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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the Kits Eyecare Fourth Quarter and Full Year 2023 Financial Results Conference Call. This call is being recorded and available later today for replay.
Your host today are Roger Hardy, Chief Executive Officer; Sabrina Liak, President and Chief Financial Officer; and Joseph Thompson, Chief Operating Officer.
Before we begin, I'm required to provide the following statement with respect to 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. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would, will 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 the forward-looking information.
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 the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the 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 Kits' filings with Canadian provincial security regulators.
During today's call, all figures are in Canadian dollars, unless otherwise stated. And with that, I'd like to turn the call over to Mr. Roger Hardy. Please go ahead.
Thanks, operator and good morning, everyone. Thank you for joining us. I'd like to express my gratitude to the entire Kits team for yet another outstanding quarter and year. In 2023, we maintained our category leadership in revenue growth with the full year increasing 32% year-over-year to $120.5 million and Q4 increasing 21% year-over-year to $31.7 million, while also delivering very strong gross margin expansion to 33.8% for the year and 35% for the fourth quarter, all while maintaining positive adjusted EBITDA. Reflecting on 2023, it's evident that this year was truly exceptional for the entire Kits team. It's clear we got a few things right back in 2018 when 3 friends met on Kits Beach in Vancouver, to talk about starting a company that could have a positive impact on the planet, our community, our friends and families.
As I think about what we got right and what was unique about our approach, a few key things stand out. We identified the intersection of health care and technology as the prime opportunity to build a large, valuable and disruptive company that serves customers while creating value for stakeholders and team members alike. As we narrowed our focus to the $76 billion opportunity in eye care, we could see a category dominated by legacy businesses right with legacy providers that hadn't kept up to technology or made the right investments to serve the customers' needs of today in the high-touch way they want to and need to be served.
But seeing the opportunity to use technology and connecting it to serving customers alone wasn't enough. We needed a unique and differentiated approach that would ensure a deep moat around the business we intended to build.
From a moat standpoint, 2 things stood out. We needed to control our own destiny as it related to manufacturing and customer acquisition if we wanted to have success that couldn't be disrupted by competitors or suppliers. And so inspired by the likes of Bezos and Musk, we started with the end in mind, by first focusing on building out a world-class high-volume manufacturing and fulfillment center that would form the basis of our customer experience, a place where seconds after receiving an order, we would start the process of custom manufacturing a specific and unique pair of eyeglasses cut to each customer's personalized prescription in the frame of their choosing, chosen from an expansive in-house selection, available to be delivered later that day, often finishing detailed QA in as little as an hour.
All this at an automated onshore scale that would render all other competitors' models cost prohibitive. In fact, it felt a little surreal for us to be investing millions of dollars, ordering the many high-powered automated machines to build out our state-of-the-art lab before even securing our first glasses order but such was our conviction.
Having built out our manufacturing and fulfillment center, we apply named our gigafactory for its ability to scale to over $500 million in turnover. We turned our focus to ensuring we would have a unique way to attract and retain vision-corrected customers that would ensure the most sustainable acquisition possible.
With the advantage of a blank canvas and starting in 2018, knowing well the vision category from my previous 20 years-plus work in the category, we decided to focus our model around the needs of the customers of today, centered around securing the most valuable customers and the most loyal and valuable segments in the vision category. Knowing full well that traditional optical retailers, chain stores and others who operate complex retail storefronts requiring heavy CapEx investments invested into an uncertain underperforming retail landscape would not be able to compete in our segment profitably, we built our platform centered around a high-volume automated fulfillment model to best serve and wow these valuable customers.
We also knew that the companies with the best customer satisfaction in any category ultimately have the highest value. And so we focused on ensuring a business model that would wow customers and inspire them to tell friends and family of their wonderful experiences.
