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What changed in Warby Parker Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Warby Parker Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+398 added−456 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in Warby Parker Inc.'s 2023 10-K

398 paragraphs added · 456 removed · 343 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

60 edited+5 added−4 removed74 unchanged
Biggest changeWe’ve also introduced services like comprehensive eye exams and groundbreaking in-house technologies like Virtual Vision Test and Virtual Try-On that enhance the overall customer experience. This ongoing innovation is driven by our team’s commitment to solving real consumer problems while building a holistic vision care offering that is unparalleled within the market.
Biggest changeThis ongoing innovation is driven by our team’s commitment to solving real consumer problems while building a holistic vision care offering that is unparalleled within the market. Eyeglasses and Sunglasses Every pair of Warby Parker glasses and sunglasses is dreamed up in-house, where our team gathers inspiration, sketches designs, and maps out product details for prototyping.
All of our 6 Table of Contents infrastructure and customer service support our own brand, enabling us to optimize the look and feel of the user experience from browsing and trying on to purchase. Across all of our channels, we have Customer Experience and Retail team members ready to help at a moment’s notice.
All of our infrastructure and customer service support our own brand, enabling us to optimize the look and feel of the user experience from browsing and trying on to purchase. Across all of our channels, we have Customer 6 Table of Contents Experience and Retail team members ready to help at a moment’s notice.
This includes strengthening our offering and position within: • Glasses. On average, we release over 20 eyewear collections each year; we will continue to scale our core glasses offering by introducing new sizes, shapes, widths, lens offerings, and more to ensure as many people as possible can find a frame that fits, functions, and looks great. • Contact Lenses.
This includes strengthening our offering and position within: • Glasses. On average, we release 20 eyewear collections each year; we will continue to scale our core glasses offering by introducing new sizes, shapes, widths, lens offerings, and more to ensure as many people as possible can find a frame that fits, functions, and looks great. • Contact Lenses.
We work directly with manufacturers and raw material suppliers, most notably in China, Japan, Vietnam, Taiwan, and Italy, so we know exactly where and how our products are being manufactured. We regularly bring Warby Parker liaisons to our partner facilities to help us better support and inspect our vendors in following our manufacturing specifications.
We work directly with manufacturers and raw material suppliers, most notably in China, Japan, Vietnam, and Italy, so we know exactly where and how our products are being manufactured. We regularly bring Warby Parker liaisons to our partner facilities to help us better support and inspect our vendors in following our manufacturing specifications.
As a public benefit corporation, we are required to provide a biennial report on our impacts. We intend to use our 2022 Impact Report to serve as such statement. Information in our Impact Reports does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC.
As a public benefit corporation, we are required to provide a biennial report on our impacts. We intend to use our annual Impact Reports to serve as such statement. Information in our Impact Reports does not constitute part of this Annual Report on Form 10-K or any other report we file or furnish with the SEC.
Over 10 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program. Our Direct-to-Consumer Model An amazing customer experience at Warby Parker is no accident—it happens when every possible path to our product is as delightful and thoughtful as the next.
Over 15 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program. Our Direct-to-Consumer Model An amazing customer experience at Warby Parker is no accident—it happens when every possible path to our product is as delightful and thoughtful as the next.
Since then we have added many additional ways to engage with consumers—from our 200 retail stores to our Virtual Vision Test telehealth app—all with the intention of making the shopping process easy and fun for our customers. As we continuously seek to elevate the seamless customer experience, we leverage multiple components of our business model, including: • Customer-First, Direct-to-Consumer .
Since then we have added many additional ways to engage with consumers—from our 237 retail stores to our Virtual Vision Test telehealth app—all with the intention of making the shopping process easy and fun for our customers. As we continuously seek to elevate the seamless customer experience, we leverage multiple components of our business model, including: • Customer-First, Direct-to-Consumer .
When we started Warby Parker 13 years ago, there were not many examples of brands that had launched online. Yet we believed that building a digitally native, vertically integrated brand would enable us to circumvent traditional channels, directly build meaningful relationships with consumers, and offer high-quality products at a reasonable price.
When we started Warby Parker 14 years ago, there were not many examples of brands that had launched online. Yet we believed that building a digitally native, vertically integrated brand would enable us to circumvent traditional channels, directly build meaningful relationships with consumers, and offer high-quality products at a reasonable price.
All of our frames are designed at our New York City headquarters, and we handpick raw materials and the suppliers who have the expertise and skill to bring them to life. These deliberate decisions help us stay true to our original aesthetic vision as well as regulatory and performance results.
All of our frames are designed at our New York City headquarters, and we handpick raw materials and the suppliers who have the expertise and skills to bring them to life. These deliberate decisions help us stay true to our original aesthetic vision as well as regulatory and performance results.
Nearly half the market is fragmented and eyewear is sold through independent optical shops who drive the majority of their revenue through eyewear sales. This is unique in the medical world as it’s one of the only places where a prescribing doctor can sell you the product they prescribe.
Approximately half the market is fragmented and eyewear is sold through independent optical shops who drive the majority of their revenue through eyewear sales. This is unique in the medical world as it’s one of the only places where a prescribing doctor can sell you the product they prescribe.
In addition, we believe our vertically integrated supply chain allows us more effective control over our product and brand. We are also differentiated by our cross-platform, multi-generational creative and marketing strategies that increases brand-awareness and strengthens consumer loyalty.
In addition, we believe our vertically integrated supply chain allows us more effective control over our product and brand. We are also differentiated by our cross-platform, multi-generational creative and marketing strategies that increase brand-awareness and strengthens consumer loyalty.
Additionally, an estimated 43 million people in the United States wear contact lenses that are typically disposable, replaced on a daily, weekly, or monthly basis, driving frequent repurchase.
Additionally, an estimated 53 million people in the United States wear contact lenses that are typically disposable, replaced on a daily, weekly, or monthly basis, driving frequent repurchase.
Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores and employee-related compensation to support growth.
Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs 12 Table of Contents related to the opening of new retail stores and employee-related compensation to support growth.
We further control the use of our proprietary technology 13 Table of Contents and intellectual property through provisions in our terms of service. We also monitor the activities of third parties with respect to potential infringing uses of our intellectual property.
We further control the use of our proprietary technology and intellectual property through provisions in our terms of service. We also monitor the activities of third parties with respect to potential infringing uses of our intellectual property.
Vendor Accountability Alongside the independent fair-labor monitoring group Verité, we piloted the Warby Parker Social Compliance Program in 2012 and formalized it for our direct and key indirect suppliers in 2013. All new direct and key indirect suppliers since 11 Table of Contents have been screened using our social compliance criteria.
Vendor Accountability Alongside the independent fair-labor monitoring group Verité, we piloted the Warby Parker Social Compliance Program in 2012 and formalized it for our direct and key indirect suppliers in 2013. All new direct and key indirect suppliers since have been screened using our social compliance criteria.
In 2022, this historical trend was offset by specific actions we took to reduce costs, including a reduction in marketing spend beginning in the second quarter and a reduction in corporate headcount in connection 12 Table of Contents with our restructuring plan that was executed in the third quarter.
In 2022, this historical trend was offset by specific actions we took to reduce costs, including a reduction in marketing spend beginning in the second quarter and a reduction in corporate headcount in connection with our restructuring plan that was executed in the third quarter.
In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market. • We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 200 retail stores. • We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond.
In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market. • We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 237 retail stores as of December 31, 2023. • We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond.
Over 80% of contacts wearers purchase contact lenses at least once per year. • Increasing screen time usage : With the rising usage of smartphones, tablets, computers, and other devices, three out of four adults report experiencing digital eye strain at some point during the day, contributing significantly to increased vision correction needs and a steady influx of new customers within the eyewear market. • Acceleration of e-commerce penetration : While e-commerce penetration is at an all-time high in the U.S. and abroad, it is largely nascent in the eyewear industry, representing approximately 15% of eyewear product sales in 2022. • Increasing prominence of telehealth : The Vision Council reported that over 50% of people receiving an eye exam would be interested in having a virtual or telehealth eye exam.
Nearly 80% of contacts wearers purchase contact lenses at least once per year. • Increasing screen time usage : With the rising usage of smartphones, tablets, computers, and other devices, three out of four adults report experiencing digital eye strain at some point during the day, contributing significantly to increased vision correction needs and a steady influx of new customers within the eyewear market. • Acceleration of e-commerce penetration : While e-commerce penetration is at an all-time high in the U.S. and abroad, it is relatively small in the eyewear industry, representing approximately 10% of prescription eyeglasses sales in 2023 according to The Vision Council. • Increasing prominence of telehealth : The Vision Council reported that over 50% of people receiving an eye exam would be interested in having a virtual or telehealth eye exam.
DTC telehealth is expected to grow by nearly 50% by 2028, or a CAGR of 5.6%, reflecting an evolution of consumer preferences from in-person to remote medical care. We believe these factors contribute to rising vision correction needs and a steady influx of new customers who expect an exceptional vision care experience.
Direct-to-consumer telehealth is expected to grow by nearly 50% by 2028, reflecting an evolution of consumer preferences from in-person to remote medical care. We believe these factors contribute to rising vision correction needs and a steady influx of new customers who expect an exceptional vision care experience.
These actions contributed to a sequential decline in selling, general, and administrative costs from quarter to quarter in 2022. In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results.
These actions contributed to a sequential decline in selling, general, and administrative costs from quarter to quarter in 2022, however, 2023 has followed historical trends. In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results.
According to Statista, the industry is projected to accelerate at a rate above GDP, with an outlook of 6.7% CAGR from 2022 to 2026, supported by secular trends. (1) In 2022, The Vision Council updated its market sizing methodology within the vision care space.
According to Statista, the industry is projected to accelerate at a rate above GDP, with an outlook of 6.7% CAGR from 2023 to 2027, supported by secular trends. (1) In 2023, The Vision Council updated its market sizing and allocation methodology within the vision care space.
Customers can pick five of their favorites on our site (or get tailored suggestions after taking a quick quiz) and try them at home for five full days. Oh, and it’s free! The Home Try-On program is very unique to our business.
Customers can pick five of their favorites on our site (or get tailored suggestions after taking a quick quiz) and try them at home for five full days. Oh, and it’s free! The Home Try-On program is very unique to our business and maintains a high conversion rate from try-on to purchase.
While there are over 48,000 optical retail stores in the U.S. as of 2022, consumers are often unaware that power is consolidated among a handful of companies, whose influence spans the full eyewear value chain from design, to manufacturing, distribution, retailing, and insurance.
While there are approximately 45,000 optical retail stores in the U.S. as of December 2023, consumers are often unaware that power is consolidated among a handful of companies, whose influence spans the full eyewear value chain from design, to manufacturing, distribution, retailing, and insurance.
Throughout their shopping experience, our patients’ health and happiness is our top priority. The Eyewear Market is Large, Growing, and Ripe for Disruption Large and Growing Market The U.S. eyewear market is large and growing.
Throughout their shopping experience, our patients’ health and happiness is our top priority. 7 Table of Contents The Eyewear Market is Large, Growing, and Ripe for Disruption Large and Growing Market The U.S. eyewear market is large and growing.
Our telehealth services are not covered by vision insurance, but we believe customers will continue to use our telehealth services given the convenience and modest cost.
Our Virtual Vision Test is not covered by vision insurance, but we believe customers will continue to use our telehealth services given the convenience and modest cost.
All of our active direct suppliers in China and Japan are audited to ensure compliance with our program, and we continue to expand the program to new suppliers.
All of our active direct suppliers in China, Vietnam, and Japan 11 Table of Contents are audited to ensure compliance with our program, and we continue to expand the program to new suppliers.
From friendly and knowledgeable in-person exams at 150 of our retail stores to innovative telehealth services like our Virtual Vision Test app, we provide access to convenient and accessible vision services for primary vision care needs through 7 Table of Contents optometrists employed either by us or by independent professional corporations or similar entities with whom we have contractual arrangements.
From friendly and knowledgeable in-person exams at 194 of our retail stores as of December 31, 2023 to innovative telehealth services like our Virtual Vision Test app, we provide access to convenient and accessible vision services for primary vision care needs through optometrists employed either by us or by independent professional corporations or similar entities with whom we have contractual arrangements.
It is estimated that at least 93% of people aged 65 and older wear corrective lenses, as older adults require more vision correction. • Consistent replenishment cycle : On average, glasses wearers replace their glasses every two years, according to the Vision Council.
It is estimated that at least 93% of people aged 65 and older wear corrective lenses, as older adults require more vision correction. • Consistent replenishment cycle : Glasses wearers purchase new glasses approximately every two years, according to the Vision Council.
See Item 1A, “Risk Factors—Risks Related to Our Legal and Regulatory Environment—Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.” Employees and Human Capital Resources As of December 31, 2022, we had a total of 3,032 employees, including 1,860 full-time, 1,145 part-time, and 27 temporary employees, across 200 retail stores, two in-house optical laboratories, and two offices in the United States.
See Item 1A, “Risk Factors—Risks Related to Our Legal and Regulatory Environment—Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.” Employees and Human Capital Resources As of December 31, 2023, we had a total of 3,491 employees, including 2,140 full-time, 1,333 part-time, and 18 temporary employees, across 237 retail stores, two in-house optical laboratories, and two offices in the United States.
