Kits Eyecare Third Quarter 2026 Conference Call - DEFI TECHNOLOGIES INC

Explicit Guidance:

• Q4 2026 Revenue: $64 million to $66 million, implying 19%–22% year-over-year growth.
• Q4 2026 Adjusted EBITDA Margin: 4% to 6%.
• Full Year 2026 Revenue Outlook: Approximately $244 million to $246 million, targeting ~20%–21% total growth.
• Marketing Spend Target: Intensity expected to normalize and manage back toward a mid-teens percentage of revenue (15%–16%) as new customer economics allow.
• Fiscal Year 2027 Capital Expenditure: No explicit dollar guidance provided, but capacity additions for first-half 2027 locations are scoped.

Business-Segment Outlook:

• Glasses Segment: Projected to continue accelerating; revenue of $33.1M in the first nine months already surpassed all of 2025 sales. New customer first-order values are up 63% YoY.
• Progressive Lenses: Anticipated to grow as demographics shift and demand is non-discretionary; Q3 growth was 56% to $3.1M. Management expects this trend to continue with new lens tints (blue, pink, tan) launching to drive attachment.
• Contact Lenses: "Re-accelerated" to 15.7% growth in Q3; Auto-ship program is expected to expand further as a recurring revenue lever.
• Private Label (Kits Daily): Expects to capture greater margin share by converting existing customers to higher-margin own-brand lenses, with nearly half of new buyers being existing contacts customers.
• Geographic Expansion: Toronto store model validated; signed Letter of Intent for Calgary location with expected opening in early Q1 2027. Further store scoping for early 2027.
• AI Glasses: Categorized as an early-stage growth vector; expects Q1/Q2 2026 to have seen peak initial growth with a subsequent slowdown in volume, though still growing double-digits YoY and providing 75%+ of revenue through lens insertion needs.

Market and Competitive Outlook:

• Market Share: Targeting 4x category growth in contacts (vs. ~4% category growth) and 5x+ category growth in glasses (vs. ~10% category growth) by acquiring high-value customers trading up to premium products.
• Pricing & Mix: Strategy focuses on expanding mix into higher-margin products (premium lenses, progressives) and trading up, evidenced by a 32.5% rise in average glasses order value to $151.
• Customer Economics: Focus on acquiring fewer, higher-value customers; 2022 cohorts have spent 187% of their initial order in four years, validating long-term LTV compounding.

Macro / Industry Outlook:

• Economic Resilience: Frames vision care as non-discretionary, with insurance benefits and end-of-year cycles driving higher average order sizes and repeat purchases during Q4.
• Inflation/Supply: Managing fuel surcharges internally (absorbing costs) rather than passing them to customers, leveraging fixed fulfillment capacity to maintain margins despite input cost volatility.
• Competitive Moat: Emphasizes the defensibility of the integrated platform (lab, fulfillment, vertical integration) which allows for 10x value proposition on digital progressives ($149–$199 vs. market $800–$1,100).

Strategic Initiatives:

• Capital Allocation Priorities: 1. Customer acquisition (funded by internal cash flow); 2. Glasses capacity expansion; 3. Shareholder returns (buybacks) or strategic platform extensions.
• Capacity Additions: New surfacing line fully installed and in production, adding 60% capacity for specialty/progressive lenses to support automation and speed.
• Retail Footprint: Toronto flagship opening ahead of expectations, driving 28% faster online growth in that region; Calgary store planned for Q1 2027.
• Product Innovation: Launching new tinted lenses and expanding AI glasses selection to over 25,000 frames.
• Shareholder Returns: Active buyback program; $1.8 million repurchased in Q2 and Q3; intends to continue repurchasing shares when trading below long-term value.

Risks and Headwinds to Outlook:

• Lag in Repeat Revenue: Glasses customers have a longer reorder cadence than contacts, creating temporary marketing intensity drag on quarterly results.
• Macroeconomic Volatility: Acknowledged slowdown in the broader AI glasses category.
• Execution Risk: Management notes the "next test" is translating gross profit expansion into operating leverage and earnings per share growth; overhead efficiency must be maintained as revenue scales.

Management Tone on the Future:

• Confidence: High; described business as "simple, predictable free cash flow generative" with a "self-funding, compounding machine" model.
• Long-Term Horizon: CEO explicitly states the business is valued on a 10-year view rather than quarterly, noting that "earnings are an opinion, and cash is a fact."
• Discipline: Emphasis on "marketing efficiency" returning to mid-teens and "margin expansion" as the primary driver of value, with a refusal to dilute or borrow to grow.