And finally, with our last ounce of conviction, we purchased the kits.com name and URL inspired by the special place in the world where the ocean meets the mountains, uncertain if we would ever generate a return on this more than $500,000 expenditure. But since then, the results have been spectacular. In 5 short years, our investments have produced the highest number of customer reviews online and the most positive customer views in the category, which even when compared to the legacy players, makes evident our model and our focus on serving the right customers is working better than anything else in the North American market.
And as expected, these high-value and loyal customers have continued to purchase and return time and time again for their vision needs. Having secured the most efficient onboarding channel for vision corrected customers, we next introduced our eyeglasses offering. Since then, the results have been equally impressive.
As I look back on Q4 and 2023, I mean, all of the progress we made, it's evident that our customers have permissioned us to move beyond the high trust, super personalized contact lens category into the much larger and more complex eyeglasses category. Looking back on the year, we served more than 275,000 eyeglasses and served more than 800,000 total vision-corrected customers, an impressive feat for a 5-year-old company that grew organically this past year at the top of its category, all achieved from its own cash flows.
Perhaps most inspiring to me is to see that in Q4, when our team decided to focus a little more time and attention on sharing our eyeglasses offering with our existing customers and with the world, the traction and uptick were immediate with our eyeglasses business. It accelerated at over 38% growth year-on-year. And while it's a smaller business, it's nice to see we have the ability to focus on and scale either opportunity with a moment's notice and at any given time.
It tells me that we have so much opportunity ahead of us in both categories. It was also encouraging to see that early eyeglasses customers continue to return in record numbers, as evidenced by our return glasses revenues increasing approximately 108% year-over-year. To me, this is an extremely important metric that I watch closely. It demonstrates that not only are we permissioned to provide eyeglasses to customers but that the experience is also such that they are returning at category-leading retention numbers, which we publish and which continue to beat the likes of all other competitors.
Finally, I would be remiss if I didn't share my enthusiasm for what's to come at Kits. Having built similar consumer businesses in the past, I have great optimism for this year ahead. In my experience, a young company like ours has had to make many decisions and trade-offs about how best to deploy its limited assets as it grew. At Kits, we are finally at a point where our investments are balanced across our marketing product, fulfillment and manufacturing portfolios. And this tells me we are nearing escape velocity. Specifically, I'm excited as I see our newest eyeglasses portfolio rolling onto our virtual shelves. This is among the very best product in the category and it's available at prices that no competitor can match, all while being made onshore and delivered at breathtaking speeds.
We've built our company in a way that's impossible to replicate. It has many structural and strategic advantages over traditional brick-and-mortar and even other omnichannel retailers. As we look out into this year, we are encouraged by the trends we are seeing. Growth continues to be very strong in Q1 as we balance the offense. We're seeing strong growth in contact lenses and eyeglasses and targeting growth of approximately 22% to 26% for Q1 and positive adjusted EBITDA. Overall, I'm incredibly optimistic about where we sit today.
With that, I'd like to pass the call over to Joe to dive into more detail on our operational performance. Joe?
Thanks, Roger. With our Q4 results, we have now achieved 5 consecutive quarters of greater than 20% revenue growth, all with positive adjusted EBITDA. If 2021 and early 2022 were the investment phase for our business, as we built the infrastructure, Roger outlined above, we are now in the growth phase.
In our view, it is very early days in our growth curve. As we think about the recipe for driving continued profitable growth for our business in the coming years, there are a few ingredients in the Kits business that have us excited. First, we have deployed the capital in our investment phase to grow our business to at least $250 million or double our revenue -- current revenue level with minimal CapEx needed. This is an enviable position. As we grow each order of prescription glasses, digital progressives and contact lenses becomes more efficient without the burden of requiring more capital expenditures and with no near-term ceiling on our capacity.
Second. We benefit from, in our view, the best retention rate in the category, with over 63% of our 2023 revenue coming from repeat customers led by eyeglasses. To us, this is the sweetest metric of all. It represents the work done in months and years past to meet the high bar our customers have for value, selection and convenience.