Based on analysis we conducted with a third-party research firm, we expect that our retail footprint has room to expand in the U.S. to 900+ retail stores, which is still a fraction of the over 48,000 optical retail stores in the United States as of 2022.
Based on analysis we conducted with a third-party research firm in 2021, we expect that our retail footprint has room to expand in the U.S. to 900+ retail stores, which is still a fraction of the approximately 45,000 optical retail stores in the United States as of December 2023.
The eye exams and vision care market is estimated at $15.3 billion as of December 31, 2022 and contributed only 3% to Warby Parker net revenue for the year ended December 31, 2022. • Vision Insurance .
The eye exams and vision care market is estimated at $10.6 billion as of December 31, 2023 and contributed only 4.3% to Warby Parker net revenue for the year ended December 31, 2023. • Vision Insurance .
We design and sell glasses under our own brand name. Our integrated supply chain consists of owned optical and fulfillment laboratories as well as third-party manufacturing and laboratory partnerships that we have built over the years and gives us control over product quality and fulfillment speed.
Our integrated supply chain consists of owned optical and fulfillment laboratories as well as third-party manufacturing and laboratory partnerships that we have built over the years and gives us control over product quality and fulfillment speed.
As we grow, we will continue our strategy of evaluating opportunities to open distinctive retail stores in select locations and providing our customers with an engaging online experience. Our Seamless Experience We offer our customers a seamless customer experience—whether shopping in-person or online—that’s unparalleled within the market.
Expanding internationally would add approximately $120 billion to our total addressable market. As we grow, we will continue our strategy of evaluating opportunities to open distinctive retail stores in select locations and providing our customers with an engaging online experience. Our Seamless Experience We offer our customers a seamless customer experience—whether shopping in-person or online—that’s unparalleled within the market.
Our retail strategy is thoughtful and data-driven, creative and colorful, and consistent with the Warby Parker brand. The keystone to our strategy is ensuring each retail store location—whether on proven, retail-oriented streets or in high-performing shopping centers—communicates the brand in a consistent and engaging manner to all customers, past, current, and potential.
The keystone to our strategy is ensuring each retail store location—whether on proven, retail-oriented streets or in high-performing shopping centers—communicates the brand in a consistent and engaging manner to all customers, past, current, and potential.
The eyewear industry is resilient to economic cycles given its medical and non-discretionary nature and is defined by durable fundamentals and trends including: • Most people need vision correction : The Vision Council reported that 82% of adults in the United States were using some form of vision correction as of the third quarter of 2022, equating to approximately 275 million people.
The eyewear industry is resilient to economic cycles given its medical and non-discretionary nature and is defined by durable fundamentals and trends including: • Most people need vision correction : The Vision Council reported that approximately 80% of adults in the United States use some form of vision correction, equating to approximately 208 million people.
The contact lens market is estimated at $17.9 billion as of December 31, 2022 and contributed only 7% to Warby Parker net revenue for the year ended December 31, 2022. • Eye Exams and Vision Care.
The contact lens market is estimated at $12.1 billion as of December 31, 2023 and contributed only 8.6% to Warby Parker net revenue for the year ended December 31, 2023. • Eye Exams and Vision Care.
The Vision Council defines the U.S. eyewear market as an approximately $76 billion industry (1) , as of December 2022, that has exhibited consistent, stable growth across multiple economic cycles, and estimates the U.S. prescription eyeglasses and sunglasses market to be approximately $36 billion.
The Vision Council defines the U.S. eyewear market as an approximately $66 billion industry (1) as of December 2023, up from $63 billion in 2022, that has exhibited consistent, stable growth across multiple economic cycles, and estimates the U.S. prescription eyeglasses and sunglasses market to be approximately $24 billion (1) , flat to the prior year.
Independent optical retailers made up approximately 40% of all optical retail sales in 2022, while optical retail chains made up the vast majority of the remainder. Globally, the eyewear market was approximately $170 billion in 2022, according to Statista.
Independent optical retailers made up approximately 50% of all prescription optical retail sales in 2023 (1) , while optical retail chains made up the majority of the remainder. Globally, the eyewear market was approximately $184 billion in 2023, according to Statista.
Prescription eyewear consumers typically replace their glasses every two to two and a half years, while contact lens customers typically reorder every six to 12 months. Given our brand’s strength and replenishment cycle, we believe we have significant opportunity ahead to grow our wallet share, and delight more and more customers. • Vertical Integration .
Prescription eyewear consumers purchase new glasses approximately every two years, while contact lens customers typically reorder every 12 months. Given our brand’s strength and replenishment cycle, we believe we have significant opportunity ahead to grow our wallet share, and delight more and more customers. • Vertical Integration . We design and sell glasses under our own brand name.
We have trademark rights in our name and other brand indicia and have 41 trademark registrations and 10 active applications for select marks in the United States as well as 93 trademark registrations and active applications in 28 other jurisdictions around the world. As of December 31, 2022, we have also registered ten copyrights in the United States.
We have trademark rights in our name and other brand indicia and, as of December 31, 2023, have 42 trademark registrations and 11 active applications for select marks in the United States as well as 91 trademark registrations and active applications in 28 other jurisdictions around the world.
We partner with a large network of more than 30 partners for frame factories, lens and case/kit suppliers, distribution centers, optical laboratories, and freight-forwarding and logistics companies all over the globe.
We partner with a large network of more than 30 partners for frame factories, lens and case/kit suppliers, distribution centers, optical laboratories, and freight-forwarding and logistics companies all over the globe. We also leverage our retail locations and in-house optical laboratories in Sloatsburg, New York, and Las Vegas, Nevada.
We define active direct suppliers as product suppliers that we directly transact with, that each represent more than 10% of our business, and with which we have purchase orders, inventory shipments, and/or payment transactions within the calendar year. We are committed to making sure that working conditions throughout our supplier network are safe and that employees are treated with dignity.
We define active direct suppliers as product suppliers that we directly transact with, that each represent more than 10% of our business, and with which we have purchase orders, inventory shipments, and/or payment transactions within the calendar year.
As of December 31, 2022, we held 16 issued utility patents in the United States and 28 issued utility patents outside of the United States; four design patents in the United States and 62 issued design registrations outside of the United States; and 84 utility patent applications (including active PCT applications) pending in the United States and other countries, five design patent applications pending in the United States and two applications for design registrations pending in other countries.
As of December 31, 2023, we held 17 issued utility patents in the United States and 25 issued utility patents outside of the United States; four design patents in the United States and 49 issued design registrations outside of the United States; and 52 utility patent applications (including active PCT applications) pending in the United States and other countries, and five design patent applications pending in the United States.
Every day, our team of over 3,000 employees is focused on our mission to inspire and impact the world with vision, purpose, and style (without charging a premium for it). Our ultimate objective is to provide vision for all. A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States.
Every day, our team of over 3,000 employees is focused on our mission to inspire and impact the world with vision, purpose, and style (without charging a premium for it). Our ultimate objective is to provide vision for all.
Through our multichannel business, we have unlocked access to affordable, quality eye care for millions.
As a pioneer of the direct-to-consumer model, and now through our multichannel business, we have unlocked access to affordable, quality eye care for millions.
Customers rely heavily on a dominant physical footprint with little to no digital counterparts. • Confusing, Unstandardized, and Opaque Pricing. Beyond selection of frames, the purchase decision involves complex, multi-step decision-making with an emphasis on upselling lens alternatives and coating options. We believe there is also little connection between pricing and quality. • Unappealing Value Proposition.
Beyond selection of frames, the purchase decision involves complex, multi-step decision-making with an emphasis on upselling lens alternatives and coating options. We believe there is also little connection between pricing and quality. • Unappealing Value Proposition. Glasses have historically only been offered at a premium price point, leaving millions of customers without access to stylish, affordable eyewear.
We seek to control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners.
We continually review our development efforts to assess the existence and registrability of new intellectual property and determine whether to seek patent protection or trademark or copyright registrations. 13 Table of Contents We seek to control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners.
Contacts Warby Parker sells its own brand of contacts, Scout by Warby Parker, as well as third-party contact lenses; this allows us to provide customers a truly comprehensive vision care offering.
We custom-cut and polish the edges of our lenses, and individually inspect and bench-align each pair before it’s packaged up and sent on its way to the customer. Contacts Warby Parker sells its own brand of contacts, Scout by Warby Parker, as well as third-party contact lenses; this allows us to provide customers a truly comprehensive vision care offering.
In addition, a concentrated number of companies license the vast majority of premium eyewear brands sold and often wholesale their products through retailers, so they lack direct connection to their end customers. The legacy optical industry is highly concentrated amongst a few industry players that have created an illusion of choice for consumers.
The eyewear industry has been built to maximize individual transactions versus optimize the customer journey. In addition, a concentrated number of companies license the vast majority of premium eyewear brands sold and often wholesale their products through retailers, so they lack direct connection to their end customers.
Our Holistic Vision Care Offering Since our launch, we have expanded our product offering, creating a seamless and convenient shopping experience for customers interested in not only buying eyeglasses but also sunglasses (with or without prescription lenses), light-responsive lenses, blue-light-filtering lenses, contact lenses, and more.
Our Holistic Vision Care Offering Since our launch, we have expanded our product and service offering, creating a seamless and convenient shopping experience for customers interested in not only buying eyeglasses and sunglasses but also contact lenses, eye exams and more. We’ve also introduced groundbreaking in-house technologies like Virtual Vision Test and Virtual Try-On to enhance the overall customer experience.
All of our retail stores are corporate-owned, and we have no franchise retail stores, which allows us complete control over the customer experience. Our retail stores introduce the brand to new consumers, strengthen relationships with existing customers, and create environments that celebrate the breadth of our vision care offerings, from glasses to contact lenses and eye exams.
Our retail stores introduce the brand to new consumers, strengthen relationships with existing customers, and create environments that celebrate the breadth of our vision care offerings, from glasses to contact lenses and eye exams. Our retail strategy is thoughtful and data-driven, creative and colorful, and consistent with the Warby Parker brand.
Glasses have historically only been offered at a premium price point, leaving millions of customers without access to stylish, affordable eyewear. There is often a significant markup at 10 to 20x from manufacture to sale, as products are often burdened by various licensing, wholesale, and retail fees that support the legacy supply chain.
There is often a significant markup at 10 to 20x from manufacture to sale, as products are often burdened by various licensing, wholesale, and retail fees that support the legacy supply chain. Upon checkout, customers often find their vision insurance (if they have it) only covers a portion of their purchase. • Limited Ongoing Customer Engagement.
We also register domain names for certain websites that we use in our business, such as www.warbyparker.com, as well as similar variations to protect our brands and marks from cybersquatters. We continually review our development efforts to assess the existence and registrability of new intellectual property and determine whether to seek patent protection or trademark or copyright registrations.
As of December 31, 2023, we have also registered ten copyrights in the United States. We also register domain names for certain websites that we use in our business, such as www.warbyparker.com, as well as similar variations to protect our brands and marks from cybersquatters.
We are located in 39 states or provinces, 142 cities, and 66 Core Markets, and our retail stores are in 47 of the 50 most populous Core Markets in the U.S. Core Market refers to a Core-Based Statistical Area as defined 10 Table of Contents by the U.S. Census Bureau.
Core Market refers to a Core-Based Statistical Area as defined 10 Table of Contents by the U.S. Census Bureau. All of our retail stores are corporate-owned, and we have no franchise retail stores, which allows us complete control over the customer experience.
As for frame materials, we select premium—from custom-designed cellulose acetate to ultra-lightweight titanium. Our frames come standard with impact-resistant polycarbonate lenses that block 100% of UVA and UVB rays, plus all our glasses lenses are equipped, at no extra cost, with scratch-resistant and anti-reflective coatings.
Our frames come standard with impact-resistant polycarbonate lenses that block 100% of UVA and UVB rays, plus all our glasses lenses are equipped, at no extra cost, with scratch-resistant and anti-reflective coatings. Customers can customize their prescription lenses with a variety of options, including single-vision, progressive, light-responsive, blue-light-filtering, and non-prescription lenses.
With over 4 billion people globally in need of vision correction, we recognize there is a significant opportunity to introduce customers across the globe to our brand. Expanding internationally would add approximately $100 billion to our total addressable market.
For each of these opportunities, we have established businesses that are growing rapidly and can scale over time. • Evaluating Potential Expansion into New International Markets. With over 4 billion people globally in need of vision correction, we recognize there is a significant opportunity to introduce customers across the globe to our brand.
Eyeglasses and Sunglasses Every pair of Warby Parker glasses and sunglasses is dreamed up in-house, where our team gathers inspiration, sketches designs, and maps out product details for prototyping. On average, we release over 20 new eyewear collections each year, often incorporating patented designs and extended sizing to offer our customers products that not only fit well but look great.
On average, we release 20 new eyewear collections each year, often incorporating patented designs and extended sizing to offer our customers products that not only fit well but look great. As for frame materials, we select premium—from custom-designed cellulose acetate to ultra-lightweight titanium.
