All right. We can get moving here. Good afternoon, everyone. I am Mark Altschweiger, Senior Retail Analyst at Baird, and I'm pleased to welcome back Warby Parker. Warby Parker is a mission-driven vision care and lifestyle brand and a D2C pioneer in the eyewear category, now operating 337 stores in the U.S. and Canada with an evolving, holistic vision care offering. The company is at an inflection point, building on sustained profitability, the upcoming fall launch of Warby Parker Intelligent Eyewear in partnership with Google and Samsung, continued store expansion, and even a new buyback authorization announced earlier this year. Presenting today, we have Dave Gilboa, co-founder and co-CEO, as well as Adrian Mitchell, chief financial officer, who joined the company in February. Thanks for having us. Thanks for coming back. All right. Jumping in here, Dave, Warby has now crossed some important milestones. I mentioned earlier, gap profitability, 337 stores, the start of the intelligent eyewear chapter with Google and Samsung. So for investors who may be a bit newer to the story, could you frame how the company is positioned today versus a few years ago and what you see as the most important strategic priorities for 2026?

Sure. Yeah, so we've really been kind of describing it to our team as we're entering Act 3 as a business. And so Act 1 was around when we launched, when we pioneered the direct consumer made on the internet model. And that was really designed to solve our own problems as frustrated consumers. We saw a massive category that had very little innovation on the product side or distribution side. At the time, less than 1% of prescription glasses were sold online. This was back in 2010. And even today, a remarkably low portion of the category has moved online. And so there just hasn't been that much innovation in terms of consumer experience and distribution. And then on the product side, most glasses are marked up 10 to 20 times what they cost to manufacture. You haven't seen the same dynamics that you have in other consumer categories where as supply chains evolve and become more efficient, those savings are passed on to consumers. Instead, there's been just a massive consolidation in the category. You have a few large companies that have very high margins that have kind of created the illusion of choice for consumers and have not been forced to innovate the same a way that, you know, competition has led to innovation in other sectors. And so that was really the inspiration for why we launched the business back in 2010. For the first few years, we were selling prescription glasses online in ways that other people weren't. So that was Act One. Act Two was evolving into a holistic vision care business, opening stores. So we now have over 300 stores across the country. We're opening about a store a week, and we still believe that there's massive opportunity for us to continue to expand our retail footprint. There's about 45,000 optical shops in the U.S. for comparison. And those stores enable us to offer eye exams, so every one of our new stores. We're hiring world-class doctors, installing state-of-the-art technology, including retinal cameras. was. We're expanding our insurance offerings and making it easier for customers to use their insurance benefits at Warby Parker, whether they're in network or not. We've been scaling our contact lens business. We've introduced a number of different lens options and frame options and just significantly expanded our portfolio of products and services that consumers can get from Warby Parker and really focused on making it a one-stop shop so you can get your prescription your glasses your contacts from us and choose whether you want to engage with us online or offline for any of those components so that's really act two that we've been investing against and still see a lot of runway to expand and now we're entering act three which is the AI era and we believe we're positioning ourselves to be the leading eyewear company in the AI era. And we feel fortunate to partner with some really great technology companies in Google and Samsung to introduce our first line of intelligent eyewear that will hit the market this fall. We've been prototyping the products and wearing them on a daily basis. And they're really remarkable devices that we can't wait to introduce to our customers. And so for the first time, And we'll be selling products that are native for the AI era. And then we're also using AI to transform every part of our business, how we're engaging with customers, how we're evaluating diagnostics capabilities on our exam room, like retinal imaging, building our own capabilities to make our doctors more efficient, introducing new capabilities on our website to make it easier for our customers to shop for glasses and really evolving every part of our business at a speed that we have not been able to move at until this year.

Adrian, you joined as CFO in February after a notable run as Macy's COO and CFO, prior leadership roles at some other large retailers. So roughly four months in, could you share your initial perceptions of Warby Parker? What stood out? What do you see as the biggest opportunities? Where do you see the opportunities to apply your operational and financial playbook? And any areas where you'd anticipate the company evolving its approach over time?