One of our key cohorts is the millennial vision-corrected customer aged 25 to 35. These customers have very high expectations but if we can meet and exceed their bar, we are in the right to serve them for decades. And we're now turning these customers into advocates with marketing efforts like share a pair and other referral programs.
Importantly, we are building the future annuity for Kits as well. And in 2023, we welcomed over 300,000 new customers to Kits with high expectations most of them will be back. Third and certainly not least, is our focus on operational discipline as we grow. Orders arrived faster to customers in 2023 than they did in 2022. Our digital progressive business, with more advanced manufacturing, grew over 80% in 2023. And we achieved these results and many others while our fulfillment expense as a percentage of revenue declined. And while our revenue increased by over 30% in 2023 and we added over 700 new eyeglasses designs in the year, our inventory level held constant giving us additional turns on our inventory and delivering growth with little burden to working capital. This operational excellence frees up cash for more innovation, more selection and more convenience for customers. Expect more of the same from the Kits team in 2024. We're built for scale and we're just getting started.
I'll now turn the call over to Sabrina for an overview of our fourth quarter and full year financial results.
Thanks, Joe. Let's jump into our fourth quarter results. For the full year, revenue increased 32% to $120.5 million compared to $91.6 million in 2022. Revenue in the fourth quarter increased 21% to $31.7 million compared to $26.2 million in the prior year period. The increase was primarily attributable to strong repeat customer revenue in both contact lenses and eyeglasses and higher order -- average order value. Gross profit in 2023 increased 39% to $40.8 million compared to $29.2 million in the prior year, while gross margin increased 190 basis points to 33.8% compared to 31.9% in the prior year. Gross profit in the fourth quarter increased 24% to $11.1 million compared to $8.9 million in the prior year period. Our gross margin increased 110 basis points to 35% compared to 33.9% in the prior year period. The increase was primarily due to a shift in acquiring higher-margin and LTV customers and strong margins from returning customers. Net loss in 2023 improved to $2.2 million compared to a net loss of $4.6 million in 2022. For the fourth quarter of 2023, net loss improved to $0.5 million compared to a net loss of $1.4 million in the fourth quarter of 2022.
Adjusted EBITDA in 2023 improved to $2.3 million compared to negative $1.8 million in 2022 and we generated our fifth consecutive quarter of positive EBITDA, delivering $0.9 million in the fourth quarter compared to $0.4 million in the fourth quarter of 2022. We ended the year with a cash balance of $16 million compared to $18.8 million at year-end 2022. During the year, we paid down $3.5 million of debt, reducing our BDC loan balance down to $7.7 million and generated positive cash from operations of $2.4 million. In the fourth quarter, in anticipation of higher order volumes and typical vendor holiday seasonality, we preordered a portion of our inventory. This resulted in higher cash needs in the fourth quarter. We expect this to normalize now that we are through the year-end holiday season.
Overall Kits is in a healthy financial position as we continue to prioritize profitable growth. Our balance sheet is strong and our ability to generate positive free cash flow through operating leverage will continue to strengthen our business further. We look forward to delivering value to our shareholders in 2024 and beyond.
I'll now turn the floor over to questions. Operator?
[Operator Instructions] First question comes from Martin Landry at Stifel.
Congrats on your results. My first question is on your gross margin. It reached 35% in Q4. It's the highest level it's been in a while. So I've got 2 questions on that. First, I was wondering if you can give us a bridge of your gross margin expansion in 2023 versus 2022? And then the second part of the question is, at 35%, is this a level that is sustainable for the coming quarters or do you see some pressure near term?
Okay. With respect to gross margin, in 2022, we had the gross margin of 31.9%. It grew in 2023 to 33.8%, which is 190 basis points. That came as a function of higher repeat percentage. And so our repeat customers tend to come back at higher gross margin values as we provide initial promotional offers to new customers. And also, as Roger mentioned, we really got pricing right in the fourth quarter as it related to glasses and we're able to also decrease promotions as it related to glasses. And so we saw gross margin expansion in that line of business also.
