Also, Warby Parker, it's nice to see everybody here. We're here with Warby Parker's Neil Blumenthal, the Co-founder and Co-CEO, and Steve Miller, the CFO of Warby Parker, ticker WRBY. A quick introduction on Neil and Steve. Neil, along with his co-founder and Co-CEO, launched Warby Parker in 2010 with a mission to offer a holistic vision care product that offers designer eyewear at a revolutionary price. Prior to starting Warby Parker, Neil served as director of VisionSpring, a nonprofit that trains low-income women to start their own businesses selling eyewear. Steve has served as CFO of Warby Parker since 2011, and prior to joining the company, he was the CFO and senior vice president of corporate development for Majestic Research, a data-driven research platform. Thanks so much for joining us, Neil and Steve. It's a pleasure to have you here, both. Thanks for having us. Thank you. What's great also is this goes back to our Wharton days and knowing you from school. It's been wonderful to see all this innovation. So for starters, what are you each most excited about the business right now and what you're seeing with innovation? Sure. I can start. I'm excited about our retail rollout. We now have over 250 stores across the U.S. and Canada. Those stores continue to be as productive, as you know, when we first started our retail journey. We've started to add eye doctors to them, and our rollout of our eye exam business is going very well. I'm excited about our marketing efficiency. One of the things that we committed to over the last few quarters is increasing our marketing spend and doing those across a myriad of channels, and we're finding great productivity there. I continue to be really inspired by our team. We're seeing some of the best retention rates that we've frankly ever seen, and this has helped fuel some of our retail expansion is the long tenure of our retail leadership. And then lastly, the strength of our e-commerce business, which now has returned to growth, which is providing great leverage across the entire business. Steve, active customer growth has accelerated over the past three quarters, most recently +3.1%. What's driving this, and what's embedded in the forecast? Yeah, yeah, for sure. So active customer growth in the first quarter was 3.2%, and as a reminder, we track this metric on a trailing 12-month basis, and Q2 will really be the first quarter where we've lapsed all of our marketing spend reductions. As a reminder, we've been in the process of rebalancing marketing spend from 20% of revenue to roughly 12% of revenue, in line with where we were pre-pandemic. And so we see a few different factors really driving active customer growth. So one is, now that we have rebalanced marketing spend into the low teens, we're seeing marketing spend comp up year-over-year, which is certainly driving our e-commerce channel positive. It's driving the business in general, and you'll see that reflected in active customer growth. I think as you called out, Oliver, we saw active customer growth hit a low point really in Q2 of last year, up 1.2%, and we've really seen sequential improvement in that metric every single quarter, and we expect to see that metric inflect upward the remainder of the year. So Q2 will be higher than Q1, and Q4 will be our highest active customer growth that we plan to report for the full year. Thank you. Neil, on the topic of marketing, it settled to a low double-digit percentage of sales. What's the right mix here, and what are you pursuing in terms of where you're spending these marketing dollars as well? Sure. So we have a mix of sort of brand and performance, and in Q3 of last year, we launched a large brand campaign and we've seen some good results from that, and we've seen some strength in our single-vision glasses business, for example. Right, so glasses I'm wearing, right, single-vision. We also sell progressives, enables you to see in the distance and up close. One of the things that really sort of goes back to our sort of tech heritage is being nimble and being flexible. And the vast majority of our marketing spend, we're able to adjust within a two-week time period. So whether that's linear streaming TV, paid social, paid search, creator influencer, sort of you name it. So, it's something that we sort of make capital allocation decisions literally on a weekly basis to make sure that we're having the most efficient spend possible. And that's helping us sort of fuel our growth, even in this sort of what I would describe as a choppy optical environment. Yeah. That's a good segue. What's happening in the environment in the background to make it choppy? You're clearly taking share, but what are you seeing with traffic trends and also this mixed consumer that's trying to delay a lot of purchases? Yeah, you know, the optical industry sort of pre-COVID, I know no one wants to talk about COVID. Trust me, I, I do not want to talk about COVID. But pre-COVID, right, always grew about three points higher than GDP. Yeah. And then we saw massive disruption in 2020, as people couldn't go and get eye exams, couldn't go to their optical shop. Now, being an omnichannel retailer, we actually grew in 2020, whereas the rest of the industry sort of declined. So we were able to take share in that very precarious time. And then in 2021, the industry bounced back. And then, right, we've had across the industry, sort of flat to down years, and the replenishment cycle for glasses in the U.S. is typically 2 years, 2.5 years. So we've been expecting a rebound. We haven't quite seen