On Wednesday, Kits Eyecare (TSX:KITS) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Kits Eyecare reported a 23% year-over-year revenue growth in Q1 2026, reaching $57.5 million, marking the 14th consecutive quarter of organic revenue growth above 20%.
The company achieved its highest adjusted EBITDA in history at $4.1 million, representing 7.2% of revenue, with a gross margin expansion to 40.9%, aided by a one-time tariff refund.
Glasses revenue grew 61% year-over-year to $10.8 million, with a 50% increase in glasses units sold, indicating strong momentum in the category now representing 18.8% of total revenue.
A strategic reinvestment of a $2.1 million non-recurring tariff refund was made into customer acquisition, resulting in approximately 100,000 new customers, contributing 36.1% of Q1 revenue.
The company ended the quarter with $19 million in cash and zero long-term debt, positioning it well for future growth investments.
Looking ahead, Kits Eyecare expects Q2 revenues between $57 to $59 million with adjusted EBITDA margins between 3 and 5%, aiming for a full-year constant currency revenue growth of 25-30%.
Management emphasized the strength of its vertically integrated model, which provides a cost advantage and supports future category expansion and margin growth.
The company announced plans to open a Toronto location in Q2 to support brand building and glasses growth in Canada’s largest market.
Full Transcript
Sa (Operator)
Good afternoon everyone and thank you for joining Kits Eyecare first quarter 2026 earnings call with me on today’s call are Roger Hardy, Chief Executive Officer, Joseph Thompson, Chief Operating Officer and Ibrahim Kumar, Chief Financial Officer. Before we begin, I’m required to provide the following statement respecting forward looking information which is made on behalf of KITS and all of its representatives on this call. Certain statements made on this call will contain forward looking information. This forward looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would and other words of similar meaning. This forward looking information is based on management’s opinions, estimates and assumptions in light of their experience and perception of historical trends, current conditions and expected future developments as well as factors that they currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast, expectation, belief, or projection in forward-looking information and certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information. Management cautions investors not to rely on forward looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information are contained in filings with Canadian provincial security regulators during today’s call. All figures are in Canadian dollars unless otherwise stated and with that I will turn the call over to Roger Hardy, CEO. Please go ahead.
Roger Hardy (Chief Executive Officer)
Thank you operator and thank you to everyone joining us today. Q1 marks our 14th consecutive quarter of organic revenue growth above 20% year over year. Fourteen straight quarters in Q1 total revenue reached 57.5 million, growing approximately $11 million or 23% year over year and 27% on a constant currency basis. Importantly, this was $3.6 million or almost 7% sequential growth over Q4. We continue to believe our growth in North America makes us an one-of-a-kind in the optical category and Q1 reinforced that view. Adjusted EBITDA reached $4.1 million or 7.2% of revenue, the highest adjusted EBITDA in our company’s history. A strong start to the year and building on our three year trend of adjusted EBITDA progress as we take meaningful steps forward in our journey of compounding profitable growth. Gross margin expanded to 40.9% supported by both underlying mix improvements and and a non recurring tariff refund. I’ll discuss in a moment. The quarter also marked our 14th consecutive quarter of positive adjusted EBITDA while continuing to grow at category leading rates. We ended the quarter with $19 million in cash and zero in long term debt. Three themes that define the quarter are number one, the strength and acceleration of our glasses business, the disciplined reinvestment of a one time tariff benefit and the durability of our customer economics. First in glasses glasses revenue grew 61% year over year to $10.8 million. Building on momentum we’ve been describing for the past several quarters underneath that headline we delivered over 156,000 pairs of glasses units in the quarter, a 50% year over year increase. This growth reflects compounding tailwinds including accelerating adoption of the premium lens business, growing units over 75% year over year, contributing to expansion of average order value which now sits approximately 35% higher than a year ago for glasses, consistency in customer retention with our returning customer rate supporting over 60% of revenue every quarter since our IPO in January 2021 reaching 63.9% of total revenue from repeat customers and continued strength in our vertically integrated manufacturing capability which gives us both cost and quality advantages we don’t believe our competitors can easily match. Glasses are transitioning from a growth vector to a core driver of both revenue and margin, now representing 18.8% of total revenue, up from 14.4% in the prior year period. As this category scales, we expect it to play a larger role in both top line growth and margin expansion over the years to come. Underneath that growth, premium Lens upgrades represented 42% of glasses revenues, with digital progressive revenue growing over 65% year over year. We ended the quarter with over 609,994 frames in stock across more than 21,438 styles, supporting both selection and scale as we extend into adjacent categories and the most important leading indicator from the quarter, the 2026 glasses cohort is generating first order revenue approximately 62% higher than the 2025 cohort on the same entry level pricing the clearest evidence yet that the platform is compounding. Second, the tariff refund and reinvestment during Q1 2.1 million in non recurring tariff refunds related to prior periods and imports into the U.S. consistent with our long stated strategy of growing with intention while delivering steady EBITDA progression, we made a decision to reinvest that benefit into accelerated customer acquisition during the quarter with specific focus on capturing share in our glasses category where the return opportunity was disproportionate. That decision translated directly into some exciting leading indicators. Approximately 100,000 new customers acquired representing 36.1% of Q1 revenue. Our two year active customer base reached over 1.1 million, up 17% year over year and glasses units increased 50% year over year to 156,000 units. As a result, marketing came in at 18.9% of revenue. To be clear, this was strategic and a time bound reinvestment of a one time item, not a change in our marketing intensity framework. We’ll continue to invest in customer acquisition where returns support it. Marketing will flex with cohort quality as we assess the spend against long term customer value, not short term period comparisons, while remaining committed to an adjusted EBITDA positive framework. Third, our customer economics our cohort metrics continue to support the case for long term compounding. Repeat