Well, the first four months has been a terrific journey. And it's been a tremendous amount of fun, still learning a tremendous amount about the business. I would say the first thing is just the strength of the brand. When you look at the eyewear category and just the quality of the customer experience, it's actually quite impressive. And being inside the company, seeing the level of care that we take in terms of every dimension of the customer experience, whether that be in the physical channel or the digital channel, is actually incredibly humbling. So there's tremendous care there. The second thing is Warby Parker is a unique combination of mission and performance. So in addition to having the strong and compelling customer experience, we have a very healthy balance sheet. We have very strong unit economics with regards to our stores. But we're also very mission-driven. So every pair of glasses that we actually sell, we actually donate. And this year we announced that we've donated over 25 million pairs of glasses to over 65 countries around the world. So that was a big part of what attracted me to the company as well as that combination of the mission-driven with the performance-driven. The third thing that I think is really interesting is there's tremendous amount of runway within the business. So we only have about 1.2% market share. And when you think about the engines of margin and top-line growth, there are multiple engines. So one is just the penetration within the eyewear space, but there's a tremendous amount of runway with insurance. There's a tremendous amount of runway with eye exams. There's a tremendous amount of runway with intelligent eyewear. There's a tremendous amount of runway with regards to sun and sports and performance glasses. So very exciting opportunity, lots of innovation, lots of newness, which is very contrary to a lot of what the category actually offers today, but a tremendous amount of upside potential for the brand.

On the macro, so we look at Q1 results, revenue is up a little over 8%. The company cited some weather disruption, some softer industry traffic, as well as slower e-commerce as you sunset the home try-in program. So with that backdrop, how would you characterize the health of the eyewear consumer today versus three or six months ago? Do you see eyewear as more or less discretionary in this environment? Yes.

Optical industry is interesting in that it has some dynamics of health care and non-discretionary spend and then some dynamics of fashion and discretionary dynamics, and we are impacted by both. What we described in Q1, there were a couple unique elements, some extreme weather that was particularly disruptive given where our stores are located, and the first quarter where we had sunset our home try-on program and Q1 being the highest volume quarter for home try on for our business historically and so we're not expecting those to be kind of recurring headwinds throughout the year and once we've moved past some of those elements we're seeing you know kind of the consumer behavior that that we would expect in a normal healthy environment yeah there's no question that consumers in general have a lot on their minds these days and you know send consumer sentiment surveys continue to set record lows but in in that environment you know we believe consumers are still spending they're just being more choiceful and kind of where those dollars are going and given that we've always had you know what we believe is the strongest value proposition in in the category and that the value differential between the products we offer and the prices that consumers pay at competitors continues to grow as the really the vast majority of growth in the category over the last few years has come from taking price and we've maintained our entry $95 price point for a pair of prescription glasses we have introduced you know a number of other products over time at a variety of price points that have been well-received, but we think it's important to differentiate from value and kind of pass savings on to consumers. And in that environment, I believe that we'll continue to take share like we have over the last year and even in Q1 where we had some of those unique elements.

Just a quick follow-up there.

Can you speak to how your assortment is performing across the various price points and how that's informing your read on consumer behavior sure yeah so over the years we've introduced a variety of products at different price points including two different progressive lens options that are you know around $300 or $400 that includes the frame and the lenses and a comparable quality product at most optical shops is well over a thousand dollars for example we recently introduced our first sport collection which starts at 195 dollars you can get prescription sport lenses including the frame for 295 dollars elsewhere that would be you know eight hundred dollars plus easily and so i think we continue to stand for value and i think our customers recognize the the quality of the product and they're willing to pay more than $95 as long as there is rationale for it and we're very mindful around kind of how we price our product.

And it also, you know, in an environment where people are looking for opportunities to save dollars on certain offerings, it's nice to be able to offer kind of a range of options for our customers great i want to spend some time on the intelligent eyewear google io a few weeks ago you and google gave us a first look at the design rounded silhouette it's an audio first form factor gemini built in you've confirmed it's launching in in the fall still a lot of details to come but with what you can share could you walk us through where you are on launch readiness, what rollout sequencing may look like, and just what success looks like over the first 12 months? Sure.

Yeah, so we've been working quite literally around the clock on getting this product ready for launch. And the product itself is ready, and we've been wearing the devices ourselves and are having increasingly magical moments of, you know, everything from, you know, getting assistance on installing a car seat where I was fumbling around and the glasses identified the make and the model of the car seat without me telling me, without me having to tell what those factors were, seeing how I was inserting the seat pelt wrong and giving me live instruction on how to install it correctly, you know, to having kind of superpowers of being able to have someone speak to you in a different language and having real-time translation and hearing their voice with zero latency and be able to have kind of a full conversation, to just having your attention back in the real world, being able to throw on a pair of glasses and ask it to query your calendar or send messages while you're just staying more engaged with the real world. So my screen time, I got a notice that was down 60% since I'd started wearing these prototypes. And it's just a much more human way to interact with the world than how you see people, especially around New York, just kind of walking on the sidewalk or restaurants everyone's hunched over um staring at their hand um and so uh we're incredibly excited to uh to get these out to the world um the uh we've been investing in every part of our business from our optical labs and from a supply chain standpoint marrying the you know consumer electronics precision and standardization with the custom bespoke elements and nature of prescription lenses is not trivial, and so we've been standing up new processes there. We've designed display units and demo experiences for all of our stores. We've created an immersive digital experience that can showcase the technology, and we've been working hand-in-glove with our partners at Google and Samsung to ensure that these products are ready at scale. and so we're yeah we're we're ready to go and there's yeah this is a new category that we want to make sure that the launch experience is is seamless and consistent and cohesive and one of the reasons that Google and Samsung were excited to partner with us was because of that customer experience we're able to deliver and that this will be a controlled environment in each of our 300 plus stores and online. And that's the only place that people will be purchasing these products to start. And kind of once we get the launch dynamics in a stable place, you know, we can think about additional points of distribution, but we're excited to drive a lot of traffic to our stores and and generate lots of lots of new customers once we once we get these launched beyond the initial Google collaboration how do you think about the long-term opportunity in intelligent eyewear is this an incremental category incremental category expansion beyond and a glasses contacts exams that's is it potentially larger than traditional high wear over time just how