it, but that's not gonna prevent us from continuing to grow quickly and continue to take share. And the way that we're doing that is through opening more stores. So, we're on track to open 40 stores this year. We opened 40 last year. Each of our stores is a beautiful billboard. Typically, we commission artwork or have our internal team, you know, make it a really special sort of moment within a community that helps raise attention that we exist, but also that we're present in that local community. And then, of course, the investments in our marketing that enable us to sort of take share, frankly, all day long. Because if we look at our industry, it's about 50% independent optical shops and independent optometric practices, and 50% sort of organized retail optical retail. And certainly, the independents don't have the capital or the know-how to invest in technology- Mm-hmm. To invest in marketing like, like we do. Great question on the growth opportunity. You're gonna be about 280 by the year-end. What's your target opportunity in terms of stores, and how do you justify that as well? There's looks like there's a tremendous growth opportunity. Yeah, this is a large category. There's over 45,000 optical shops in the U.S. We commissioned a third party to sort of look at our fleet and say: How many stores could we have at the same levels of productivity? And our stores generally pay back in 20 months, have 35% four-wall margins. This third party came back and said, "Hey, you can have around 900 stores." So, we believe that we can have at least 900 stores at the productivity levels that we're currently seeing. On the margin side, Steve, the last quarter, you did report impressive GM expansion. What drove that improvement, and how sustainable is it at these levels? And as we think longer term, in the income statement, where do you see the most leverage in terms of margin expansion? Yeah, for sure. So in Q1, we saw gross margin improve by about 160 basis points year-over-year. And as a reminder, the guidance that we gave last year for gross margin was for gross margin to be in the mid-50s, and that's the guidance that we're standing by for this year. The main driver of the inflection that we saw in gross margin in Q1 was really glasses growth. So of the three main types of products and services that we offer, glasses, contacts, and eye exams, glasses are by far the highest gross margin product. And it was nice to see glasses growth accelerate to 13%, versus the 8% that glasses had been growing all of last year. If we were to double-click into glasses growth, progressives is our highest price point and highest gross margin product that starts at $295, and we're still seeing very, very strong signs of growth in that particular product category, with which represents just 22% of our prescription units. In addition to that, it's nice to see that e-com inflected to positive growth in Q1. We do have some fixed costs embedded in our cost of goods, like store rent, the depreciation of store build-outs, optometric salaries, and now that e-commerce is comping positive, that is having a less of an impact on the fixed portion of our cost stack as a percent of revenue. We also are allocating more and more volume to our two vertically integrated factories. We built two optical labs, one in New York, one in Las Vegas. And jobs that we produce in-house accrue a number of benefits to the company. We get product to the customer faster. We have lower refund and return rates. There's higher NPS. But those jobs also cost us less, and we're seeing the benefit of that embedded within gross margins. So there are a whole range of factors that we saw at play in Q1. As we think about projecting gross margin for the remainder of this year, we are still maintaining a conservative position, given we haven't seen a real rebound in glasses sales in the industry at large. And so for now, we would simply guide towards being in the mid-50s% and not seeing the level of inflection that we saw in Q1. As a reminder, Q1 is also seasonally our highest gross margin quarter, given we do benefit from a revenue deferral from Q4 into Q1. But we're feeling very comfortable with viewing this year as one that is represented by gross margin stability. If we do continue to see glasses growth, there could be some upside, but it's not how we're planning the business for now. As we think longer term to margin expansion, what are the biggest buckets of opportunity in terms of leveraging fixed cost, et cetera? Yeah. Yeah, for sure. So there's certainly some opportunity within gross margin, and that will largely depend on the pace of glasses growth. If we think about the other part of the income statement, SG&A, SG&A is really composed of a few main components. One we break out pretty clearly, which is marketing spend as a percent of revenue. We're planning to see that in the low teens. 