The process of buying eyewear has lacked an engaging customer experience and has historically been defined by: 8 Table of Contents • Underinvested Shopping Experience. The legacy customer journey largely entails going in person to an optical retailer, browsing frames stored behind locked cases, and feeling overwhelmed by the assortment.
Ripe for Change The eye care industry has largely been slow to innovate, despite strong and defensible fundamentals. The process of buying eyewear has lacked an engaging customer experience and has historically been defined by: 8 Table of Contents • Underinvested Shopping Experience.
Vision insurance comprises over 50% of purchases made in the vision care market as of December 31, 2022 and contributed only 4% to Warby Parker net revenue for the year ended December 31, 2022. For each of these opportunities, we have established businesses that are growing rapidly and can scale over time. • Evaluating Potential Expansion into New International Markets.
Vision insurance is used on over 50% of purchases made in the vision care market as of December 31, 2023 and contributed a small portion of Warby Parker net revenue for the year ended December 31, 2023.
It now estimates the total U.S. eyewear market to be approximately $76 billion in size, compared to $43 billion in its 2021 report. Ripe for Change The eye care industry has largely been slow to innovate, despite strong and defensible fundamentals.
It now estimates the total U.S. eyewear market to be approximately $66 billion in size, compared to $76 billion in the 2022 report; the prescription eyeglasses and sunglasses market is $24 billion, compared to $36 billion in the 2022 report; and independent retailers make up approximately 50% of the market, compared to 40% in the 2022 report.
Removed
Customers can customize their prescription lenses with a variety of options, including single-vision, progressive, light-responsive, blue-light-filtering, and non-prescription lenses. We custom-cut and polish the edges of our lenses, and individually inspect and bench-align each pair before it’s packaged up and sent on its way to the customer.
Added
The legacy customer journey largely entails going in person to an optical retailer, browsing frames stored behind locked cases, and feeling overwhelmed by the assortment. Customers rely heavily on a dominant physical footprint with little to no digital counterparts. • Confusing, Unstandardized, and Opaque Pricing.
Removed
Upon checkout, customers often find their vision insurance (if they have it) only covers a portion of their purchase. • Limited Ongoing Customer Engagement. The eyewear industry has been built to maximize individual transactions versus optimize the customer journey.
Added
The legacy optical industry is highly concentrated amongst a few industry players that have created an illusion of choice for consumers.
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It is a viral brand awareness program that pays for itself as we maintain an exceptionally high conversion rate from Home Try-On purchases. Retail Stores As of December 31, 2022, our retail footprint included 200 retail stores, including 195 locations in the U.S. and 5 locations in Canada.
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Retail Stores As of December 31, 2023, our retail footprint included 237 retail stores, including 232 locations in the U.S. and 5 locations in Canada. We are located in 41 states or provinces, 178 cities, and 83 Core Markets, and our retail stores are in 48 of the 50 most populous Core Markets in the U.S.
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We also leverage our retail locations and in-house optical laboratory in Sloatsburg, New York, and further expanded our network by opening a second in-house optical laboratory in Las Vegas, Nevada, in September 2021.
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In 2023, we onboarded The British Standards Institution (“BSI”), a signatory of the United Nations Global Compact, to build out an in-depth program in Italy that more closely mirrors our criteria in Asia. We audited our highest volume supplier in 2023 and have built a pathway to audit other suppliers in the region.
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With BSI’s global reach, this engagement also provides us with a secondary audit partner for Asia should it be required. We are committed to making sure that working conditions throughout our supplier network are safe and that employees are treated with dignity.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs part of our plan to remediate these material weaknesses, we have made progress in the following areas, among others: development of IT general controls to manage access and program changes across our key systems and the execution of improvements to application controls within our proprietary system; selected an ERP system, hired an implementation partner, and are in the process of implementation which will provide improvements to our IT-dependent and application controls to help prevent and detect errors, enforce segregation of duties, and permit controls around the review of manual journal entries; implementation of additional review controls and processes, documentation of completeness and accuracy of data and information used in controls, and requiring timely account reconciliations and analyses; implementation of processes and controls to better identify and manage segregation of duties; and continued hiring of additional qualified accounting and financial reporting personnel to support division of responsibilities.
Biggest changeAs part of our plan to remediate these material weaknesses, we have made progress in the following areas, among others: designed and implemented IT general controls to manage access and program changes across our key systems and improve IT-dependent and application controls within our proprietary systems; implemented the general ledger, supply chain, and inventory management components of a market leading ERP system, which will help prevent and detect errors, enforce segregation of duties, permit controls around the review of manual journal entries; and reduce our reliance on proprietary systems; engaged expert Sarbanes-Oxley (“SOX”) consultants to assist in the coordination, development, and testing of our control environment and deficiency remediation efforts; conducted trainings for control owners covering proper control design, execution and review documentation, and source data validation; improved review controls and processes, documentation of the completeness and accuracy of source data, and timeliness of account reconciliations; and continued hiring of additional qualified accounting and financial reporting personnel with public company SOX experience.
The identification of suitable acquisition candidates or alliance partners can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified transactions. In addition, if we pursue and complete an acquisition, we may not be able to successfully integrate the acquired business.
The identification of suitable alliance partners or acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified transactions. In addition, if we pursue and complete an acquisition, we may not be able to successfully integrate the acquired business.
Although the COVID-19 pandemic has led to the relaxation of certain Medicare and Medicaid requirements, some of which were extended by the Consolidated Appropriations Act of 2023 until December 31, 2024, as well as certain state licensure restrictions on the delivery of telehealth services, it is uncertain how long the relaxed policies will remain in effect, and, there can be no guarantee that such restrictions will not be reinstated or changed in a way that adversely affects our business.
Although the COVID-19 pandemic led to the relaxation of certain Medicare and Medicaid requirements, some of which were extended by the Consolidated Appropriations Act of 2023 until December 31, 2024, as well as certain state licensure restrictions on the delivery of telehealth services, it is uncertain how long the relaxed policies will remain in effect, and, there can be no guarantee that such restrictions will not be reinstated or changed in a way that adversely affects our business.
Moreover, the vertically integrated nature of our business, where we design all of our own glasses in our New York headquarters, contract manufacture all of our glass frames, fulfill the glasses we sell at our own optical and fulfillment laboratories as well as at third-party contract laboratories, sell our products exclusively through our own retail stores, e-commerce site and mobile application, and service our products, exposes us to risk and disruption at many points that are critical to successfully operating our business, and may make it more difficult for us to scale our business.
Moreover, the vertically integrated nature of our business, where we design all of our own glasses in our New York headquarters, contract manufacture all of our glasses frames, fulfill the glasses we sell at our own optical and fulfillment laboratories as well as at third-party contract laboratories, sell our products exclusively through our own retail stores, e-commerce site and mobile application, and service our products, exposes us to risk and disruption at many points that are critical to successfully operating our business, and may make it more difficult for us to scale our business.
Although many customers with vision insurance coverage through third-party payors that we do not have relationships with have been willing to either use their out-of-network benefits or forego using their benefits in order to shop with us or to shop with us for additional purchases once they have exhausted their vision care benefits, these customers may be less willing to take these actions over time as the third-party payors increase their market power / networks, decrease or alter their out-of-network benefits, or otherwise influence customer behavior.
Although many customers with vision insurance coverage through third-party payors that we do not have relationships with have been willing to either use their out-of-network benefits or forego using their benefits in order to shop with us or to shop with us for additional purchases once they have exhausted their vision care benefits, these customers may be less willing to take these actions over time as the third-party payors increase their market power and networks, decrease or alter their out-of-network benefits, or otherwise influence customer behavior.
Security incidents compromising the confidentiality, integrity, and availability of this information and our systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we rely.
Security incidents compromising the confidentiality, integrity, and availability of this information and the security of our IT systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we rely.
To date, we have not obtained authorization from the FDA to market any product in the United States, and we generally intend to manufacture 510(k)-exempt devices and/or rely on our third-party vendors and contract manufacturers, including Menicon, which produces our private label Scout by Warby Parker contact lenses, to have obtained and maintained the necessary marketing authorizations from the FDA for the products we sell.
To date, we have not obtained authorization from the FDA to market any product in the United States, and we generally intend to manufacture 510(k)-exempt devices and/or rely on our third-party vendors and manufacturers, including Menicon, which produces our private label Scout by Warby Parker contact lenses, to have obtained and maintained the necessary marketing authorizations from the FDA for the products we sell.
In addition, any access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the EU and United States.
In addition, any access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the EU, UK and United States.
We rely on third parties, including Stripe, Affirm, Inc., and Moneris Solutions (in Canada), for elements of our payment processing infrastructure to accept payments from customers and Coupa, in connection with our banking partners, to remit payments to suppliers. These third parties may refuse to renew our agreements with them on commercially reasonable terms or at all.
We rely on third parties, including Stripe, Affirm, Inc., PayPal, and Moneris Solutions (in Canada), for elements of our payment processing infrastructure to accept payments from customers and Coupa, in connection with our banking partners, to remit payments to suppliers. These third parties may refuse to renew our agreements with them on commercially reasonable terms or at all.
Proposals have been made by the current United States presidential administration to make other changes to the U.S. federal income tax rules applicable to corporations. We are currently unable to predict whether further changes will occur and, if so, the scope of such changes and the ultimate impact on our business.
Proposals have been made by the current United States presidential administration and by Congress to make other changes to the U.S. federal income tax rules applicable to corporations. We are currently unable to predict whether further changes will occur and, if so, the scope of such changes and the ultimate impact on our business.
These anti-takeover provisions include: • authorization of the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • a staggered board of directors so that not all members of our board of directors are elected at one time; • a requirement that our directors may only be removed for cause; • the ability of our board of directors to determine the number of directors and to fill any vacancies and newly created directorships; • an inability of our stockholders to call special meetings of stockholders; • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders; 53 Table of Contents • the requirement for advance notification of stockholder nominations and proposals; • a prohibition on cumulative voting for directors; • the ability of our board of directors to amend our bylaws without stockholder consent; • the requirement of the approval of a super-majority to amend certain provisions in our restated certificate of incorporation and restated bylaws; and • a multi-class common stock structure in which holders of our Class B common stock, which has ten votes per share, have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A common stock, Class B common stock and Class C common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
These anti-takeover provisions include: • authorization of the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • a staggered board of directors so that not all members of our board of directors are elected at one time; • a requirement that our directors may only be removed for cause; • the ability of our board of directors to determine the number of directors and to fill any vacancies and newly created directorships; • an inability of our stockholders to call special meetings of stockholders; • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders; • the requirement for advance notification of stockholder nominations and proposals; • a prohibition on cumulative voting for directors; • the ability of our board of directors to amend our bylaws without stockholder consent; • the requirement of the approval of a super-majority to amend certain provisions in our restated certificate of incorporation and restated bylaws; and • a multi-class common stock structure in which holders of our Class B common stock, which has ten votes per share, have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A common stock, Class B common stock and Class C common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the federal physician self-referral law, commonly referred to as the Stark Law, that, subject to limited exceptions, prohibits physicians (defined to also include optometrists) from referring Medicare or Medicaid patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibit the entity from billing Medicare or Medicaid for such designated health services; 29 Table of Contents • the federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced by private citizens on behalf of the government through civil whistleblower or qui tam actions, and prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the government, claims for payment or approval that are false or fraudulent, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the government.
A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the federal physician self-referral law, commonly referred to as the Stark Law, that, subject to limited exceptions, prohibits physicians (defined to also include optometrists) from referring Medicare or Medicaid patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibit the entity from billing Medicare or Medicaid for such designated health services; • the federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced by private citizens on behalf of the government through civil whistleblower or qui tam actions, and prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the government, claims for payment or approval that are false or fraudulent, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the government.
We cannot assure you that Apple will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our mobile applications. To the extent it does so, our business, financial condition, and results of operations could be adversely affected.
We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our mobile applications. To the extent it does so, our business, financial condition, and results of operations could be adversely affected.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which prohibit an interested stockholder, defined as, among other things, a person who owns 15% or more of our outstanding voting stock, from entering into a business combination with us for a three-year period following the time such stockholder became an interested stockholder, unless: (1) prior to such time the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares for purposes of determining the voting stock outstanding; or (3) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which prohibit an interested stockholder, defined as, among other things, a person who owns 15% or more of our outstanding voting stock, from entering into a business combination with us for a three-year period following the time such stockholder became an interested stockholder, unless: (1) prior to such time the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction which resulted in the 52 Table of Contents stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares for purposes of determining the voting stock outstanding; or (3) at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
Our business is subject to seasonal fluctuation. We do observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year.
Our business is subject to seasonal fluctuation. We observe moderately higher seasonal demand during the month of December due in part to customer usage of health and flexible spending benefits in the final week of the year.
In the future, seasonal trends may cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results. Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business.
Seasonal trends cause fluctuations in our quarterly results, which may impact the predictability of our business and operating results. Furthermore, our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business.
The applicable federal and state healthcare laws that affect our ability to operate include, but are not limited to, the following: • the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under any U.S. federal healthcare program, such as Medicare and Medicaid.