And then, Martin, I think as we think out longer term, as the business matures, longer term, we think the glasses gross margins will continue to pull our overall margins up. So longer term, we've talked about margins continuing into -- at a gross margin level, 45% or even 50% as glasses becomes a bigger part of our overall mix. But I think we're looking out kind of 2, 3 years when we speak to that.
Okay. So safe to say that given what you just said, Roger, there's still some margin expansion expected in '24?
Yes. I think we're going to balance growth with gross margins. And so the net new glasses customer tends to come in at a lower gross margin. The returning glasses customer comes in at a higher gross margin. So it's really a question of balance and how aggressively we want to grow. I's think when we're thinking about larger gross margin expansion, we're thinking out a couple of years. And in the near term, we're a bit more focused on growth while maintaining positive adjusted EBITDA. So that's really kind of how we think of the parameters around growth is, we want to take as much share and grow as quickly into the secular change that we're seeing as possible, while maintaining positive adjusted EBITDA.
Okay. Understood. And then maybe just a question on your customer acquisition costs. I'm trying to get a sense of how they've evolved in '23 versus '22. Our calculation is not perfect but it would suggest that in '23, your customer acquisition costs were a little higher than '22. Just wondering if you can comment on that?
Yes. Sure, Martin. Great question. Yes, marketing expense did increase slightly in 2023 on a percentage basis, on a per customer basis. And it was predominantly due to a philosophy that we've been evolving, which is really to spend more on a better customer. And so now with the benefit of 5 years of data, we are much more targeted in terms of what customer will produce the highest initial value as well as long-term value. And so that usually doesn't mean getting the cheapest customer, it means acquiring a customer that really fits with our product and our profile.
Yes. And I think, Martin, it's probably worth noting that in Q4, I think you probably picked up on it, a bit of an increase in marketing as a percent of revenue. And our -- another, I think part of the plan that we've been evolving includes doing some branded -- testing some branded marketing, which we think helps drive awareness of the company but doesn't necessarily return in the quarter. And so we saw a bit of an uptick in Q4 and I would anticipate probably a return to kind of somewhere normalized around that 13% to 14% of revenue for -- as we think about kind of early parts of '24.
Okay. And then just a follow-up to Sabrina's comment because I've heard that in the opening remarks as well, acquiring customers that fit our profile. And I think Sabrina, you mentioned acquiring customers that have maybe a higher lifetime value. Just -- can you just expand a little bit on that? What exactly -- like, how do you reach these customers? How do you identify these customers? Like, just some color would be great.
Yes, sure. So the way we reach these customers and identify these customers differs by channel. But largely, what we've done is looked at geography as well as initial purchase patterns. And so with that, we're able to be more targeted in our marketing dollars towards that specific demographic and also tailoring offers to those people.
And probably, Martin, just to add to what Sabrina said, I think one of the unique parts of our business is the subscription component. There's a significant amount of our customers that are subscription customers. Those tend to have a longer or those do have a longer lifetime value and higher lifetime value. And so some of that spend is going to those customers. We also, as Sabrina noted, see higher value orders in some specific segments. So we probably won't break them out this early in the going but we're seeing success there and looking forward to commenting as things progress.
The next question comes from Luke Hannan at Canaccord.
I wanted to ask about the strength that you're seeing thus far in Q1. Our understanding is, Q1 in general, it seems across most consumer spending categories, it tends to be a bit of a softer quarter because you're coming off of the holiday period but you noted, in particular, that Q1 is a little bit stronger and it's not just 1 product category that's seeing that strength, it seems to be broad-based. So can you just share in a little more in detail what you're seeing thus far into Q1?
Yes, sure. Great question. I think we talked about some of the brand-oriented spend in Q4 and I'd say we've seen some of the success of that rolling into Q1. So I think we came into Q1 with a lot of strong momentum. We have seen it across both categories. We've kind of given you -- gave you kind of some context for Q1 around growth we're seeing in momentum. So it's been strong across contacts and glasses, stronger than I've seen in a while. And I think part of that is the nondiscretionary nature of the category.