12% of revenue would be a good frame of reference for now. And then there are two other components of SG&A not associated with marketing, where we expect to see continued leverage, where we saw leverage last year, and where we plan to continue to see leverage this year. The first is the customer-facing elements of serving the customer, so retail salaries are all embedded within SG&A, as are customer service salaries. We've done a very strong job of moderating the costs in store through making sure that retail salaries and retail staffing is in line with traffic. And as we add 40 new stores a year, we'll see some initial de-leverage, as it takes some time for those stores to ramp, and then ultimately leverage. And then the other bucket of expenses that we'll continue to leverage from a cost perspective is just our corporate overhead, which is headquarter salaries, so folks like me and Neil, me more so than Neil, as well as what we pay our vendors, what we pay in headquarters rent, what we pay to be a public company, and we'll continue to leverage those fixed expenses. So we'll plan to see contribution from gross margin and SG&A in differing portions based on where we are in the investment cycle, but that's how I would unpack the relative impact on our cost structure. Thank you for that. Neil, you're one of the original direct-to-consumer companies, and leaders, and pioneers. What about technology—how would you say technology sets you apart now? And related to that is, how are you using AI in different parts of your business? Sure. We've always taken the viewpoint that technology either needs to, right, help increase productivity of our team or to create a better experience for our customers. And we've deployed capital to those ends. So, right, we were the first to create a true-to-scale virtual try-on that enables people to try on glasses and actually gives them an accurate depiction of what the glasses would look like on their face. And that, believe it or not, is really a big technical challenge. You know, it's different than putting, for example, virtually putting lipstick on one's lips. Because here we're taking a third-party object of a certain scale and size and placing it as it would fit on your nose bridge, for example, and on your ears. So, that was a big innovation that we had. And frankly, that didn't exist in 2010 when we launched the business, which is why we launched with a home try-on program, where you ship people five pairs of glasses. They have five days to try them on at home. If there's a pair they like, at that point, we'll put in the prescription lenses and send it to them. So right, our virtual try-on solves a real issue. Similarly, a big customer pain point in our industry is the availability of eye exams. There's only 1,800 optometrists that graduate each year in the United States. And there are crazy secular trends in terms of refractive error, right? People needing glasses and contacts. And that's frankly because we're all spending a lot more time indoors, especially as children. And that's leading to more myopia, and other refractive errors that are solved through glasses. So, you know, to help make it more convenient and easier for people to renew their glasses prescription and their contacts prescriptions, we created our virtual vision test, which is an app that people are able to sort of, you know, do a quick vision test. It's then reviewed by an eye doctor, and we're able to provide people a prescription. So you'll continue to see us invest in addressing real customer and patient needs. And frankly, some of these tools, right, required AI and machine learning and, right? The funny thing about AI is, you know, as soon as a component of it becomes commonplace, we come up with a new name for it. But where we're using Gen AI, in particular, is to increase the productivity of our engineers. We're also able to use it in our design processes. We basically have the entire organization experimenting and using different tools. And it goes back to our heritage as a tech company, and the people that come to Warby Parker are there because they wanna innovate, they want to explore using new and different tools. Versus, you know, what I find when I speak to CEOs at other companies is people are afraid to use these tools 'cause they think that it's gonna hurt their job security. Whereas, you know, we view it as, "Hey, this is gonna help your job security, 'cause this is gonna, you know, make you superhuman and help us create exceptional customer experiences." One of the things that we always talk about at Warby Parker is that happiness equals reality minus expectations. So our job is to create customer experiences, reality that's constantly better than sort of our customers' expectations. Unfortunately, the better job that we do- Hmm. The higher the expectations of our customers. So we need to constantly getting better every single day. And, you know, Gen AI is gonna help us and has helped us continue to deliver exceptional customer experiences. On the topic of customer experiences, what about vision insurance and Warby Parker being in-network or not, and the opportunity you have there? And also, the vertical integration of putting opticians in your store is both important and expensive. Yeah. So we were excited to announce a new partnership with Versant, MetLife. Versant is a wholly owned subsidiary of MetLife, and we have another 15 million folks coming in-network with Warby Parker. So that will nearly double the number of lives that are in-network with Warby Parker. We'll really reap the benefits of this from a sales perspective mostly next year, as this year we sort of integrate, and these lives sort of quarter by quarter get integrated into our system. But one of the ways that we sort of designed the business back in 2010 is, how can we deliver exceptional value, right? You can't have exceptional customer experiences unless you have exceptional value. At $95, for example, our starting price point, including prescription lenses, that's still less than half of what the average out-of-pocket expense is for somebody using their insurance, you know, in America. What we find is that a lot of our customers have vision insurance, yet they still decide