The 29 Table of Contents applicable federal and state healthcare laws that affect our ability to operate include, but are not limited to, the following: • the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under any U.S. federal healthcare program, such as Medicare and Medicaid.
Our systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood, global pandemics, and natural disasters; and our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.
Our IT and ERP systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood, global pandemics, and natural disasters; and our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.
Further, as a few major vendors dominate the contact lenses market, the risks associated with finding alternative sources to the contact lenses we source from them may be exacerbated. 43 Table of Contents We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business.
Further, as a few major vendors dominate the contact lenses market, the risks associated with finding alternative sources to the contact lenses we source from them may be exacerbated. 42 Table of Contents We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business.
Our business depends on consumer demand for our products and services and, consequently, is sensitive to a number of macroeconomic factors that influence consumer confidence and spending, such as general economic conditions, inflation, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security.
Our business depends on consumer demand for our products and services and, consequently, is sensitive to a number of macroeconomic factors that influence consumer confidence and spending, such as general economic conditions, inflation, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, 53 Table of Contents minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security.
See “Description of Capital Stock—Public Benefit Corporation Status.” In the event of a conflict between the interests of our stockholders and the interests of our specific public benefits or our other stakeholders, our directors must only make informed and disinterested decisions that are not such that no person of ordinary, sound judgment would approve; thus, there is no guarantee such a conflict would be resolved in favor of our stockholders, which could have a material adverse effect on our business, financial condition, and results of operations, which in turn could cause our stock price to decline.
See “Description of Capital Stock—Public Benefit Corporation Status.” In the event of a conflict between the interests of our stockholders and the interests of our specific public benefits or our other stakeholders, our directors must only make informed and disinterested decisions that are not such that no person of ordinary, sound judgment would approve; thus, there is no guarantee such a conflict would be resolved in favor of our stockholders, 47 Table of Contents which could have a material adverse effect on our business, financial condition, and results of operations, which in turn could cause our stock price to decline.
Many of our existing retail stores are relatively new and these retail stores or future retail stores may not generate net revenue and cash flow comparable with those generated by our more mature stores, especially as we move to new or expand in existing geographic markets. Approximately 75% of our retail stores have been opened in the last five years.
Many of our existing retail stores are relatively new and these retail stores or future retail stores may not generate net revenue and cash flow comparable with those generated by our more mature stores, especially as we move to new or expand in existing geographic markets. Approximately 65% of our retail stores have been opened in the last five years.
We cannot predict whether our multi-class structure will result in a lower or more volatile market price of our Class A common stock, in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes.
We cannot predict whether our multi-class structure will result in a lower or more volatile market price of our Class A common stock, in adverse publicity or other adverse consequences. For example, certain index providers have in the past announced restrictions on including companies with multiple-class share structures in certain of their indexes.
If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal, and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, integrity oversight, and reporting obligations to resolve allegations of noncompliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, and the curtailment or restructuring of our operations.
If our operations 30 Table of Contents are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal, and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, integrity oversight, and reporting obligations to resolve allegations of noncompliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, and the curtailment or restructuring of our operations.
If unauthorized parties gain access to our networks or databases, or those of our third-party service providers or business partners, they may be able to steal, publish, delete, use inappropriately, or modify our private and sensitive third-party information including personal health information, credit card and other payment card information, and personal information.
If unauthorized parties gain access to our networks, databases, or other IT systems, or those of our third-party service providers or business partners, they may be able to steal, publish, delete, use inappropriately, or modify our private and sensitive third-party information including personal health information, credit card and other payment card information, and personal information.
In addition to the importance of their financial performance, investors, employees, customers, governmental and regulatory bodies and other stakeholders are increasingly judging companies by their performance on a variety of environmental, social, and governance, or ESG, matters, which are considered to contribute to the long-term sustainability of companies’ performance.
In addition to the importance of their financial performance, investors, employees, customers, governmental and regulatory bodies and other stakeholders or third parties are increasingly judging companies by their performance on a variety of environmental, social, and governance, or ESG, matters, which are considered to contribute to the long-term sustainability of companies’ performance.
The Company has not performed a formal Internal Revenue Code Section 382 study to determine if an annual limitation may apply as of December 31, 2022. If we undergo an ownership change, we may incur limitations on our ability to utilize our NOLs existing at the time of the ownership change.
The Company has not performed a formal Internal Revenue Code Section 382 study to determine if an annual limitation may apply as of December 31, 2023. If we undergo an ownership change, we may incur limitations on our ability to utilize our NOLs existing at the time of the ownership change.
Severe weather conditions and other natural phenomena resulting from changing weather patterns and rising sea levels or other causes, including hurricanes, floods, fires, landslides, extreme temperatures, significant precipitation, and earthquakes, may result in damage to our stores or other facilities and unavailability of our workforce.
Severe weather conditions and other natural phenomena resulting from changing weather patterns and rising sea levels or other causes, including hurricanes, floods, fires, landslides, extreme temperatures, significant precipitation, and earthquakes, may result in temporary closure of, or damage to our stores or other facilities and unavailability of our workforce.
We purchase all of the inputs for our products, including glass frames, cellulose acetate, prescription lenses, sun lenses, demo lenses, hinge and core kits and branded logos, packaging materials and other components, parts, and raw materials, directly or indirectly from domestic and international suppliers.
We purchase all of the inputs for our products, including glasses frames, cellulose acetate, prescription lenses, sun lenses, demo lenses, hinge and core kits and branded logos, packaging materials and other components, parts, and raw materials, directly or indirectly from domestic and international suppliers.
While we have taken measures designed to protect the security of the confidential and personal information under our control, we cannot ensure that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats.
While we have taken measures designed to protect the security of the IT systems and confidential and personal information under our control, we cannot ensure that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats.
Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, all of which could negatively affect our revenue growth.
Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, all of which could negatively affect our revenue growth.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses.
We base our estimates on historical experience and on 54 Table of Contents various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses.
For the small portion of our net revenue that is currently derived from third-party coverage and reimbursement, including Medicare Advantage and commercial insurance plans, such as managed vision care plans, we and our employed and affiliated vision care professionals, as applicable, are generally reimbursed for the vision care services and products that we or our affiliated vision care professionals provide through payment systems managed by private 24 Table of Contents insurance companies, managed care organizations, and governmental agencies.
For the small portion of our net revenue that is currently derived from third-party coverage and reimbursement, including Medicare Advantage and commercial insurance plans, such as managed vision care plans, we and our employed and affiliated vision care professionals, as applicable, are generally reimbursed for the vision care services and products that we or our affiliated vision care professionals provide through payment systems managed by private insurance companies, managed care organizations, and governmental agencies.
In light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our customers’ or society’s expectations as to our proper role.
In light of investors’ and regulators’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our customers’ or society’s expectations as to our proper role.
While we strive to comply with applicable laws and regulations relating to privacy and data protection in all material respects, there is no assurance that we will not be subject to claims that we have violated applicable laws or codes of conduct, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance.
While we strive to comply with applicable laws and regulations relating to privacy and data protection in all material respects, there is no assurance that we will not be subject to claims that we have violated applicable laws or codes of conduct, that we will be able to successfully defend against such claims or that we will not be subject to significant fines, penalties, or corrective action requirements in the event of non-compliance.
In the United States, before a manufacturer can market a new medical device, or a new use of, or other significant modification to an existing, marketed medical device, the device must first receive either clearance under Section 510(k) of the FDCA, approval of a premarket approval application, or PMA, or grant of a de novo classification request from the FDA, unless an exemption applies.
Before a manufacturer can market a new medical device, or a new use of, or other significant modification to an existing, marketed medical device, the device must first receive either clearance under Section 510(k) of the FDCA, approval of a premarket approval application, or PMA, or grant of a de novo classification request from the FDA, unless an exemption applies.
If we are not able to maintain our culture, we would have to incur additional costs and find alternative methods to recruit key employees, which in turn could cause our business, results of operations, and financial condition to be adversely affected. 26 Table of Contents We derive most of our revenue from sales of our glasses.
If we are not able to maintain our culture, we would have to incur additional costs and find alternative methods to recruit key employees, which in turn could cause our business, results of operations, and financial condition to be adversely affected. We derive most of our revenue from sales of our glasses.
To resolve the open investigations, OCR may, among other actions, request a monetary settlement and/or a corrective action plan for a period of one to three years, including through a resolution agreement, or impose civil money penalties for non-compliance. We continue to work on a resolution with OCR.
To resolve the open investigations, OCR may, among other actions, request a monetary 18 Table of Contents settlement and/or a corrective action plan for a period of one to three years, including through a resolution agreement, or impose civil money penalties for non-compliance. We continue to work on a resolution with OCR.
There is also no guarantee that our pending trademark applications for any mark will proceed to registration; our pending applications may be opposed by a third party prior to registration; and even those trademarks that are registered could be challenged by a third party, including by way of revocation or invalidity actions.
There is also no guarantee that our pending trademark applications for any mark will proceed to registration; 34 Table of Contents our pending applications may be opposed by a third party prior to registration; and even those trademarks that are registered could be challenged by a third party, including by way of revocation or invalidity actions.
We rely on a limited number of suppliers to supply the majority of the inputs to our products and are thus exposed to concentration of supplier risk. Approximately 19%, 23%, and 23% of cost of goods sold were from our top five suppliers for the years ended December 31, 2022, 2021, and 2020, respectively.
We rely on a limited number of suppliers to supply the majority of the inputs to our products and are thus exposed to concentration of supplier risk. Approximately 18%, 19%, and 23% of cost of goods sold were from our top five suppliers for the years ended December 31, 2023, 2022, and 2021, respectively.
For example, as discussed above, in 2018, we experienced a credential stuffing attack in which malicious third parties used credentials compromised in data breaches suffered by other companies to access accounts on our platform and received notice that OCR would be investigating the incident and our compliance with the Privacy, Security, and Breach Notification Rules and requesting certain information related to the incident and our compliance with the 34 Table of Contents Privacy, Security, and Breach Notification Rules.
For example, as discussed above, in 2018, we experienced a credential stuffing attack in which malicious third parties used credentials compromised in data breaches suffered by other companies to access accounts on our platform and received notice that OCR would be investigating the incident and our compliance with the Privacy, Security, and Breach Notification Rules and requesting certain information related to the incident and our compliance with the Privacy, Security, and Breach Notification Rules.
We rely heavily on our information technology systems, as well as those of our third-party vendors, business partners, and service providers, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption, or data security incident could adversely affect our business, financial condition, and operations.
We rely heavily on our information technology systems, as well as those of our third-party vendors, business partners, and service providers, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption, or cybersecurity incident could adversely affect our business, financial condition, and operations.
A government mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product 38 Table of Contents defects or other errors may occur in the future.
A government mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
In the event that AWS’ or any other third-party provider’s systems or service abilities are hindered by any of the events discussed above, particularly in a region where our website is mainly hosted, our ability to operate our business may be impaired.
In the event that AWS’ or any other third-party provider’s systems or service abilities are hindered by any of the 43 Table of Contents events discussed above, particularly in a region where our website is mainly hosted, our ability to operate our business may be impaired.
Additionally, changes in regulations could limit the ability of search engines and social media platforms, including, but not limited to, Google and Facebook, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
Additionally, changes in regulations could limit the ability of search engines and social media platforms, including, but not limited to, Google, Meta, and TikTok, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
Our glass frames for our Home Try-On program are shipped directly from our contract manufacturers to our third-party distribution center in the United States for shipment directly to our customers.
Our glasses frames for our Home Try-On program are shipped directly from our contract manufacturers to our third-party distribution center in the United States for shipment directly to our customers.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile application, among others, which may increase our costs and which may not increase sales or attract customers.
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, such as artificial intelligence and machine learning, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile application, among others, which may increase our costs and which may not increase sales or attract customers.
Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs related to the opening of new retail stores and increased marketing and employee-related compensation to support growth.
Our business has historically experienced a higher proportion of costs in each subsequent quarter as a year progresses due to the overall growth of the business and operating costs to support that growth, including costs 24 Table of Contents related to the opening of new retail stores and increased marketing and employee-related compensation to support growth.
We cannot provide any assurance that governmental authorities will not assert that we are engaged in the corporate practice of medicine or optometry, or that our contractual relationships with 31 Table of Contents optometrists, ophthalmologists, or professional entities that employ such providers constitute unlawful fee-splitting.
We cannot provide any assurance that governmental authorities will not assert that we are engaged in the corporate practice of medicine or optometry, or that our contractual relationships with optometrists, ophthalmologists, or professional entities that employ such providers constitute unlawful fee-splitting.
Pursuant to our certificate of incorporation, we are authorized to issue 150,000,000 shares of Class C common stock, none of which were outstanding as of December 31, 2022.
Pursuant to our certificate of incorporation, we are authorized to issue 150,000,000 shares of Class C common stock, none of which were outstanding as of December 31, 2023.
Although we have no current plans to issue any shares of Class C common stock, in the future, we may issue shares of Class C common stock for a variety of corporate 50 Table of Contents purposes, including financings, acquisitions, investments, dividends and equity incentives to our employees, consultants and directors.
