SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at ~~July 31, 2018~~April 30, 2019
Common stock, $0.01 par value		~~75,472,468~~78,217,812

NATIONAL VISION HOLDINGS, INC. AND SUBSIDIARIES

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements.

Words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, or guarantees of future performance and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth in Part I, Item 1A - “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December ~~30, 2017~~29, 2018 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”), as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, and also include the following:

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Form 10-Q apply only as of the date of this Form 10-Q or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

All references to ~~“we”, “us”, “our”~~“we,” “us,” “our,” or the “Company” in this Form 10-Q mean National Vision Holdings, Inc. and its subsidiaries, unless the context otherwise requires. References to “eyecare practitioners” in this Form 10-Q mean optometrists and ophthalmologists and references to “vision care professionals” mean optometrists (including optometrists employed by us or by professional corporations owned by eyecare practitioners with which we have arrangements) and opticians.

We use our website www.nationalvision.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Nation Vision Holdings, Inc. when you enroll your e-mail address by visiting the “Email Alerts” page of the Investor Resources section of our website at www.nationalvision.com/investors. The contents of our website are not, however, a part of this Form 10-Q.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017~~29, 2018

In Thousands, Except Par Value ~~Information~~

(Unaudited)


ASSETS	As of June 30, 2018			As of December 30, 2017			As of March 30, 2019			As of December 29, 2018
Current assets:
Cash and cash equivalents	$	34,642		$	4,208		$	72,506		$	17,132
Accounts receivable, net	45,075			43,193			58,021			50,735
Inventories	94,909			91,151			111,936			116,022
Prepaid expenses and other current assets	24,803			23,925			27,626			30,815
Total current assets	199,429			162,477			270,089			214,704

Property and equipment, net	328,035			304,132			364,627			355,117
Other assets:
Goodwill	792,744			792,744			777,613			777,613
Trademarks and trade names	240,547			240,547			240,547			240,547
Other intangible assets, net	68,716			72,903			62,487			64,532
Right of use assets							330,637			—
Other assets	9,970			10,988			7,092			8,876
Total non-current assets	1,440,012			1,421,314			1,783,003			1,446,685
Total assets	$	1,639,441		$	1,583,791		$	2,053,092		$	1,661,389
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,784		$	35,708		$	45,087		$	43,642
Other payables and accrued expenses	72,405			77,611			97,668			81,004
Unearned revenue	23,160			27,739			34,808			27,295
Deferred revenue	53,221			62,993			55,655			52,144
Current maturities of long-term debt	7,694			7,258
Current maturities of long-term debt and finance lease obligations							8,484			7,567
Current operating lease obligations							55,967			—
Total current liabilities	189,264			211,309			297,669			211,652

Long-term debt, less current portion and debt discount	566,565			561,980
Long-term debt and finance lease obligations, less current portion and debt discount							578,397			570,545
Non-current operating lease obligations							314,282			—
Other non-current liabilities:
Deferred revenue	20,496			31,222			21,307			20,134
Other liabilities	42,294			46,044			11,523			53,964
Deferred income taxes, net	91,235			73,648			67,334			61,940
Total other non-current liabilities	154,025			150,914			100,164			136,038
Commitments and contingencies (See Note 7)
Commitments and contingencies (See Note 8)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 75,334 and 74,654 shares issued and outstanding as of June 30, 2018 and December 30, 2017, respectively	753			746
Common stock, $0.01 par value; 200,000 shares authorized; 78,297 and 78,246 shares issued as of March 30, 2019 and December 29, 2018, respectively; 78,218 and 78,167 shares outstanding as of March 30, 2019 and December 29, 2018, respectively							783			782
Additional paid-in capital	638,377			631,798			675,952			672,503
Accumulated other comprehensive loss	(2,746		)	(9,868		)	(3,757		)	(2,810		)
Retained earnings	94,296			37,145			91,763			74,840
Treasury stock, at cost; 53 and 28 shares as of June 30, 2018 and December 30, 2017, respectively	(1,093		)	(233		)
Treasury stock, at cost; 79 shares as of March 30, 2019 and December 29, 2018							(2,161		)	(2,161		)
Total stockholders’ equity	729,587			659,588			762,580			743,154
Total liabilities and stockholders’ equity	$	1,639,441		$	1,583,791		$	2,053,092		$	1,661,389