to come and shop at Warby Parker, because it's still cheaper. Mm. And that's something that we'll sort of continue to deliver. So again, the average out-of-pocket spend for somebody with vision insurance in America when using it is over $200. Whereas, you know, come to us, and they don't use their insurance, they're still saving money. The other thing that we've been helping sort of our customers to use, and over 60% of them have vision insurance already, so they're making the decisions to actively sort of shop with us, is that we'll advise them on how they can file for out-of-network reimbursement. And typically, they'll be reimbursed about $100 for a pair of frames and lenses. So that makes their purchase with us actually completely free. What about the opticians and thinking about that form of vertical integration, too? Yeah. So we have about 1,000 opticians, over 200 optometrists. Opticians, right, typically are adjusting your frames, are experts in lenses, and different coatings. Mm. And prescriptions. And we have a really robust optician apprentice program, where we're training and preparing the next generation of opticians. And we love training people internally, because they learn the Warby ethos around customer service and patient experiences, versus sort of sometimes coming to us with bad habits that we have to change. So, you'll see us continue to leverage that program and develop talent in-house. And this helps us also create the next generation of store managers and district managers and regional managers. And you'll see us continue to hire the best and the brightest optometrists and eye doctors. And we find that in this very competitive market for eye doctors, that folks wanna come to work for us, because they love the work environment, where it's kind and supportive, where the stores are beautiful. They're located close to where our optometrists live. The equipment that they're using is top-of-the-line and brand-new exam suites, for example. We develop a lot of software ourselves to support our eye doctors, which enables them to focus on clinical care rather than administrative tasks. And it's created a great environment for doctors to work for us, but more importantly, great patient experiences. Happy doctors mean happy patients. Neil, in your earlier comments, what are you looking for in the macro environment for perhaps the eyewear industry to go back to a normal, steady, higher growth rate? I think more than anything, it's a little bit of time, frankly. Yeah. You know, one of my colleagues in the industry always says the one thing that doesn't change is the physiology of the human eye. And people need glasses. They need contacts. And people can delay a purchase of eyewear for a certain amount of time, but it can't be too long, right? Unfortunately, our vision tends to deteriorate over time. And when those folks are ready, right, we'll be here with an increasingly larger footprint to serve those customers and patients. Steve, you've helped me teach a class at Columbia on customer lifetime value. How are you thinking about—you've always had great net promoter scores, but what are your thoughts on key levers of LTV to CAC in terms of churn or, maximizing customer lifetime value? Yeah, for sure, and the number that we talk about really is revenue retention. Yeah. Which really underscores our ability to drive real value for our customers and to see them come back and return and buy more from us. And so the numbers that we publish are over a 48-month period across multiple cohorts, and you can see on a regular basis, with roughly equal step-ups every 12 months or so, after a 48-month period, you'll see a cohort of customers roughly double the amount that they've purchased from us. So if that initial purchase was $200, after 48 months, that customer cohort will have purchased an incremental $200 worth of product from us for a total of $400, and we've seen that level of consistency really going back across the last seven or eight cohorts that we publish in our investor relations slides. Coupling that really strong revenue retention rate, with some of the efficient marketing investments and rebalancing of our marketing spend that Neil talked about, is really what has enabled us to continue to drive incremental active customer growth, while maintaining a very efficient and consistent level of spend in terms of marketing spend as a percent of revenue. That is now really stable at 12%. How are you thinking about new customers and new customer acquisition? And also, briefing us on the age or household income exposure that you have now versus opportunity. Yeah. Right now, our average or household income of our customers is over $100,000. We think that insulates us from some of the sort of challenging sort of macroeconomic environment that we've either experienced or maybe on the, on the horizon. You know, our price point, it enables us to sort of really hit- Yeah. Quite a wide swath of customers and income levels, because it's exceptional value, whether you earn, you know, $75,000, $100,000, $300,000. And our customers are consistently sort of coming to us after having shopped and browsed elsewhere and seeing that, right, $95 for a pair of premium quality frames and lenses, right, with sort of this is our core product, is already upgraded with polycarbonate lenses, with anti-scratch, anti-reflective coatings, right, impact resistance. These are things that we find that are really resonates with our customers. And we've also found that we've been able to introduce higher price points, whether