a LensCrafters or something.
LensCrafters, any optical shop on average in the Canadian market, it is about CAD 350 to CAD 400 in a brick-and-mortar store. You are really able to have huge savings on that side. When looking at the end state of where we expect our adjusted EBITDA to be, our goal for 2029, not formal forecasting, but internal guidance, is sitting at around 15% adjusted EBITDA. We often get the question, obviously, 4.5% this past quarter, quite a bridge until we get there. What are the drivers behind that? We have a lot of pricing power still. We have not really changed pricing since we launched the glasses business in 2021.
Instead of increasing that cost of frames, offering more options for premium lenses, more recently anti-fatigue lenses, offering those premium lens upgrades to customers, and seeing a bridge in the AOV and helping that flow through. Because we do all the manufacturing ourself, that really is a very profitable channel. The mix shift being the largest part. As mentioned, the gross margin on glasses is much higher and much more compelling. When we look at our revenue split, it is about 17%-18% of our revenue is glasses right now. That is up from 13% this time last year, but there is still a long way for us to go to move into that larger category and have that represent a larger share of our bottom line.
You mentioned tighter margins in the glasses, but your margin has been going down also with the glasses.
Yeah. If you look at the front half of this year, it was about 6.1% for the front half. In this recent quarter, unfortunately, I can't give full audited numbers yet, so we expect above 4.5%. We'll be able to share more details on that, but you have seen a little bit of a decline. Q3, the decline comes from a focus on the contact side of the business. When we were sitting in Q2, we saw a great inflection on glasses, but we don't want to disregard this amazing contact lens customer that is highly reoccurring, that acts almost as an annuity-style business. We spent Q3 focusing on that customer and adding over CAD 5 million just alone in the contact side of the business, and bringing those customers in, and then working on converting those customers into glasses.
A bit of a thoughtful investment on that side. As you can also see, the front half of this year, marketing spend was quite elevated. The team, as mentioned, we just thought this year for marketing, there was a great opportunity to acquire some more customers. We've now reached over 1.1 million active customers who've bought from us in the last two years. Instead of just focusing, it's an ongoing challenge that the team chats about on a daily basis. When looking at where we think for the business to be in the next few years, you really need that customer base and those customers in. We focused a little bit more on growth this year, and then we'll see more returns of the bottom line in the coming years.
It's an ongoing challenge of do you want to see growth or profitability? Right now, our team wants to build this business for the long term and for those 2029 goals, so that's really where the focus area has been.
Sorry, you mentioned that you haven't had any kind of price increases. What's always surprising in the story here is that you're a discount of 3x or 4x what you could buy. Why not just increase the price by?
It's a great question, and if you ask our finance team, they'd probably be on your side of the team as well. For us, you don't want to rock the boat before you've got stability in it. Though we've seen glasses growth over the last few quarters, there's still a long way to go, and we see the pricing point as being a great marketing tool itself. There is something disruptive about having a price of glasses as less than what it costs to get an Uber from the airport or even an Uber across Toronto in traffic. By having that CAD 28 price point, it really does become a talking point and allow that marketing strategy to go.
As you can imagine, as we're seeing more businesses really taking price, we wanted to focus on just keeping that stable price for customers and be the only ones who haven't taken price and give customers optionality. For us, it's really a focus, and I give credit to our Co-founders on this side, where it's easy to just take price and see that flow through, but it's much harder to keep price and then focus on how to share the brand in much of a greater scope, and so that has been the focus for us. As we look out to the next couple of years, there could be a slight increase, but what we'll see more is an increase in terms of offerings. As mentioned, those anti-fatigue, we've seen a huge inflection in our premium lenses of digital progressives.
Digital progressives, where you have two or three prescriptions within the glasses, and those, on average in the Canadian market, cost anything from CAD 800 to CAD 1,000, and we sell those on KITS for under CAD 200. By offering those options that do have a higher AOV, that does flow through in a higher gross margin, but it's huge savings to customers. Focusing on that side of the business rather than just increasing our lowest offering has been meaningful for the team.
Also, when you increase your glasses %. To increase your glasses %, what are the growing pains and frictions that you see as you get more and more glasses?
No, it's a great question, and I'd say with growing any category, there's always going to be a sense of friction. The benefit of the team is we have experience in doing this before. What the team knew from the first business is the biggest growing pain that you have is by starting doing manufacturing. What we've been able to do is really have that scale initially, and then now fast-forward, we're able to see the flow-through of the glasses business in our lab. The growing pains really haven't been too much on the operational side, but it's been more on the marketing side, getting the awareness. It's easy for a business to go and spend 25%, 30% of revenue on marketing, but it's very hard to bring it back to a sustained level.
Really, it's how to grow strategically and not just elevate that spend. What you've seen from the team is using the product, like the first pair free or using different campaigns like buy one, get one, to help the market really understand that more is more. You don't need just one pair of glasses that you get every two years. It's a foreign concept for many, but it's not like your eyes change every two years on clockwork when your insurance goes. For us, it's really by training that market to know. It's a huge category, and there's still a lot of disruption to be done.
It's more in the sense of how fast we can get there and how fast we can give customers the awareness that the options can be better, and there's more out there for us to be able to do. I think I'm one minute left, so maybe last question.
Yeah. Peers such as Warby Parker have partnered with Google to make smart glasses.
Have you guys thought about entering that space because it seems to be targeting the same type of optics that would be social media savvy, such as behavior.
No, it is a great question. We have been in the smart glasses market now for just under two years. We started early on with smart glasses, with offering customers that low-cost option on the KITS side. It is important to note, we have had four different generations of this before even Warby has even launched their new Google glasses. The team has great experience testing, building up that consumer base. For us, our biggest value add is that we also sell on our website both designer glasses as well. We offer prescription within all of the smart glasses with the designers. The Ray-Ban Metas, the Oakley Metas, all of those you can buy through our website. The value for a customer is it is very difficult to put a prescription lens in this frame.
What we are able to do is by doing all the prescription for this customer, it really takes away that pain point for customers and allows us to benefit if the category moves fully to smart glasses or if it just continues to be a small part of it. Fantastic. I think my time is here. Thank you all.