People need to see and so they need to refresh contacts and they need glasses and need fresh prescriptions. So we're seeing the benefit of those -- that necessity and also probably the economy leads people to look for better value. So I think customers are looking around and our value proposition is resonating and momentum is actually improving. So for whatever reason, I think Q4, there was a little more maybe noise in the category. And I'd say, like I said, we invested some good investments in brand spends and seeing the benefits of that continue into Q1. So all in all, off to a good start for '24.
Sabrina, anything I missed?
No.
Okay, okay. Thanks.
Okay. Great. And then my follow-up here, you did mention the pricing strategy or the glass strategy, the tweak to that, that you rolled out in Q4. Clearly, it's worked out for you in Q4 and then thus far into Q1 as well. I just wanted to get a little bit of understanding of what underpins that strategy?
Was that a function of you realizing this operating leverage within your own network and there's a way to be able to drive more volumes by reinvesting and giving that back to the customers? Is that more of a competitive response? Are you noticing other competitors are leaning in to price a little bit more as well? Just maybe a little bit more on the philosophy for that pricing strategy.
Yes. I mean I think much less about what others are doing and much more about our thoughts around when we started work to make sure we built out this fulfillment and manufacturing capabilities that really wowed consumers. And I think you know a little bit about, we started out with a kind of heavily promoted item that would get us early traction where we would receive feedback from early adopters in the category, take that feedback, refine the offering, make it better.
And as we tweak it and start to see those return customers, that word-of-mouth starting to be generated, we find customers are much less price-sensitive. And so that's really the thinking there, is around creating a pull for our business, much less than a marketing push. And so that's really what that's about. And so from time to time, I think we will tweak and we'll also throttle on that. The first pair free promotion is a great unmatchable offer in the category but we're also delivering tremendous value in our eyeglasses. As I mentioned, I'm just so excited about the product portfolio that's coming to market this year. I think we will see at the back half of Q2 a very strong uptick in consumer referrals.
And the great testimonials we're getting already are going to get even better as this product hits the market. And that's when -- our hypothesis is that we kind of start to reach a little bit even more momentum in that glasses business. So all the pieces are kind of being assembled, coming together. We know the fulfillment is world-class. We know now the product is world-class. And so I think it's much less about price and you'll see us go as we move forward, make it much less about price, much more about the quality of the offering, quality of the fulfillment, the quality of delivery and those types of things.
Makes sense. Last question here and then I'll pass the line and I realize this is probably a little bit a difficult question to answer. But if we think about in Q4, so the returning customer that would have been purchasing these lower price or these mid-priced glasses and the margin profile of that customer versus; a, well, say a new customer where maybe they do get that first pair free promotion alongside that, how are the margin profiles of those 2 customers? Is that still in favor of the returning customer versus the new customer? Just trying to get a better understanding of overall, I guess, the margin profile differences between those customers.
Yes. And I think it's a good question. I think it's subtly better today. And over time, we -- our hypothesis that it improves based on past experience.
The next question comes from Matt Koranda from ROTH MKM.
Just wanted to get your thoughts on category growth in the eye care category overall and sort of your relative performance. Obviously, you guys tend to outperform and did last year very healthily but wanted to get your general sense for how the category is tracking in 2024 and expectations?
Right. We've seen the category, the latest numbers that show just a consistent trend of in and around 3% to 5% overall category growth. So we feel good that we are growing well ahead of that. And a big driver just continues to be the growth of the online segment within optical. Pre-pandemic, it was roughly half of the online penetration than it is today. And so we feel that Kits is really positioned well to capitalize on this wave of customers coming online across contact lenses and glasses and so that's been a big driver of our growth.
Okay. Helpful. And then the first quarter commentary you gave, it looks like a reacceleration in growth off of a pretty high base in the first quarter. So I'm just curious, maybe attacking it in a different way than it's been asked. Any thoughts on sort of the split in terms of what's driving the growth between your kind of key categories, contacts and glasses?