it's more mixed material frames or complex construction, at $145, $175, $195, for example. And it still is a fraction of what- Yeah. It would cost elsewhere. So you'll continue to see us sort of broaden our assortment to appeal to more and more customers. Another topic we've all been following, you know, augmented reality and what that may mean in different ways with the metaverse. But what are your thoughts on the future of vision and technology, and how you're approaching innovation as we think 10 years out? Yeah. Are people still saying the metaverse? I thought that buzzword was over now. But you know, being part of the tech community, right, we're in touch with all the sort of from startups to sort of late stage to some of the largest tech companies in the world. And I think they view us as partners and potential partners. The one thing that we've always viewed technology through is through a lens of what are people actually gonna use—what are the use cases here? Mm. And I think there was a lot of optimism, you know, a few years ago for the metaverse, for example, that didn't necessarily sort of pan out. There's no question that this is an exceptional form factor. Yes. In fact, glasses are the original wearables. Mm-hmm. But it's going to be a long time before we have, you know, fully integrated computers on our faces that we're wearing as long as we wear prescription glasses. Yeah. That's because customers are not gonna settle for anything less than something that's aesthetically exceptional- Mm-hmm And also that's lightweight and comfortable. Yeah. It doesn't make you sick or uncomfortable, too. Right, yeah. Hopefully. Nausea, not a great product feature. What are your biggest challenges for each of you? What would you say are your biggest challenges and or risk factors? Yeah. You know, for us, I think one of our strengths has always been to stay laser-focused. This started in the very early days of the company, where it was, "Let's focus on the core. Let's focus first- Mm. On acetate frames and single-vision lenses." It wasn't until Year 2 that we introduced sunwear and prescription sunwear, right? That's a slightly different product. It wasn't until Year 3 that we introduced mixed material and metal frames, right, a slightly different manufacturing process. It wasn't until Year 4 that we introduced progressive lenses. That's a different customer, generally 45 and above. And it wasn't until sort of recently that we even started selling contact lenses or providing eye exams and really building an eye care business. So one of our great strengths is actually how we de-risk things. And we pilot, we do things small, and then we build on a strong foundation. Even our journey into retail is an example of this, and we still keep a lot of those sort of values as we expand in retail, where we tend to sign shorter leases than most. You know, usually 5-7 years with a few, you know, five-year options, for example, because we know that the world changes, right? Neighborhoods evolve, but also how we serve customers evolve. Is our footprint gonna change? Is how we display glasses going to evolve? And one of our core values is learn, grow, repeat. How do we get better every single day? So right as we think about risk, we're constantly thinking about de-risking. And, you know, I'm often asked by entrepreneurs, like, you know, "Don't you have to jump out of the plane without a parachute?" And the answer is no. But we've created this narrative that entrepreneurs are these crazy risk-takers, whereas, you know, whenever you're looking at the precipice and need to take a giant leap of faith, we always say, "Hey, take a step back. There's got to be another path down the mountain that's a little less hairy. That's a great analogy, and we don't have to jump out of the plane. We can test, read and react. What is the... On a scale of one to 10, we ask every management team this: How do you rate the health of the consumer? We speak to probably our consumer. Yeah. Again, household income, average household income over $100,000. We're probably at a seven- Seven. Now. You know, again, we tend to be in all the best malls and lifestyle centers across the country. As we view customer shopping, yeah, they don't have as many bags as they did in 2019. Traffic's not as strong. Yeah. But, yeah, seven. Okay, final question, and Warby Parker's great at culture and library and books, too. Mm-hmm. What's your favorite book, TV show, or streaming, Neil, and then Steve? Sure. Right now, I guess I'm watching Tokyo Vice, great show about an American who moves to Tokyo and works covering the vice beat at the Meicho, at the equivalent of, like, the New York Times. And book right now that I've read recently is Jonathan Haidt's The Anxious Generation, which sort of speaks to the mental health crisis today among young people, right? The crazy increase in rates of anxiety and depression and suicide. Not the most uplifting book, but you know, something that my wife and I are very passionate about. How do we get smartphones and social media out of primary and secondary schools? Wow, very interesting. Steve? I would say a streaming episode on Netflix called A Man in Full, which is a show based on a book by Tom Wolfe, and then reading a book by Noa Tishby, People's History of Israel. Wow, great. Well, thank you. You're the original and most prominent direct-to-consumer company that's become holistic and varied and physical meets digital with lots of innovation, and a really fascinating industry with tons of growth. Thank you for your time.