revenue represented 64% of total revenue in Q1 and continues to grow as a percentage of mix. Our autoship customer base, which is the foundation of a recurring revenue, represented 5.9 million in revenue during Q1 and we’re seeing strong cross category dynamics where glasses customers are increasingly purchasing contact lenses and vice versa. At the cohort level, the metrics continue to improve. Our two year active customer base grew 17% year over year to over 1.1 million customers. Average order value is up approximately 35% higher for glasses versus a year ago as customers move into higher value lens categories and repeat customers continue to deliver materially higher gross margin per order than first purchase customers. More importantly, cohort quality is improving. What gives us conviction in that signal is how these cohorts behave over time. Customers acquired in 2024 through 2026 are outperforming earlier cohorts. When looking specifically at the 2021 contacts cohorts, it’s grown from approximately $151 of revenue per customer in year one to over $450 in cumulative revenue in a four year period. That expansion is driven by stronger brand awareness, a broader product offering and a meaningful improved customer experience. What we’re seeing in 2026 is that customers are entering the platform at a higher starting point which when layered onto the same multi year trajectory materially increases the lifetime value of each new cohort. While the financials show the output innovation is what drives it on the product side. We continue to expand the glasses offering across materials, product lines and construction with a focus on increasing both customer value and margin. In Q1 we expanded our readers and progressive readers offering, driving meaningful year over year growth in units up 74% year over year. We also introduced new frame innovations including our Flex Collection designed for durability and comfort through a 360 degree hinge system. But the more important shift is happening on the tech side. Optician AI is no longer just a feature, it’s increasingly the interface offering personalization, guiding product discovery, improving conversion and increasing attachment to higher value lenses in real time. As more customers engage, the system gets smarter, conversion improves and cohort economics, Strengthening a compounding loop we are also extending AI across the business from search and merchandising to marketing and customer support with a clear objective, remove friction, increase confidence and elevate the entire buying experience. Looking ahead to Q2, we expect continued momentum with revenue projections in the range of 57 to $59 million and adjusted EBITDA margins to come in between 3 and 5%. Joe will speak to the operational drivers in a moment and Ibrahim will walk through the financials in detail. But before I hand off, I want to highlight one point we continue to have high conviction around our ability to generate asymmetric returns in the category. With that, I’ll turn it over to Joe.
Joe
Thanks Roger. I want to touch on two foundational beliefs that frame how we think about the glasses business and why we believe the next five years represent a generational opportunity for kits to establish itself as the platform for prescription eyewear in North America. The first is cost. Our vertically integrated model gives kits a structural cost advantage in high quality prescription glasses at scale. Our vertically integrated Vancouver lab, our just in time production model and the volume leverage we capture as unit scale. Over 156,000 pairs delivered this quarter alone, up 50% year over year combined to give us a structural cost position we don’t believe traditional optical retailers can match. That cost advantage is what allows us to keep entry level pricing unchanged while expanding gross margin and it’s what creates the Runway to extend into adjacent categories, readers Progressives light adaptive SonNRx and the premium configurations beyond without compromising on either price or quality. Each new category sits on the same fixed manufacturing base, which means every incremental unit of volume flows through at very attractive incremental margins. The wider our category footprint, the more reasons a customer has to come back to Kits and the more share of their eyewear wallet we capture over time. The second is repeat behavior because customers experience that combination of value, quality and convenience. Our customers exhibit industry leading repeat behavior. Repeat orders represented 63.9% of total revenue in Q1 and on the glasses side specifically, 78,000 pairs delivered this quarter went to returning customers a 53% year over year increase in repeat glasses volume. But the more important point is what those repeat customers look like compared to first time buyers. They trade up into premium lenses at meaningfully higher rates, they carry larger basket sizes, they buy across categories, glasses customers buying contacts, contacts customers buying glasses, and they require a fraction of the marketing investment to reengage. Every cohort we acquire today becomes a lower cost, higher margin revenue stream for years afterwards. That is the asset we are compounding. Lastly, we’re on track with our previously announced Toronto location which we expect to open later in Q2. This expansion supports our brand building strategy in Canada’s largest market and we expect it to incrementally support glasses growth in southern Ontario over the back half of 2026 and into 2027. I also want to take a moment to welcome Ibrahim Kamar to his first earnings call as Chief Financial Officer. Ibrahim has been a key partner behind the scenes as SVP Finance and his promotion reflects the strength and continuity of our financial leadership. I’ll now turn the call over to Ibrahim for the financials.
Ibrahim Kamar (Chief Financial Officer)
Thanks Joe and good morning everyone. To recap, Q1 revenue grew 23% to 57.5 million with glasses revenue as the standout reaching 10.8 million up 61% year over year. Repeat revenue represented 63.9% of total revenue in the quarter and new customers revenue increased almost 17% year over year. That combination is what supports both near term revenue and long term economics. Gross profit was 23.5 million in Q1 up 6.4 million from 17.1 million to in Q1 2025 and gross margin expanded to 40.9% reaching a new threshold for CAIF. It’s worthwhile to note three areas under the gross margin line. First, the headline 40.9% includes a 2.1 million non recurring tariff recovery. Excluding that recovery, underlying gross margin was over 37% a year over year improvement. Second, the structural drivers are the repeat revenue mix and glasses. Repeat revenue reached 36.7 million and our glasses gross margin continues to expand. Third, premium lens categories which carry higher gross margin which represent approximately 42% of glasses revenue highlighted by digital progressives growing over 65% year over year. Adjusted EBITDA was a record 4.1 million or 7.2% of revenue. This includes the benefit of the tariff recovery. Adjusted EBITDA remains positive while we increased marketing reinvestments on operating expenses. Marketing was 18.9% of revenue increasing year over year from 13.5%. As Roger noted, …
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