It sounded like, Roger, you called out contacts being pretty strong. Curious how to think about glasses? And it does look like seasonally, they're typically up sequentially. So maybe just if you could kind of unpack the contacts versus glasses dynamics in the first quarter? That would be helpful.
Sure. Matt, maybe I'll take a shot on this and others will chime in. So we're seeing a lot of positive indicators across the business in Q1. Traffic is strong and growth is strong, partly through the quarter, both contact lenses and glasses. So we feel really good about -- Roger mentioned some of the investments made in Q4 and we feel like those are really benefiting us as we go into Q1 and customers are looking for value.
And as word-of-mouth continues, particularly on our glasses line with the introductory price point that we have and the remarkable price point that we have, $28 and then equally important that the quality of the frame customers are getting, we just continue to see more word-of-mouth on the glasses business. So still partway through Q1 but feeling very strong about all indications on the business from traffic to conversion to contact lenses to glasses.
Okay. And then just another quick one on the near term, if I could. What are you seeing in terms of repeat customer quarter-to-date? It sounds like -- I'm just curious because Roger mentioned some new marketing investments and brand investments. So that maybe implies some newer customers and new customer acquisition in the first quarter. So maybe just any change in terms of the mix between new and repeat in the first quarter would be helpful?
Yes. I think -- sorry, go ahead, Joe.
No, no. After you, Sabrina.
No, I was just going to say that the mix going through the first quarter is relatively stable, relative to where we've historically been in the mid-60s. So there's not been a huge shift in that mix this quarter.
[indiscernible] is the way to think about it.
Okay. Perfect. And then, I guess last one, in '24 -- I'll take a crack at, I know you didn't provide full year guidance. But I do notice the comparisons do get easier in the back half of the year. And so maybe if you could just riff a little bit on why the high growth rate that you're seeing in the first quarter wouldn't be sustainable or maybe it is and there's some underpinnings there? Just would be helpful to understand kind of the puts and takes around how you think about growth headed into the latter part of the year?
That's a good one, Matt, for you, smart analysts to opine on. I guess we're confident in the offering, like I maybe touched on lots of good parts of our business, including that subscription part that's very solid and robust and scaling consistently. The contact lens business has been strong, both Canada and the U.S., I think customers are looking for better value. And then our eyeglasses offering is really an unmatchable offer in the category. And so as word gets out on that, our expectation is that, that business is going to really start to perform. I think it's not anywhere near where it can and will be. As I touched on, I think that mix of product starts to kind of become a bigger part of our offering at the back half of Q2 and as the year progresses. So overall, I think growth this year at this moment looks consistent with kind of what we're talking about, which is high-growth business somewhere in the 20% to 30% overall range.
And ideally, we're going to see glasses accelerate. And as we look out a little further and also as that happens, gross margins continue to improve. So that's how we think about it kind of 2 to 3 years out and hopefully, that gives you some frame of reference. We're not thinking much about what competitors are doing. We're thinking a lot about how to really wow customers and get to that pull place on the field, like I talked about, where it's much less about marketing spend and much more about the experience of customers and customers sharing that experience with others.
The next question comes from Gianluca Tucci at Haywood.
Congrats on a solid quarter. Just a question on the M&A landscape. How do private multiples look like these days for optical labs? And -- I mean, at this point, is Kits interested in expanding internationally or is that too premature?
I think we're always working hard on behalf of shareholders looking at lots of different opportunities. And so as you'd expect, we've heard lots of and looked at lots of different opportunities in the market for now. We're heads down on the North American market, the more than $76 billion opportunity is lots for us to focus on.