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~

For the Three ~~and Six~~ Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018

In Thousands, Except Earnings Per Share

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018
Revenue:
Net product sales	$	319,408		$	276,960		$	658,185		$	583,544		$	383,160		$	338,777
Net sales of services and plans	66,124			60,581			135,322			123,856			78,055			69,198
Total net revenue	385,532			337,541			793,507			707,400			461,215			407,975
Costs applicable to revenue (exclusive of depreciation and amortization):
Products	127,731			112,314			258,609			233,347			154,004			130,878
Services and plans	49,328			44,094			98,904			88,869			57,965			49,576
Total costs applicable to revenue	177,059			156,408			357,513			322,216			211,969			180,454
Operating expenses:
Selling, general and administrative expenses	165,038			144,655			335,140			294,459			193,876			170,689
Depreciation and amortization	17,346			14,629			35,000			29,052			20,415			17,862
Asset impairment	—			1,000			—			1,000			2,082			—
Litigation settlement	—			7,000			—			7,000
Other expense, net	296			77			418			179			473			122
Total operating expenses	182,680			167,361			370,558			331,690			216,846			188,673
Income from operations	25,793			13,772			65,436			53,494			32,400			38,848
Interest expense, net	9,424			14,622			18,737			26,114			9,061			9,313
Debt issuance costs	—			—			—			2,702
Earnings (loss) before income taxes	16,369			(850		)	46,699			24,678
Earnings before income taxes													23,339			29,535
Income tax provision	3,292			646			8,575			9,104			5,910			5,080
Net income (loss)	$	13,077		$	(1,496	)	$	38,124		$	15,574
Net income													$	17,429		$	24,455

Earnings (loss) per share:
Earnings per share:
Basic	$	0.17		$	(0.03	)	$	0.51		$	0.28		$	0.22		$	0.33
Diluted	$	0.17		$	(0.03	)	$	0.49		$	0.27		$	0.21		$	0.31
Weighted average shares outstanding:
Basic	75,249			56,414			74,983			56,337			78,205			74,714
Diluted	77,858			56,414			77,879			58,339			81,466			77,837

Comprehensive income (loss):
Net income (loss)	$	13,077		$	(1,496	)	$	38,124		$	15,574
Change in unrealized gain (loss) on hedge instruments	3,359			251			9,575			(79		)
Tax (provision) benefit of change in unrealized gain (loss) on hedge instruments	(861		)	(96		)	(2,453		)	30
Comprehensive income (loss)	$	15,575		$	(1,341	)	$	45,246		$	15,525
Comprehensive income:
Net income													$	17,429		$	24,455
Unrealized gain (loss) on hedge instruments													(1,273		)	6,216
Tax provision (benefit) of unrealized gain (loss) on hedge instruments													(326		)	1,592
Comprehensive income													$	16,482		$	29,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

For the Three Months Ended March 30, 2019 and March 31, 2018

In Thousands

(Unaudited)



	Three Months Ended March 30, 2019
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders' Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders' Equity
Balances at December 29, 2018	78,167	$	782	$	672,503	$	(2,810	)	$	74,840		$	(2,161	)	$	743,154
Cumulative effect of change in accounting principle	—	—		—		—			(506		)	—			(506		)
Balances at December 30, 2018 - as adjusted	78,167	782		672,503		(2,810		)	74,334			(2,161		)	742,648
Issuance of common stock	51	1		512		—			—			—			513
Stock based compensation	—	—		2,937		—			—			—			2,937
Unrealized gain (loss) on hedge instruments, net of tax	—	—		—		(947		)	—			—			(947		)
Net income	—	—		—		—			17,429			—			17,429
Balances at March 30, 2019	78,218	$	783	$	675,952	$	(3,757	)	$	91,763		$	(2,161	)	$	762,580