Although we have no current plans to issue any shares of Class C common stock, in the future, we may issue shares of Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments, dividends and equity incentives to our employees, consultants and directors.
For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. medical device industry.
For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. medical device industry.
The results of litigation, investigations, claims, and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment.
The results of litigation, investigations, claims, and regulatory proceedings cannot be predicted with certainty, and determining accruals for pending litigation and other legal and regulatory matters requires significant judgment.
As we expand our operations, it may be more difficult to effectively manage our inventory. If 21 Table of Contents we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition, and results of operations.
As we expand our operations, it may be more difficult to effectively manage our inventory. If we are not successful in managing our inventory balances, it could have a material adverse effect on our business, financial condition, and results of operations.
As we gain an increasingly high public profile, the possibility of intellectual property rights claims against us grows. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than us.
As we gain an increasingly high public profile, the possibility of intellectual property rights claims against us grows. Our competitors 35 Table of Contents and others may now and in the future have significantly larger and more mature patent portfolios than us.
Any actual or perceived non-compliance could result in litigation and proceedings against us by governmental entities, customers or others, fines and civil or criminal penalties, limited ability or inability to operate our business, offer services, or market our business in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products and services.
Any actual or perceived non-compliance could result in litigation and proceedings against us by governmental entities, customers or others, fines and civil or criminal penalties, limited ability or inability to operate our 33 Table of Contents business, offer services, or market our business in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products and services.
If our number of customers declines or fluctuates for any of these reasons among others, our business would suffer. 20 Table of Contents The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.
If our number of customers declines or fluctuates for any of these reasons among others, our business would suffer. The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.
Environmental, social, and governance (“ESG”) matters may impact our business and reputation.
Environmental, social, and governance (“ESG”) matters may adversely impact our business and reputation.
In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences.
In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, 40 Table of Contents suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences.
AWS provides the cloud computing infrastructure we use to host our website and 44 Table of Contents mobile applications, serve our customers and support our operations and many of the internal tools we use to operate our business. Our website, mobile applications and internal tools use computing, storage, data transfer, and other functions and services provided by AWS.
AWS provides the cloud computing infrastructure we use to host our website and mobile applications, serve our customers and support our operations and many of the internal tools we use to operate our business. Our website, mobile applications and internal tools use computing, storage, data transfer, and other functions and services provided by AWS.
In addition, if we issue shares of Class C common stock in the future, such issuances would have a dilutive effect on the economic interests of our Class A common stock and Class B common stock. We cannot predict the effect our multi-class structure may have on the trading price of our Class A common stock.
In addition, if we issue shares of Class C common stock in the future, such issuances would have a dilutive effect on the economic interests of our Class A common stock and Class B common stock. 49 Table of Contents We cannot predict the effect our multi-class structure may have on the trading price of our Class A common stock.
For example, we launched our first “store within a store” retail concept starting in 2010 in cities such as New York, Nashville, and San Francisco, followed by our first permanent retail store in New York in 2013. Since then, we have grown to 200 retail stores across the United States and Canada as of December 31, 2022.
For example, we launched our first “store within a store” retail concept starting in 2010 in cities such as New York, Nashville, and San Francisco, followed by our first permanent retail store in New York in 2013. Since then, we have grown to 237 retail stores across the United States and Canada as of December 31, 2023.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the company’s board of directors in supervising various ESG issues.
Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights or labor conditions, ethics and compliance with law, and the role of the company’s board of directors in supervising various ESG issues.
Any claims of infringement, brand dilution, or consumer confusion related to our brand (including our trademarks) or any failure to renew key license agreements on acceptable terms could damage our reputation and brand identity 32 Table of Contents and substantially harm our business and results of operations.
Any claims of infringement, brand dilution, or consumer confusion related to our brand (including our trademarks) or any failure to renew key license agreements on acceptable terms could damage our reputation and brand identity and substantially harm our business and results of operations.
Our results of operations could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful.
Our results of operations could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period 27 Table of Contents basis may not be meaningful.
If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition, and 41 Table of Contents results of operations could be harmed.
If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition, and results of operations could be harmed.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, and financial condition.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the 48 Table of Contents attention of management from our business, and adversely affect our business, results of operations, and financial condition.
Any further increase in China tariffs will impact our business and our financial results may also be impacted by any resulting economic slowdown.
Further increases in China tariffs will impact our business and our financial results may also be impacted by any resulting economic slowdown.
Further, the Federal Trade Commission, or FTC, has authority to investigate and prosecute practices that constitute “unfair trade practices,” “deceptive trade practices,” or “unfair methods of competition.” State attorneys general typically have comparable authority, and many states also permit private plaintiffs to bring actions on the basis of these laws.
Further, the Federal Trade Commission, or FTC, has authority under Section 5 of the FTC Act to investigate and prosecute practices that constitute “unfair trade practices,” “deceptive trade practices,” or “unfair methods of competition.” State attorneys general typically have comparable authority, and many states also permit private plaintiffs to bring actions on the basis of these laws.
For example, Apple has moved to “opt-in” privacy models, requiring consumers to expressly consent to receiving targeted ads, which may reduce the value of inventory on its iOS mobile application platform.
For example, Apple has moved to “opt-in” 44 Table of Contents privacy models, requiring consumers to expressly consent to receiving targeted ads, which may reduce the value of inventory on its iOS mobile application platform.
We have funded our operations since inception primarily through net proceeds from the sale of redeemable convertible preferred stock and common stock and cash flows generated from operating activities. We cannot be certain when, or if, our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business.
We have funded our operations since inception primarily through net proceeds from the sale of redeemable convertible preferred stock and common stock and cash flows generated from operating activities. We cannot be certain that our operations will continue to generate sufficient cash to fully fund our ongoing operations or the growth of our business.
We have historically generated a significant portion of our revenue from our retail stores, and our growth strategy will depend, in large part, on acquiring customers through the growth of our retail store base and expansion of our existing retail store operations.
We have historically generated a significant portion of our revenue from our retail stores, and our growth strategy depends, in large part, on acquiring customers through the growth of our retail store base and expansion of our existing retail store operations.
Our products must be manufactured and distributed in accordance with applicable laws and regulations, and we or our third-party manufacturers could be forced to recall our products or terminate production if we or they fail to comply with these regulations.
Our products must be manufactured and distributed in accordance with applicable laws and regulations, and we or our third-party manufacturers could be forced to recall our products or terminate production or be subject to enforcement action if we or they fail to comply with these regulations.
In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include: • our ability to accurately forecast net revenue and appropriately plan our expenses; 27 Table of Contents • changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results; • changes to our existing product mix and channel mix; • the effectiveness of our internal controls; • the seasonality of our business; • changes in financial markets or macroeconomic conditions, including, for example, due to the effects of recession or slow economic growth in the United States and abroad, rising inflation and interest rates, fuel prices, international currency fluctuations, corruption, political instability, acts of war, including the conflict involving Russia and Ukraine, and acts of terrorism; and • the impact of the COVID-19 pandemic or a future outbreak of disease or similar public health concern on our business.
In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include: • our ability to accurately forecast net revenue and appropriately plan our expenses; • changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results; • changes to our existing product mix and channel mix; • the effectiveness of our internal controls; • the seasonality of our business; • changes in financial markets or macroeconomic conditions, including, for example, due to the effects of recession or slow economic growth in the United States and abroad, rising inflation and interest rates, fuel prices, international currency fluctuations, corruption, political instability, geopolitical instability, acts of war, including the conflict involving Russia and Ukraine and in Israel and the Middle East, and acts of terrorism; and • the impact of a future outbreak of disease or similar public health concern on our business.
We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources. Furthermore, several members of our management team do not have prior experience in running a public company.
The requirements of these rules and regulations have increased and will likely continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources. Furthermore, several members of our management team do not have prior experience in running a public company.
Our failure, or failure by such third parties, to obtain the proper FDA marketing authorizations for our products could lead to FDA enforcement actions, such as a Warning Letter, market withdrawals, product recalls or civil or criminal penalties that could have a material adverse effect on our business.
Our failure, or failure by our third party vendor or manufacturers, to obtain the proper FDA marketing authorizations for our products could lead to FDA enforcement actions, such as a Warning Letter, market withdrawals, product recalls or civil or criminal penalties that could have a material adverse effect on our business.
If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may 55 Table of Contents initiate legal proceedings against us and our business may be harmed.
If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. Manufacturers may also choose to voluntarily recall a product if any material deficiency is found.
The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious adverse health consequences or death. Manufacturers may also choose to voluntarily recall a product if any material deficiency is found.
The CCPA prohibits discrimination against individuals who exercise their privacy rights, provides for civil penalties for violations, and creates a private right of action for data breaches that is expected to increase data breach litigation. Additionally, the California Privacy Rights Act, or CPRA, recently went into effect in California.
The CCPA prohibits discrimination against individuals who exercise their privacy rights, provides for civil penalties for violations, and creates a private right of action for data breaches that is expected to increase data breach litigation. Additionally, the California Privacy Rights Act, or CPRA, went into effect in California on January 1, 2023.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed3 unchanged
Biggest changeThe following table summarizes our domestic retail store locations by state, as of December 31, 2022: State Retail Store Count State Retail Store Count Alabama 1 Nebraska 1 Arizona 3 Nevada 1 California 29 New Jersey 8 Colorado 4 New Mexico 1 Connecticut 4 New York 16 District of Columbia 5 North Carolina 5 Florida 15 Ohio 6 Georgia 5 Oklahoma 2 Illinois 10 Oregon 2 Indiana 1 Pennsylvania 6 Iowa 1 Rhode Island 2 Kansas 1 South Carolina 1 Kentucky 2 Tennessee 2 Louisiana 2 Texas 17 Maryland 7 Utah 2 Massachusetts 10 Virginia 6 Michigan 4 Washington 4 Minnesota 4 Wisconsin 2 Missouri 3 We believe our facilities are adequate and suitable for our current needs, and that should it be needed, suitable additional or alternative space will be available to accommodate our operations.
Biggest changeThe following table summarizes our domestic retail store locations by state, as of December 31, 2023: State Retail Store Count State Retail Store Count Alabama 2 Missouri 4 Arizona 5 Nebraska 1 Arkansas 1 Nevada 1 California 32 New Jersey 12 Colorado 5 New Mexico 1 Connecticut 5 New York 20 District of Columbia 5 North Carolina 7 Florida 18 Ohio 5 Georgia 6 Oklahoma 2 Illinois 10 Oregon 2 Indiana 2 Pennsylvania 7 Iowa 1 Rhode Island 2 Kansas 2 South Carolina 2 Kentucky 2 Tennessee 4 Louisiana 2 Texas 19 Maryland 7 Utah 2 Massachusetts 12 Virginia 7 Michigan 5 Washington 4 Minnesota 5 Wisconsin 2 Mississippi 1 We believe our facilities are adequate and suitable for our current needs, and that should it be needed, suitable additional or alternative space will be available to accommodate our operations.
All of our retail properties are leased or licensed from third parties under agreements expiring at various dates from 2023 to 56 Table of Contents 2033, and the average size of our retail stores is approximately 1,621 square feet as of December 31, 2022.
All of our retail properties are leased or licensed from third parties under agreements expiring at various dates from 2024 to 56 Table of Contents 2033, and the average size of our retail stores is approximately 1,700 square feet as of December 31, 2023.
As of December 31, 2022, we operated 195 retail stores across the United States and five retail stores in Canada.
As of December 31, 2023, we operated 232 retail stores across the United States and five retail stores in Canada.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+1 added−2 removed4 unchanged
Biggest changeHolders As of February 24, 2023, there were 8 holders of record of our Class A common stock and 14 holders of record of our Class B common stock. Dividends We have not paid dividends in the past and have no current plans to pay dividends on our common stock.
Biggest changeHolders As of February 26, 2024, there were 7 holders of record of our Class A common stock and 13 holders of record of our Class B common stock. Dividends We have not paid dividends in the past and have no current plans to pay dividends on our common stock.
The following graph depicts the total cumulative stockholder return on our Class A common stock from September 29, 2021, the first day of trading of our Class A common stock on the NYSE, through December 31, 2022, relative to the performance of the S&P 500 Index and the S&P Apparel, Accessories & Luxury Index.
The following graph depicts the total cumulative stockholder return on our Class A common stock from September 29, 2021, the first day of trading of our Class A common stock on the NYSE, through December 31, 2023, relative to the performance of the S&P 500 Index and the S&P Apparel, Accessories & Luxury Index.
Removed
Use of Proceeds and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities In November 2022, the Company issued 34,528 shares of Class A common stock to third-party charitable donor advised funds.
Added
Use of Proceeds and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities None.
Removed
The shares donated were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

71 edited+19 added−48 removed56 unchanged
Biggest changeProvision for Income Taxes Year Ended December 31, 2021 2020 $ Change % Change ($ in thousands) Provision for income taxes $ 263 $ 190 $ 73 38.4 % As a percentage of net revenue — % — % — % 68 Table of Contents Provision for income taxes increased $0.1 million, or 38.4%, for the year ended December 31, 2021 compared to the same period in 2020 primarily due to the change in pre-tax loss in addition to the tax effects of nondeductible officers’ stock-based compensation expense.