And for today, we'd like to continue to invest here and get a great return for shareholders and then continue to evaluate opportunities as we see them. So there's definitely nothing imminent from an M&A standpoint. We've kicked a lot of tiers and we've talked to lots of folks. But I'd say valuations in the private market haven't quite corrected to where they need to, to where we'd be willing to make such an investment. It has to be highly accretive for the company. And so we haven't quite gotten there on terms. There's lots of interesting things happening but nothing is as interesting as investing our time and energy into the Kits business and so that's where we are heads down growing this business and excited about what's in front of us.
Appreciate that color. And just secondly, a question on your margins. So solid gross margin in the quarter. I'm just curious, over the long haul, how do you guys think about your target gross and EBITDA margins at, say, at capacity type volumes at your facility?
Two parts to that, I think, Gianluca. I think Q4 was a very strong margin quarter. I think the year is probably in this moment more the number to kind of think about. I would not -- I don't want people to map out that our margins are going to go up 100 basis points a quarter for the next 2 or 3 quarters. I think it's going to be a step change as glasses becomes a bigger part of the mix but it's not imminent in Q1.
In fact, I would say that probably a more moderate gross margin as to how to model the immediate quarter, again, with lots of growth and with positive adjusted EBITDA. So again, that's kind of how we're putting the limiting factors. Let's focus on growth, serving the largest number of customers in this moment and making sure that we're putting lots of glasses into customers' hands.
And then as we think about it longer term, we know this facility can produce gross margins in the eyeglasses business up in the 50% range and higher. So over time, as glasses has a bigger part of our mix, we would think that the gross margins are in the 50s and lot of that rolls through, again, as marketing becomes more efficient.
You've seen the team manage fulfillment very well. G&A has been pretty flat for the past 6 quarters, fulfillment is getting better and better and all while getting faster and faster. So a bit of a shout-out to the team there, who's found ways of accelerating delivery, is air freighting stuff that typically other competitors would send by ground, getting it there in days instead of weeks, just really wowing customers.
So that's kind of the focus across the kind of income statement is to grow that top line, continue seeing the mix of glasses increase, that will over time result in better margins. But I definitely don't want anyone to take from this call to model margins up in Q1. I would say, if anything, to be conservative in that regard as the focus again is on solid growth for Q1.
Next question comes from Doug Cooper from Beacon Securities.
Congrats on a nice quarter. Just haven't had a chance to dig into the MD&A as of yet. Can you just give me the split of revenue between contacts and glasses in the quarter?
Sure, Doug.
In the quarter, we had revenue from glasses of $4.1 million and contacts was $27.6 million.
Okay. Okay. So nice growth on the glasses continues. I think, Sabrina, you said it was up 38%, obviously. What is the average rev per, per pair? I think last quarter, if my math was right, it was just $50, just $56, $60 give or take last year and Q4 was $50, what are we seeing there...
Yes. So for the last quarter, we are at around $68, so that's up 26% versus the same quarter in 2022.
Okay. $68 in Q4 here just in '23?
Yes. And $59 for the year.
Okay. Perfect. $59 for the year, is that what you said?
[indiscernible]
Okay. Great growth on the glasses side. The contact continues to grow very nicely, even off a higher base. Roger, obviously, you talked about sort of the glasses side pulling up gross margin as it becomes a larger contributor. When do you think that we'll really see that break or I'll call it, "breakout" quarter for the glasses side? And maybe just talk about what do you think the capacity utilization of the facility is today? Because you talk about obviously no material CapEx is set up for significant growth without any CapEx. Maybe just talk about what the capacity utilization is today?
Sure. A number of questions in there. Capacity utilization today is quite low on the glasses side, somewhere around 10% to 15% and that's on a units basis. So what we'll see over time is that average order size will continue to go up. So from a dollar standpoint, it's even lower today. I might have missed your first question, Doug, sorry.
Just wondering when you think -- you're doing a lot of marketing, obviously and just wondering when do you think, I'll call it, a breakout quarter might be in the glasses side?
It's a good question. Like I said, I think with a young company, we've had to make lots of sort of puts and takes on what to build and what to invest in as we went along. And we're finally at a place where I think all the pieces are in place. And that's -- like I tried to say, we're super excited about how we think Q2 plays out here.