How do you think through that?

Yeah, we believe this is a transformative opportunity for our business and the optical industry as a whole. This is a computing device that's native for the AI era. And for the first time since the iPhone was introduced, it's going to kind of unbundle a lot of the functionality that has increasingly been stuffed into a phone form factor. And so people will still walk around with phones, but you'll be able to keep them in your pocket for most of the time. And that there's going to be really widespread adoption of intelligent eyewear, and we believe we're best positioned to capture that demand given the eyewear-first nature of this category, that it's different from watches or earbuds in that the same form factor doesn't work for every face and something that people wear on their face. People are going to want choice in design and aesthetics are going to be critically important. comfort is critically important, and we have a lot of expertise there, and our partners in Google and Samsung appreciate that this is different from a phone or a watch, and we believe that Google in particular has the best capability in terms of their software, their operating system, and their AI capabilities that will be hard for anyone else to match. So, yeah, we're very enthusiastic about how big this opportunity is.

Switching gears to store expansion, that still is a core driver to the business. You opened 14 stores in the first quarter. Long-term goal to add roughly 50 per year. You've discussed 900 pluses, the long-term TAM. Just talk a little bit more about the store playbook, productivity with the recent openings, target markets, and just any evolution in the unit economics versus a couple of years ago.

Yeah, I can take that one. The stores really is a strategic asset for us. A large portion of our capital expenditures every year go into opening and remodeling our existing stores. Just to put in perspective, about three-fourths of our volume in terms of revenue actually comes from the retail channel. The balance actually comes from the digital channel. But if you think about the evolution of our stores over time, we first opened stores only to sell glasses. Now that's evolved into contacts. That's evolved into new categories like performance sun. That's evolved into eye exams. And one of the things that's really important to us is that over 90% of our stores now actually have access to exams, which is a real opportunity for us because there are a lot of our customers who shop with us every year that actually don't know we offer exams. What we do see is the most valuable customer starts with exams and buys other products. The attachment rate between products and exams is actually incredibly high. So we're really migrating from a growth standpoint to not just selling glasses or contacts by themselves, but really adding to that portfolio with exams. And the stores are a perfect vehicle for that. What's also very interesting is the economics around the stores continue to be very attractive. We hold ourselves very accountable to making sure that the return on those stores far exceed our cost of capital, a very healthy NPV, and also making sure that we have a payback in and around 20 months in terms of payback and a contribution for our margin in and around 35% within two years. And vast majority of our stores meet that criteria. So we have a very, very healthy portfolio.

As we think about that store productivity, can you talk a little bit more about the exam capacity? And now that that's in nearly 90% of stores, how is that impacting the store productivity?

It's really giving us a tremendous amount of access to be able to service a lot of customers who have eye exams. So today, the eye exam portion of our revenue is a single-digit number part of our business, but we now have the capacity and the technology with retinal imaging to be able to absorb a tremendous amount of capacity. So we've actually built ahead of demand in terms of our new store operations, but we're very excited about building greater awareness among customers who currently shop with us and customers who will shop with us in the future to actually add exams to their portfolio. And those customers are just much stickier. They come more often to spend more with us. And so it's a great opportunity for us to continue to drive the returns from those investments.

And if you look at the rest of the category, it's really driven by exam patients and customers. There's very little kind of browsing and casual shopping that happens in an optical shop, whether that's an independent or lens crafters people are going there they're starting their journey by booking an exam they're you know generally very low traffic low customer counts but these are you know high value customers once someone gets an exam across the category over 70 percent of them buy glasses at the same at the same place at the same time that they get that exam. So these are high transaction values. And for us, historically, the vast majority of our business came from people that had gotten an exam elsewhere, have had the awkward conversation with the doctor about why they're not buying glasses from them, come to one of our stores or our website. And now we've really invested in standing up that exam business and are seeing that drive have meaningful growth for us amongst those highest value customers. But as Adrian said, we have a lot of customers who have been buying glasses from us for years that don't realize that we offer exams. And so there's still a very significant awareness opportunity for us.