Biggest changeInterest and Other Income, Net Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Interest and other income, net $ 9,232 $ 1,307 $ 7,925 606.4 % As a percentage of net revenue 1.4 % 0.2 % 1.2 % Interest and other income, net increased by $7.9 million, or 606.4%, for the year ended December 31, 2023 compared to the same period in 2022 primarily due to higher interest rates on our cash and cash equivalents balance. 66 Table of Contents Provision for Income Taxes Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Provision for income taxes $ 433 $ 497 $ (64) (12.9) % As a percentage of net revenue — % 0.1 % (0.1) % Provision for income taxes decreased $0.1 million, or 12.9%, for the year ended December 31, 2023 compared to the same period in 2022 primarily due to the 2022 establishment of a valuation allowance on our Canadian subsidiary, partially offset by higher state tax expense in 2023.
Adjusted EBITDA and Adjusted EBITDA Margin We define adjusted EBITDA as net income (loss) before interest and other income, taxes, and depreciation and amortization as further adjusted for asset impairment costs, stock-based compensation expense and related employer payroll taxes, amortization of cloud-based software implementation costs, non-cash charitable donations, and non-recurring costs such as restructuring costs, major system implementation costs, and direct listing or other transaction costs.
Adjusted EBITDA and Adjusted EBITDA Margin We define adjusted EBITDA as net income (loss) before interest and other income (loss), taxes, and depreciation and amortization as further adjusted for asset impairment costs, stock-based compensation expense and related employer payroll taxes, amortization of cloud-based software implementation costs, non-cash charitable donations, and non-recurring costs such as restructuring costs, major system implementation costs, and direct listing or other transaction costs.
The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital.
The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for additional operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital.
We also continue to diversify and expand our supply chain network, both internationally with our frame manufacturers and domestically with our wholly owned and partner optical laboratories, which we believe has helped to insulate us from supply chain disruption and allowed us to continue to meet customer demand over the last several years while maintaining our exceptional quality and customer satisfaction standards.
We also continue to diversify and expand our supply chain network, both internationally with our frame manufacturers and domestically with our wholly owned and partner optical laboratories, which we believe has helped to insulate us from supply chain disruption and allowed us to continue to meet growing customer demand over the last several years while maintaining our exceptional quality and customer satisfaction standards.
Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (“Form 10-K).
Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (“Form 10-K”).
The obligations of the Borrowers under the Credit Agreement are secured by first-lien security interests in substantially all of the assets of the Borrowers. In addition, the obligations are required to be guaranteed in the future by certain additional domestic subsidiaries of the Company.
The obligations of the Borrowers under the 2024 Credit Agreement are secured by first-lien security interests in substantially all of the assets of the Borrowers. In addition, the obligations are required to be guaranteed in the future by certain additional domestic subsidiaries of the Company.
For the years ended December 31, 2022 and 2021, the amount includes $0.6 million and $3.4 million of employer payroll costs associated with releases of RSUs and option exercises, respectively.
For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.6 million, $0.6 million, and $3.4 million of employer payroll costs associated with releases of RSUs and option exercises, respectively.
The 2022 Credit Facility contains customary affirmative and negative covenants, including limits on indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets, as well as representations, warranties and event of default provisions.
The 2024 Credit Facility contains customary affirmative and negative covenants, including limits on indebtedness, liens, capital expenditures, asset sales, investments and restricted payments, in each case subject to negotiated exceptions and baskets, as well as representations, warranties and event of default provisions.
Proceeds of the borrowings under the 2022 Credit Facility are expected to be used for working capital and other general corporate purposes in the ordinary course of business. The Company is permitted to repay borrowings under the 2022 Credit Facility at any time, in whole or in part, without penalty.
Proceeds of the borrowings under the 2024 Credit Facility are expected to be used for working capital and other general corporate purposes in the ordinary course of business. The Company is permitted to repay borrowings under the 2024 Credit Facility at any time, in whole or in part, without penalty.
Management uses adjusted EBITDA and adjusted EBITDA margin: • as a measurement of operating performance because they assist us in evaluating the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations; • for planning purposes, including the preparation of our internal annual operating budget and financial projections; • to evaluate the performance and effectiveness of our operational strategies; and 62 Table of Contents • to evaluate our capacity to expand our business.
Management uses adjusted EBITDA and adjusted EBITDA margin: • as a measurement of operating performance because they assist us in evaluating the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations; • for planning purposes, including the preparation of our internal annual operating budget and financial projections; • to evaluate the performance and effectiveness of our operational strategies; and • to evaluate our capacity to expand our business.
The growth in net revenue was primarily driven by an increase in our Active Customer base to 2.28 million customers, or a 3.6% increase, an increase in average order value (“AOV”), defined as net revenue for a given period 65 Table of Contents divided by the number of orders during the same period, and adding new customers, which elevated average revenue per customer to $263, or a 6.9% increase.
The growth in net revenue was primarily driven by an increase in our Active Customer base to 2.28 million customers, or a 3.6% increase, an increase in average order value (“AOV”), defined as net revenue for a given period divided by the number of orders during the same period, and adding new customers, which elevated average revenue per customer to $263, or a 6.9% increase.
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures.
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported revenue generated and expenses incurred during the reporting periods, and related disclosures.
However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail stores, the needs of our optical laboratories and distribution network, expansion of our product offerings or service capabilities, and the timing of investments in technology and personnel to support the overall growth in our business.
However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail stores, the needs of our optical laboratories and distribution network, expansion of our product 68 Table of Contents offerings or service capabilities, and the timing of investments in technology and personnel to support the overall growth in our business.
Due to these limitations, adjusted EBITDA and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally.
Due to these limitations, adjusted EBITDA and adjusted EBITDA margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by 62 Table of Contents relying primarily on our GAAP results and using these non-GAAP measures only supplementally.
(3) Represents (i) costs directly attributable to the preparation for our Direct Listing and (ii) expenses incurred in connection with the cash tender offer completed in June 2021. 63 Table of Contents (4) Represents the amortization of costs capitalized in connection with the implementation of cloud-based software.
(3) Represents (i) costs directly attributable to the preparation for our Direct Listing and (ii) expenses incurred in connection with the cash tender offer completed in June 2021. (4) Represents the amortization of costs capitalized in connection with the implementation of cloud-based software.
The estimated net realizable value of inventory is determined based on an analysis of 71 Table of Contents historical sales trends, the impact of market trends and economic conditions, forecasts of future demand, and estimated timing of product retirements. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory.
The estimated net realizable value of inventory is determined based on an analysis of historical sales trends, the impact of market trends and economic conditions, forecasts of future demand, and estimated timing of product retirements. Adjustments for damaged inventory are recorded primarily based on actual damaged inventory.
The 2022 Credit Facility consists of a $100.0 million five-year revolving credit facility with sublimits of $15.0 million for letters of credit and $5.0 million for swing line notes.
The 2022 Credit Facility consisted of a $100.0 million five-year revolving credit facility with sublimits of $15.0 million for letters of credit and $5.0 million for swing line notes.
The impacts were partially offset by the scaling of higher margin progressive lenses and leverage from our in-house optical laboratory network, including our Las Vegas laboratory which opened in the fourth quarter of 2021.
The impacts were partially offset 67 Table of Contents by the scaling of higher margin progressive lenses and leverage from our in-house optical laboratory network, including our Las Vegas laboratory which opened in the fourth quarter of 2021.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts 73 Table of Contents used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss, and tax credit carryforwards.
In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market. • We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 200 retail stores. • We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond.
In addition to lower prices, we introduced simple, unified pricing (glasses starting at $95, including prescription lenses) to the eyewear market. • We’ve built a seamless shopping experience that meets customers where and how they want to shop, whether that’s on our website, on our mobile app, or in our 237 retail stores as of December 31, 2023. • We’ve crafted a holistic vision care offering that extends beyond glasses to include contacts, vision tests and eye exams, vision insurance, and beyond.
The stock-based compensation charges incurred in 2021 primarily related to the satisfaction of the performance based vesting condition for RSUs and PSUs in connection with our Direct Listing.
The stock-based compensation charges incurred in 2021 primarily related to the satisfaction of the performance based vesting condition for RSUs and Performance Stock Units (“PSUs”) in connection with our Direct Listing.
The 2022 Credit Facility includes an option for the Company to increase the available amount by up to $75.0 million, for a maximum borrowing capacity of $175.0 million, subject to the consent of the lenders funding the increase and certain other conditions.
The 2024 Credit Facility includes an option for the Company to increase the available amount by up to $55.0 million, for a maximum borrowing capacity of $175.0 million, subject to the consent of the lenders funding the increase and certain other conditions.
Working closely with our nonprofit partners, we distribute glasses to people in need in more than 50 countries globally and many parts of the United States. Over 10 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program.
Working closely with our nonprofit partners, we have distributed glasses to people in need in more than 80 countries globally and many parts of the United States. Over 15 million more people now have the glasses they need to learn, work, and achieve better economic outcomes through our Buy a Pair, Give a Pair program.
Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. SG&A also includes administrative costs associated with our Home Try-On program, which provides customers the opportunity to sample eyewear at home prior to purchase. SG&A is expensed in the period in which it is incurred.
Marketing costs, which consist of both online and offline advertising, include sponsored search, online advertising, marketing and retail events, and other initiatives. SG&A also includes administrative costs associated with our Home Try-On program, which provides customers the opportunity to sample eyewear at home prior to purchase.
The non-cash charges included $98.0 million of stock-based compensation, $31.9 million of depreciation and amortization, $3.8 million of non-cash charitable contributions, and $1.6 million of non-cash impairment charges.
The non-cash charges included $98.0 million of stock-based compensation, $31.9 million of depreciation and amortization, $3.8 million of non-cash charitable contributions, $1.6 million of non-cash impairment charges, and $0.2 million of amortization of cloud-based implementation costs.
Financial Highlights For the years ended December 31, 2022, 2021, and 2020: • we generated net revenue of $598.1 million, $540.8 million, and $393.7 million, respectively; • we generated gross profit of $341.1 million, $317.7 million, and $231.9 million, respectively, representing a gross profit margin of 57%, 59%, and 59%, respectively; • we generated net loss of $110.4 million, $144.3 million, and $55.9 million, respectively; and 60 Table of Contents • we generated adjusted EBITDA of $27.2 million, $24.9 million, and $7.7 million, respectively.
Financial Highlights For the years ended December 31, 2023, 2022, and 2021: • we generated net revenue of $669.8 million, $598.1 million, and $540.8 million, respectively; • we generated gross profit of $365.2 million, $341.1 million, and $317.7 million, respectively, representing a gross profit margin of 55%, 57%, and 59%, respectively; • we generated net loss of $63.2 million, $110.4 million, and $144.3 million, respectively; and 60 Table of Contents • we generated adjusted EBITDA of $52.4 million, $27.2 million, and $24.9 million, respectively.
In particular, the COVID-19 pandemic, rising interest and inflation rates, and other macroeconomic factors have caused disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.
In particular, rising interest and inflation rates, geopolitical unrest, and other macroeconomic factors have caused disruption in the global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.
Such costs include (i) product costs held at the lesser of cost and net realizable value, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related costs associated with our prescription services and optical laboratories, which includes salaries, benefits, bonuses, and stock-based compensation.
Such costs include (i) product costs held at the lesser of cost and net realizable value, (ii) freight and import costs, (iii) optical laboratory costs, (iv) customer shipping, (v) occupancy and depreciation costs of retail stores, and (vi) employee-related 64 Table of Contents costs associated with eye exams and optical laboratories, which includes salaries, benefits, bonuses, and stock-based compensation.
Cash Flows from Investing Activities For the year ended December 31, 2022, net cash used in investing activities was $60.2 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs. 70 Table of Contents For the year ended December 31, 2021, net cash used in investing activities was $48.5 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs.
For the year ended December 31, 2022, net cash used in investing activities was $60.2 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our supply chain infrastructure and capitalized software development costs.
Cash Flows from Financing Activities For the year ended December 31, 2022, net cash provided by financing activities was $3.3 million, which was primarily related to proceeds from shares issued in connection with our Employee Stock Purchase Plan (“ESPP”) and stock option exercises.
For the year ended December 31, 2022, net cash provided by financing activities was $3.3 million, which was primarily related to proceeds from shares issued in connection with our ESPP and stock option exercises.
(2) Represents charitable expense recorded in connection with the donation of 178,572 shares of Series A common stock in August 2021 and 178,572 shares of Class A common stock in May 2022 to the Warby Parker Impact Foundation, and a donation of 34,528 shares of Class A common stock to third-party charitable donor advised funds in November 2022.
(2) Represents charitable expense recorded in connection with the donation of 56,938 shares of Class A common stock to charitable donor advised funds in June 2023 and 178,572 shares of Class A common stock in both August 2023 and May 2022 to the Warby Parker Impact Foundation, and a donation of 34,528 shares of Class A common stock to third-party charitable donor advised funds in November 2022.