And Q1 is quite strong but glasses will become -- we just think that, that on the back half starts to pull a little stronger. So it's too soon to start talking about that breakout Q but having seen it before, it even takes a quarter or so of that, of that kind of experience to really uptick again.
So I would say by Q4 we're going to be seeing things in our glasses business that are going to surprise even our internal team here. That's how I think about it. So maybe that sounds like a long way away for you. But for us, we're taking a long-term view. Obviously, we've been building this for 5 years. And to get to this moment, it's an exciting moment. So yes, the next couple of quarters gets really interesting.
And so just to kind of give you some more color on that, my experience is that when we reach that kind of moment, marketing as a percent of sales in glasses just starts to be less material and we start to see this pull of existing customers and of new customers coming from word-of-mouth and so that's the moment we're kind of what we call escape velocity. So that's when it gets exciting.
And maybe just if you could touch on the competition on the e-commerce side of the business. Somebody like Warby Parker hasn't seemed to have grown their e-commerce at all over the past number of years and they seem to be focused more on brick-and-mortar growth. Maybe just speak a little bit about competition and who you're competing against? Or is it mostly just sort of pulling traditional brick-and-mortar people online?
I think 2 parts to that. One is, again, we're focused on having the highest-quality product delivered at the fastest, in the fastest times and really wowing customers with the experience. And so pardon me, what I -- Doug, anyone can easily go online and read our reviews compared to competitor reviews. And if you read enough of them, as I do, you kind of get a sense of the market and what others are doing.
So I think the quality of our product is resonating with customers. I think pricing has obviously been a key part of it. And I think that the delivery times, especially are wowing customers. So that's kind of the kind of things we're focused on. And I guess we can all read other people's numbers and kind of draw some conclusions from that.
But we're pretty excited about what we have going at Kits. And I think there's a lot of unique pillars. I think that we built a subscription business so that we'd have the best and most loyal customers in the category. We published a slide on ourselves relative to the guys you named. And it doesn't look like customers return to that business. And so we think over the long haul, people keep coming back to us and we'll be securing new and better and longer-term customers. So that's kind of how we think about it.
And the last question comes from Jason Zandberg from PI Financial.
This is actually Jessica Stefan from PI Financial. I'm filling in for Jason. Congrats on your results. Would you be able to provide some color around your order fulfillment cycle time relative to last year? And where do you expect this to be moving forward?
I'm going to turn it over to Joe and we're in multiple locations, in case others haven't noticed. So I'll just -- I'm going to pass it to Joe on that one.
Yes, in terms of order fulfillment, we set out to provide the absolute fastest delivery in the category. And so on average, delivery times are typically 1 to 2 weeks in traditional brick-and-mortar.
And for us, our goal is 1 to 2 days from order to delivery. And within that, as Roger mentioned in the prepared remarks, we like to start and as you've seen in our lab and fulfillment center, we like to start making a pair of custom-made prescription glasses within an hour of a customer placing the order and have it ready for courier pickup within 2 to 3 hours and ideally completing almost every single glasses order that we receive in the same day and sending it out for shipment.
So that's 1 component and the recipe that we've talked about and we think that, that is a big delighter for customers and a big wow. Equally important is the product quality that these customers receive. And all that for a price point of $28. We think that those elements and those ingredients are what's driving the pull on our glasses business and importantly what's driving the continued 60-plus percent of revenue from repeat customers each and every quarter.
There are no further questions. I will turn the call back over for closing comments.
Great. Thanks, operator. Well, I'd like to thank everyone for joining this morning. And we'd like to thank you for the consistent support we received. We're working incredibly hard to execute our strategy and ultimately deliver long-term value for shareholders. I remain as confident as ever in our people, our infrastructure and our overall mission. We look forward to a promising 2024 for Kits as we continue to make eye care easy for everyone.
Thanks, everyone, for joining today. Hope you have a great day. Thank you.
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