And then on Target, the first five Shop and Shops opened the back half of last year, I think more to come in 2026 can you talk about what you learned from that that initial grouping of stores and how that informs your pace of expansion yeah it's still quite early actually we're still learning about how this model works we have it spread across a number of geographies in a number of different formats one of the most attractive things about what we've seen is that if we are seeing a healthy number of new customers that we've not seen before so you know most of those stores are not even open a year yet. So really, it's just a learning opportunity for us at this point.

Looking at gross margin, Adrian, gross margin did compress a bit in Q1 on doctor headcount, some occupancy deleverage, tariffs, these investments in exam capacity. Can you walk through some of the building blocks of gross margin as we think about the balance of 2026? What are the puts and takes? And where do you see margin going over the medium term?

Yeah, absolutely. You know, Q1 was quite unusual from the perspective of inclement weather just really impacted our operations like it did for most consumer businesses. So there are certainly a number of days where we had closed labs and closed stores. So that was really the major driver of the de-leverage. Outside of the weather, what you see is a business that's growing low double digits. So that's pretty consistent with our algorithm. them. As we think about looking ahead, there are a number of factors that we should actually see gross margin expansion as we actually compare it to last year, which progressed through the rest of the year. One is that we're operating this year in a more favorable tariff environment versus where we were last year. So we would expect that to be favorable as we look to the future of the year. We're also pushing the mix towards higher value, higher margin products. We're seeing continued penetration with our progressive product. We've introduced our performance sun product which has very healthy margins. Our lens enhancements are actually quite attractive to customers. So those are the kinds of choices that customers make that contribute to that margin profile. The third thing is we're also investing in innovation and efficiencies within our labs. And so we're bringing a number of those capabilities online, particularly in the back half of the year, which will also enhance our margin performance. And then the last thing is we've had a lot of innovation with our add a pair and save offer, which we introduced in mid-April. So effectively, we have customers with a second pair that get 25% off that pair of equal or lesser value. And for us, it's been accretive on the margin side, but also it's helped us increase our average order value as well.

I want to ask about vision insurance. Insurance penetration, that's been a multi-year opportunity for Warby. Industry mix, I think, is over 50% insurance paid. You've historically been more underpenetrated there. But you've made big progress. Versant Health Partnership last year, I think, nearly doubled in network lives for Warby. So could you give us an update on the insurance carrier expansion, the impact on the customer that you've seen, and any major carrier integrations on the near-term roadmap that could accelerate the mix?

Sure. Yeah, similar to my comment around the category being driven by exam customers, It's also driven by Vision Insurance, where the vast majority of transactions start by someone looking at where they're in-network. Again, the scale that we've been able to build without having that being a driving force, I think, speaks to the value proposition and the customer experience and the brand that we've been able to build. and in a lot of ways causing customers more friction to come to us than the traditional way that they're used to shopping for glasses. That being said, we want to make it as easy as possible for our customers to use their insurance benefits, and it has been a major priority for us as we open more stores, as we have more doctors, as we have a broader assortment. of glasses and contacts, we become more similar to the providers that vision insurance carriers are used to working with. There are more employees that are complaining to their benefits manager that they want to use their in-network benefits at Warby Parker, and they're upset that they're not able to. then those benefits managers call their their account manager at vsp and imed and and i'd say we are increasingly having fruitful conversations with the leadership teams at the carriers where we're not in network yet i have some pilots in place that we're excited about and see opportunities to add additional in-network lives over time well we don't want to wait for that and so in the meantime we're also making it easier for people to use their out-of-network benefits with us until a few weeks ago if you had if you were not in network with us we would tell you that you would still get significant value of shopping at Orby Parker and you could submit for out-of-network reimbursement on your own but we couldn't tell you how much you would you would receive in reimbursement now we can look up your exact benefit plan tell you that you'll get $100 back on your frames and $75 back on your lenses and our team can actually submit that reimbursement on your behalf and so that's been really well received by our team and our customers and I think there's a lot that we can do to expand awareness of how easy it is to use benefits at Warby.

Excellent. And we only have a few seconds left. So I guess I'll just ask one final one. If you had to rank the top one or two value drivers for the next 24 months, what should they be? And what milestones should investors be holding you accountable to over the next 12 to 24 months?

Yeah, we think it's going to be a really exciting period for the company with a launch of a whole new category of intelligent eyewear that we believe is going to be very well received and really be incremental to the core business. And so that's kind of a whole new value driver of growth and profitability. And then within the core business, we continue to see massive opportunity for us to roll out stores, build exams scale insurance and contact lenses and and expect that will all translate into incremental customer growth and in revenue growth and profitability okay I think we can leave it there please join me in thanking Dave and Adrian