The 2013 Credit Facility was replaced by the 2022 Credit Facility. 2022 Credit Facility In September 2022, the Company and its wholly owned subsidiary, Warby Parker Retail, Inc. (together, the “Borrowers”), entered into a Credit Agreement with Comerica Bank and the lenders from time to time party thereto (the “2022 Credit Facility”), which replaced the 2013 Credit Facility.
Credit Facility 2022 Credit Facility In September 2022, the Company and its wholly owned subsidiary, Warby Parker Retail, Inc. (together, the “Borrowers”), entered into a Credit Agreement with Comerica Bank and the lenders from time to time party thereto (as amended, the “2022 Credit Facility”).
Liquidity and Capital Resources Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of December 31, 2022, we had cash and cash equivalents of $208.6 million, which was primarily held for working capital purposes, and an accumulated deficit of $603.6 million.
Liquidity and Capital Resources Since inception, we have financed our operations primarily from net proceeds from the sale of redeemable convertible preferred stock and cash flows from operating activities. As of December 31, 2023, we had cash and cash equivalents of $216.9 million, which was primarily held for working capital purposes, and an accumulated deficit of $666.8 million.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 10 basis points for the year ended December 31, 2021 compared to the same period in 2020.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, decreased by 250 basis points for the year ended December 31, 2023 compared to the same period in 2022.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net loss: Year Ended December 31, 2022 2021 2020 ($ in thousands) Net loss $ (110,393) $ (144,271) $ (55,919) Adjusted to exclude the following: Interest and other income (loss), net (1,307) 347 97 Provision for income taxes 497 263 190 Depreciation and amortization expense 31,864 21,643 17,763 Asset impairment charges 1,647 317 614 Stock-based compensation expense (1) 98,655 110,543 44,913 Non-cash charitable donations (2) 3,770 7,757 — Transaction costs (3) — 28,262 — Amortization of cloud-based software implementation costs (4) 247 — — ERP implementation costs (5) 687 — — Restructuring costs (6) 1,535 — — Adjusted EBITDA $ 27,202 $ 24,861 $ 7,658 Adjusted EBITDA margin 4.5 % 4.6 % 1.9 % __________________ (1) Represents expenses related to the Company’s equity-based compensation programs and related employer payroll taxes, which may vary significantly from period to period depending upon various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, and the impact of repurchases of awards from employees.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP measure, which is net loss: Year Ended December 31, 2023 2022 2021 ($ in thousands) Net loss $ (63,197) $ (110,393) $ (144,271) Adjusted to exclude the following: Interest and other income (loss), net (9,232) (1,307) 347 Provision for income taxes 433 497 263 Depreciation and amortization expense 38,554 31,864 21,643 Asset impairment charges 3,230 1,647 317 Stock-based compensation expense (1) 71,065 98,655 110,543 Non-cash charitable donations (2) 3,191 3,770 7,757 Transaction costs (3) — — 28,262 Amortization of cloud-based software implementation costs (4) 2,895 247 — ERP implementation costs (5) 4,413 687 — Restructuring and other costs (6) 1,000 1,535 — Adjusted EBITDA $ 52,352 $ 27,202 $ 24,861 Adjusted EBITDA margin 7.8 % 4.5 % 4.6 % __________________ (1) Represents expenses related to the Company’s equity-based compensation programs and related employer payroll taxes, which may vary significantly from period to period depending upon various factors including the timing, number, and the valuation of awards granted, vesting of awards including the satisfaction of performance conditions, and the impact of repurchases of awards from employees.
“Risk Factors.” Key Business Metrics and Certain Non-GAAP Financial Measures In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop 61 Table of Contents financial forecasts, and make strategic decisions.
Key Business Metrics and Certain Non-GAAP Financial Measures In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and certain non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
Year Ended December 31, 2022 2021 2020 Active Customers ( in millions ) 2.28 2.20 1.81 Store Count (1) 200 161 126 Adjusted EBITDA (2) ( in thousands ) $ 27,202 $ 24,861 $ 7,658 Adjusted EBITDA margin (2) 4.5 % 4.6 % 1.9 % __________________ (1) Store Count number at the end of the period indicated.
Year Ended December 31, 2023 2022 2021 Active Customers ( in millions ) 2.33 2.28 2.20 Store Count (1) 237 200 161 Adjusted EBITDA (2) ( in thousands ) $ 52,352 $ 27,202 $ 24,861 Adjusted EBITDA margin (2) 7.8 % 4.5 % 4.6 % __________________ (1) Store Count number at the end of the period indicated.
We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix.
We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, the cost and management of inventory, shipping costs, laboratory utilization, and the scaling of our eye exam and contacts businesses.
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of net revenue: Year Ended December 31, 2022 2021 2020 ($ in thousands) Consolidated Statements of Operations Data: Net revenue $ 598,112 $ 540,798 $ 393,719 Cost of goods sold 257,050 223,049 161,784 Gross profit 341,062 317,749 231,935 Selling, general, and administrative expenses 452,265 461,410 287,567 Loss from operations (111,203) (143,661) (55,632) Interest and other income (loss), net 1,307 (347) (97) Loss before income taxes (109,896) (144,008) (55,729) Provision for income taxes 497 263 190 Net loss $ (110,393) $ (144,271) $ (55,919) Year Ended December 31, 2022 2021 2020 % of Net Revenue Consolidated Statements of Operations Data: Net revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 43.0 % 41.2 % 41.1 % Gross profit 57.0 % 58.8 % 58.9 % Selling, general, and administrative expenses 75.6 % 85.3 % 73.0 % Loss from operations (18.6) % (26.5) % (14.1) % Interest and other income (loss), net 0.2 % (0.1) % — % Loss before income taxes (18.4) % (26.6) % (14.1) % Provision for income taxes 0.1 % — % — % Net loss (18.5) % (26.6) % (14.1) % Components of Results of Operations Net Revenue We primarily derive revenue from the sales of eyewear products, optical services, and accessories.
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of net revenue: Year Ended December 31, 2023 2022 2021 ($ in thousands) Consolidated Statements of Operations Data: Net revenue $ 669,765 $ 598,112 $ 540,798 Cost of goods sold 304,541 257,050 223,049 Gross profit 365,224 341,062 317,749 Selling, general, and administrative expenses 437,220 452,265 461,410 Loss from operations (71,996) (111,203) (143,661) Interest and other income (loss), net 9,232 1,307 (347) Loss before income taxes (62,764) (109,896) (144,008) Provision for income taxes 433 497 263 Net loss $ (63,197) $ (110,393) $ (144,271) Year Ended December 31, 2023 2022 2021 % of Net Revenue Consolidated Statements of Operations Data: Net revenue 100.0 % 100.0 % 100.0 % Cost of goods sold 45.5 % 43.0 % 41.2 % Gross profit 54.5 % 57.0 % 58.8 % Selling, general, and administrative expenses 65.3 % 75.6 % 85.3 % Loss from operations (10.8) % (18.6) % (26.5) % Interest and other income (loss), net 1.4 % 0.2 % (0.1) % Loss before income taxes (9.4) % (18.4) % (26.6) % Provision for income taxes — % 0.1 % — % Net loss (9.4) % (18.5) % (26.6) % Components of Results of Operations Net Revenue We primarily derive revenue from the sales of eyewear products, optical services, and accessories.
Interest and Other Loss, Net Year Ended December 31, 2021 2020 $ Change % Change ($ in thousands) Interest and other loss, net $ (347) $ (97) $ (250) 257.7 % As a percentage of net revenue (0.1) % — % (0.1) % Interest and other loss, net decreased by $0.3 million, or 257.7%, for the year ended December 31, 2021 compared to the same period in 2020.
Interest and Other Income (Loss), Net Year Ended December 31, 2022 2021 $ Change % Change ($ in thousands) Interest and other income (loss), net $ 1,307 $ (347) $ 1,654 476.7 % As a percentage of net revenue 0.2 % (0.1) % 0.3 % Interest and other income (loss), net increased by $1.7 million, or 476.7%, for the year ended December 31, 2022 compared to the same period in 2021.
Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2022: Payments Due by Period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years ($ in thousands) Operating leases $ 201,227 $ 29,602 $ 70,058 $ 55,619 $ 45,948 Total $ 201,227 $ 29,602 $ 70,058 $ 55,619 $ 45,948 For additional discussion on our operating lease obligations, see Note 10, “Commitments and Contingencies” in our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2023: Payments Due by Period Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years ($ in thousands) Operating leases $ 208,531 $ 33,382 $ 73,479 $ 61,873 $ 39,797 Total $ 208,531 $ 33,382 $ 73,479 $ 61,873 $ 39,797 For additional discussion on our operating lease obligations, see Note 10, “Commitments and Contingencies” in our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Subsequent to December 31, 2022, we entered into 4 operating lease agreements for retail space in the U.S. Total commitments under the new agreements are approximately $2.6 million.
Subsequent to December 31, 2023, we entered into 2 operating lease agreements and extended the terms of 5 existing operating lease agreements for retail space in the U.S. Total commitments under the new agreements are approximately $2.3 million.
Gross profit, calculated as net revenue less cost of goods sold, increased by $85.8 million, or 37.0%, for the year ended December 31, 2021 compared to the same period in 2020, primarily due to the increase in revenue in 2021 as compared to 2020.
Gross profit, calculated as net revenue less cost of goods sold, increased by $24.2 million, or 7.1%, for the year ended December 31, 2023 compared to the same period in 2022, primarily due to the increase in net revenue over the same period.
As of December 31, 2022, 150 out of our 200 retail stores offered in-person eye exams.
As of December 31, 2023, 194 out of our 237 retail stores offered in-person eye exams.
Cost of goods sold also may change as we open or close retail stores because of the resulting change in related occupancy and depreciation costs.
Cost of goods sold also may change as we open or close retail stores because of the resulting change in related occupancy and depreciation costs. Gross Profit and Gross Margin We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues.
Revenue is recognized when the service is rendered and is recorded net of discounts. Cost of Goods Sold Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products.
Cost of Goods Sold Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products.
Net cash provided by operating activities was $32.8 million for the year ended December 31, 2020, consisting of a net loss of $55.9 million, adjusted for $63.3 million of non-cash expenses and $25.4 million of net cash provided as a result of changes in operating assets and liabilities.
Net cash provided by operating activities was $10.4 million for the year ended December 31, 2022, consisting of a net loss of $110.4 million, adjusted for $135.5 million of non-cash expenses and $14.7 million of net cash used as a result of changes in operating assets and liabilities.
For the year ended December 31, 2020, net cash used in investing activities was $20.1 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores, as well as investments in our corporate facilities and capitalized software development costs.
Cash Flows from Investing Activities For the year ended December 31, 2023, net cash used in investing activities was $54.7 million related to purchases of property and equipment to support our growth, primarily related to the build-out of new retail stores and capitalized software development costs, and an investment in a private optical equipment company.
Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2022 2021 2020 ($ in thousands) Net cash provided by (used in) operating activities $ 10,370 $ (31,994) $ 32,758 Net cash used in investing activities (60,181) (48,513) (20,070) Net cash provided by financing activities 3,291 22,999 245,936 Effect of exchange rates on cash (1,311) (161) 37 Net (decrease) increase in cash and cash equivalents $ (47,831) $ (57,669) $ 258,661 Cash Flows from Operating Activities Net cash provided by operating activities was $10.4 million for the year ended December 31, 2022, consisting of a net loss of $110.4 million, adjusted for $135.3 million of non-cash expenses and $14.5 million of net cash used as a result of changes in operating assets and liabilities.
There are no borrowings outstanding under the 2024 Credit Facility. 69 Table of Contents Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2023 2022 2021 ($ in thousands) Net cash provided by (used in) operating activities $ 60,991 $ 10,370 $ (31,994) Net cash used in investing activities (54,671) (60,181) (48,513) Net cash provided by financing activities 2,871 3,291 22,999 Effect of exchange rates on cash (882) (1,311) (161) Net increase (decrease) in cash and cash equivalents $ 8,309 $ (47,831) $ (57,669) Cash Flows from Operating Activities Net cash provided by operating activities was $61.0 million for the year ended December 31, 2023, consisting of a net loss of $63.2 million, adjusted for $118.4 million of non-cash expenses and $5.8 million of net cash from changes in operating assets and liabilities.
(5) Represents internal and external non-capitalized costs related to the implementation of our new Enterprise Resource Planning (“ERP”) system which is expected to be live in 2023. (6) Represents employee severance and related costs for our restructuring plan that was executed in August 2022.
(5) Represents internal and external non-capitalized costs related to the implementation of our new Enterprise Resource Planning (“ERP”) system which went live in 2023.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this Form 10-K. Overview A pioneer of the direct-to-consumer model, Warby Parker is one of the fastest-growing brands at scale in the United States.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this Form 10-K. Overview We are a mission-driven, lifestyle brand that operates at the intersection of design, technology, healthcare, and social enterprise.
Given our definition of a customer is a unique customer that has made at least one purchase, it can include either an individual person or a household of more than one person utilizing a single account. Store Count Store Count is a key performance measure that we use to reach consumers and generate incremental demand for our products.
Given our definition of a customer is a unique customer that has made at 61 Table of Contents least one purchase, it can include either an individual person or a household of more than one person utilizing a single account.
The 2022 Credit Facility contains a financial maintenance covenant which takes effect once total borrowings first exceed $60.0 million, and at all times thereafter, which requires the Company to maintain a maximum consolidated 69 Table of Contents senior net leverage ratio of 3:1.
The 2024 Credit Facility contains a financial maintenance covenant which only applies while total borrowings exceed $30.0 million, which requires the Company to maintain a maximum consolidated senior net leverage ratio of 3:1.
We define Store Count as the total number of retail stores open at the end of a given period. We believe our retail stores embody our brand, drive brand awareness, and serve as efficient customer acquisition vehicles. Our results of operations have been and will continue to be affected by the timing and number of retail stores that we operate.
Store Count Store Count is a key performance measure that we use to reach consumers and generate incremental demand for our products. We define Store Count as the total number of retail stores open at the end of a given period. We believe our retail stores embody our brand, drive brand awareness, and serve as efficient customer acquisition vehicles.
Under the 2022 Credit Facility, borrowings under the revolving credit facility bear interest on the principal amount outstanding at a variable interest rate either (a) based on the greater of (1) the prime rate (as defined in the credit agreement), (2) the federal funds rate plus 1%, and (3) the Bloomberg Short-Term Bank Yield Index rate (“BSBY Rate”) for a one month tenor plus 1%, in each case plus an applicable margin of 0.5% - 0.8% depending on the Company’s leverage ratio, or (b) the BSBY Rate plus an applicable margin of 1.5 - 1.8% depending on the Company’s leverage ratio.
Under the 2024 Credit Facility, borrowings under the revolving credit facility bear interest on the principal amount outstanding, at the Company’s election, at (a) the greater of the prime rate (as defined in the credit agreement) or 2.5%, plus an applicable margin of 0.65% to 0.90% depending on the Company’s leverage ratio or (b) adjusted SOFR (as defined in the credit agreement), plus an applicable margin of 1.65% to 1.90% depending on the Company’s leverage ratio.
The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in net revenue, as well as an increase in store occupancy and depreciation 67 Table of Contents expense due to new retail stores opened in 2021 and a full-year of expense from new retail stores opened throughout 2020.
The increase in cost of goods sold was primarily driven by increased product and fulfillment costs associated with the growth in our contact lens offering and optical laboratory utilization, as well as an increase in store occupancy costs, including depreciation, and prescription services expenses due to new retail stores and optical exam rooms that opened in 2023.
The Company is charged commitment fees of 0.15% whether or not amounts have been borrowed. Both interest on principal and commitment fees are included in interest expense on the condensed consolidated statements of operations.
The Company is charged an unused commitment fee of 0.20% to 0.25% depending on the Company's leverage ratio. Both interest on principal and commitment fees are included in interest expense on the consolidated statements of operations.
Comparison of the Years Ended December 31, 2021 and 2020 Net Revenue Year Ended December 31, 2021 2020 $ Change % Change ($ in thousands) Net revenue $ 540,798 $ 393,719 $ 147,079 37.4 % Net revenue increased $147.1 million, or 37.4%, for the year ended December 31, 2021 compared to the same period in 2020.
Comparison of the Years Ended December 31, 2023 and 2022 Net Revenue Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Net revenue $ 669,765 $ 598,112 $ 71,653 12.0 % Net revenue increased $71.7 million, or 12.0%, for the year ended December 31, 2023 compared to the same period in 2022.
Selling, General, and Administrative Expenses Year Ended December 31, 2021 2020 $ Change % Change ($ in thousands) Selling, general, and administrative expenses $ 461,410 $ 287,567 $ 173,843 60.5 % As a percentage of net revenue 85.3 % 73.0 % 12.3 % Selling, general, and administrative expenses increased $173.8 million, or 60.5%, for the year ended December 31, 2021 compared to the same period in 2020.
Selling, General, and Administrative Expenses Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Selling, general, and administrative expenses $ 437,220 $ 452,265 $ (15,045) (3.3) % As a percentage of net revenue 65.3 % 75.6 % (10.3) % Selling, general, and administrative expenses decreased $15.0 million, or 3.3%, for the year ended December 31, 2023 compared to the same period in 2022.
These decreases were partially offset by higher compensation costs, primarily from growth in our retail workforce, increased insurance costs related to operating as a public company, and increased depreciation and amortization costs, mainly related to capitalized software and office build-outs. 66 Table of Contents Interest and Other Income (Loss), Net Year Ended December 31, 2022 2021 $ Change % Change ($ in thousands) Interest and other income (loss), net $ 1,307 $ (347) $ 1,654 476.7 % As a percentage of net revenue 0.2 % (0.1) % 0.3 % Interest and other income (loss), net increased by $1.7 million, or 476.7%, for the year ended December 31, 2022 compared to the same period in 2021.
These decreases were partially offset by higher compensation costs, primarily from growth in our retail workforce, increased insurance costs related to operating as a public company, and increased depreciation and amortization costs, mainly related to capitalized software and office build-outs.
Stock-Based Compensation We recognize compensation expense for stock-based awards based on the grant date fair value, on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of the outstanding stock awards.
However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in our actual results differing materially from our estimates. 71 Table of Contents Stock-Based Compensation We recognize compensation expense for stock-based awards based on the grant date fair value, on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of the outstanding stock awards.
The increase in net revenue was primarily driven by an increase in our Active Customer base to 2.20 million customers, or a 21.7% increase, as well as an increase in AOV that elevated average revenue per customer to $246, or a 12.8% increase.
The growth in net revenue was primarily driven by an increase in average revenue per customer, to $287 from $263 in the prior year period, as well as a 2.5% increase in Active Customers.
We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses, contact lenses, eyewear accessories, and expedited shipping charges, which are charged to the customer, associated with these purchases.
We sell products and services through our retail stores, website, and mobile apps. Revenue generated from eyewear products includes the sales of prescription and non-prescription optical glasses and sunglasses and contact lenses. Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts.
Revenue is recognized when the customer takes possession of the product, either at the point of delivery or in-store pickup, and is recorded net of returns and discounts. Revenue generated from services consists of both in-person eye exams and 64 Table of Contents prescriptions issued through the Virtual Vision Test app.
Revenue generated from services consists of in-person eye exams and prescriptions issued through the Virtual Vision Test app. The Company also sells eyewear accessories and charges customers for optional expedited shipping. Revenue is recognized when the service is rendered and is recorded net of discounts.
Our historical estimates of these costs and the related provisions have not differed materially from actual results. However, unforeseen adverse future economic and market conditions, such as those resulting from disease pandemics and other catastrophic events, could result in our actual results differing materially from our estimates.
Our historical estimates of these costs and the related provisions have not differed materially from actual results.
The current economic downturn, rising inflation and interest rates, and other negative economic factors may impact consumer spending habits as well as our cost of attracting and our ability to attract new customers. For example, during 2022, we continued to see lower overall sales growth rates than we have historically experienced as consumer activity has not recovered to pre-pandemic levels.
For example, during 2023, we continued to see lower overall sales growth rates than we have historically experienced as consumer activity within the optical industry has not recovered to pre-pandemic growth level.
We have thoughtfully expanded our retail store footprint over the past several years. During the years ended December 31, 2022, 2021, and 2020, we opened 40, 35, and 10 new retail stores. In 2020, we opened fewer retail stores than in years prior due to COVID-19 pandemic-related operating challenges, including extended retail store closures and heightened safety measures.
Our results of operations have been and will continue to be affected by the timing and number of retail stores that we operate. We have thoughtfully expanded our retail store footprint over the past several years. During the years ended December 31, 2023, 2022, and 2021, we opened 40, 40, and 35 new retail stores, respectively.
Other than letters of credit of $4.2 million and $4.0 million as of December 31, 2022 and 2021, respectively, used to secure certain leases in lieu of a cash security deposit, there were no other borrowings outstanding under the 2022 Credit Facility or 2013 Credit Facility.
Upon termination of the 2022 Credit Facility, the Company was required to cash collateralize letters of credit of $4.3 million originally issued under the 2022 Credit Facility that are used to secure certain leases in lieu of a cash security deposit.
The non-cash charges included $44.9 million of stock-based compensation, $17.8 million of depreciation and amortization, and $0.6 million of non-cash impairment charges. The changes in operating assets and liabilities were primarily driven by an increase in accrued expenses, accounts payable, deferred revenue, and deferred rent, partially offset by an increase in net inventory to support the growth of our business.
The changes in operating assets and liabilities were primarily driven by decreased inventory and other non-current assets, and increased deferred revenue from sales growth, net lease liabilities in connection with retail leases entered into in 2023, and accounts payable, partially offset by a decrease in accrued expenses and an increase in prepaid expenses and other current assets.
In 2020, we experienced a significant decline in adjusted EBITDA due to the COVID-19 pandemic-related operating challenges, including extended retail store closures and heightened safety measures. Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.
(6) Represents employee severance and related costs for our restructuring plan that was executed in August 2022 and other non-recurring costs, including charges for legal matters. 63 Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.
The decrease in gross margin was primarily a result of the growth in our contact lens offering, which is sold at a lower margin than our other eyewear, and a prior year benefit generated from retroactive tariff refunds.
The decrease in gross margin was primarily driven by the sales growth of contact lenses which are sold at a lower margin than our other eyewear, increased doctor salaries, as the number of stores with offering eye exams grew, and increases in store occupancy costs as a percent of revenue as we grew our store base from 200 stores as of December 31, 2022 to 237 stores as of December 31, 2023.
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We are a mission-driven, lifestyle brand that operates at the intersection of design, technology, healthcare, and social enterprise.
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Elevated inflation and interest rates, changing consumer commuting habits, and other negative economic factors may impact consumer spending habits as well as our cost of attracting and our ability to attract new customers.
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Impact of COVID-19 The health and safety of our customers and employees remains our top priority, and to that end we will continue to monitor developments related to the COVID-19 pandemic and adjust policies and operations as needed. We have developed procedures to enable us to responsibly and efficiently adjust operations as needed.
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Included in stock-based compensation expense for the three and twelve months ended December 31, 2023 is $2.2 million of liability based awards resulting from accrued bonuses that will be settled in equity in the first quarter of 2024.
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We have onboarded and continue to onboard new suppliers, as well as enhance inventory planning and monitoring capabilities. We experienced minimal supply chain disruptions during 2022 and we expect the actions we have taken will help to mitigate supply chain disruptions in future periods, although the future trajectory of the COVID-19 pandemic is still unknown.
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We expect SG&A to increase in absolute dollars over time and to fluctuate as a percentage of revenue due to the anticipated growth of our business, intentional investments in marketing, and changing prices of goods and services caused by inflation and other macroeconomic factors. SG&A is expensed in the period in which it is incurred.
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In addition, we experienced lower sales than expected in the first quarter of 2022 as a result of the Omicron variant of COVID-19 and its negative impact on store traffic and demand, and may experience similar temporary impacts from future outbreaks of COVID-19 or other infectious diseases.
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Average revenue per customer growth was driven by an increase in units per order as customers took advantage of our bundling promotions and also purchased contacts or eye exams along with glasses in the same transaction. 65 Table of Contents Cost of Goods Sold, Gross Profit, and Gross Margin Year Ended December 31, 2023 2022 $ Change % Change ($ in thousands) Cost of goods sold $ 304,541 $ 257,050 $ 47,491 18.5 % Gross profit 365,224 341,062 24,162 7.1 % Gross margin 54.5 % 57.0 % (2.5) % Cost of goods sold increased by $47.5 million, or 18.5%, for the year ended December 31, 2023 compared to the same period in 2022, and increased as a percentage of revenue over the same period by 250 basis points, from 43.0% of revenue to 45.5% of revenue.
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The full extent to which the COVID-19 pandemic or future infectious diseases will directly or indirectly impact our business, operations, and financial condition will depend on future developments that are highly uncertain. Given the uncertainty, we cannot estimate the financial impact of the pandemic on our future results.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.
Biggest changeWe believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents. 72 Table of Contents Inflation Risk We believe that inflation, including from geopolitical unrest and other macroeconomic factors, has had a limited impact on our business, financial condition, and results of operations.
Interest Rate Risk Our cash and cash equivalents as of December 31, 2022 consisted of $208.6 million in cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation.
Interest Rate Risk Our cash and cash equivalents as of December 31, 2023 consisted of $216.9 million in cash and money-market funds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation.
If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue. Our inability or failure to do so could harm our business, financial condition, and results of operations. 74 Table of Contents
Our inability or failure to do so could harm our business, financial condition, and results of operations. 73 Table of Contents
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Inflation Risk We believe that inflation, including from conditions stemming from the war in Ukraine, the impact of COVID-19, and other macroeconomic factors, has had a limited impact on our business, financial condition, and results of operations. Inflation may, however, have an impact on raw materials, transportation, labor, construction, rent, and other costs which materially impact operations.
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Inflation may, however, have an impact on raw materials, transportation, labor, construction, rent, and other costs which materially impact operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenue.

Other WRBY 10-K year-over-year comparisons