	Three Months Ended March 31, 2018
	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings		Treasury Stock			Total Stockholders' Equity
	Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings		Treasury Stock			Total Stockholders' Equity
Balances at December 30, 2017	74,654		$	746	$	631,798	$	(9,868	)	$	32,157	$	(233	)	$	654,600
Cumulative effect of change in accounting principle	—		—		—		—			19,030		—			19,030
Balances at December 31, 2017 - as adjusted	74,654		746		631,798		(9,868		)	51,187		(233		)	673,630
Issuance of common stock, net	449		5		2,243		—			—		—			2,248
Stock based compensation	—		—		1,596		—			—		—			1,596
Purchase of treasury stock	(25	)	—		—		—			—		(855		)	(855		)
Unrealized gain (loss) on hedge instruments, net of tax	—		—		—		4,624			—		—			4,624
Net income	—		—		—		—			24,455		—			24,455
Balances at March 31, 2018	75,078		$	751	$	635,637	$	(5,244	)	$	75,642	$	(1,088	)	$	705,698

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the ~~Six~~Three Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018

In Thousands

(Unaudited)


	Six Months Ended						Three Months Ended
	June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018
Cash flows from operating activities:
Net income	$	38,124		$	15,574		$	17,429		$	24,455
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment	30,814			24,835
Amortization of intangible assets	4,186			4,217
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization							20,415			17,862
Amortization of loan costs	858			2,042			406			430
Asset impairment	—			1,000			2,082			—
Deferred income tax expense	8,377			8,765			5,910			5,080
Non-cash stock option compensation	3,120			1,989
Non-cash inventory adjustments	1,322			3,880
Stock based compensation expense							2,976			1,596
Inventory adjustments							1,319			522
Bad debt expense	3,349			2,572			2,021			1,620
Debt issuance costs	—			2,702
Other	737			68			1,041			64
Changes in operating assets and liabilities:
Accounts receivable	(5,231		)	(6,358		)	(9,307		)	(166		)
Inventories	(5,080		)	(6,192		)	2,767			(3,049		)
Other assets	(599		)	1,792			5,791			(554		)
Accounts payable	(2,924		)	(4,967		)	1,445			10,418
Deferred revenue	5,278			7,576			4,684			4,261
Other liabilities	(2,196		)	8,438			24,035			15,248
Net cash provided by operating activities	80,135			67,933			83,014			77,787
Cash flows from investing activities:
Purchase of property and equipment	(48,684		)	(44,219		)	(25,992		)	(22,792		)
Other	116			84			186			116
Net cash used for investing activities	(48,568		)	(44,135		)	(25,806		)	(22,676		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	—			173,712
Proceeds from exercise of stock options	3,530			1,088			513			2,312
Principal payments on long-term debt	(2,850		)	(4,157		)	(1,250		)	(1,425		)
Purchase of treasury stock	(860		)	—			—			(855		)
Payments on capital lease obligations	(759		)	(424		)
Debt issuance costs	—			(2,702		)
Dividend to stockholders	—			(170,983		)
Payments on finance lease obligations							(617		)	(333		)
Net cash used for financing activities	(939		)	(3,466		)	(1,354		)	(301		)
Net change in cash, cash equivalents and restricted cash	30,628			20,332			55,854			54,810
Cash, cash equivalents and restricted cash, beginning of year	5,193			5,687			17,998			5,193
Cash, cash equivalents and restricted cash, end of period	$	35,821		$	26,019		$	73,852		$	60,003

Supplemental cash flow disclosure information:
Cash paid for interest							9,857			10,573
Property and equipment accrued at the end of the period							13,980			8,934
Right of use assets acquired under finance leases							7,270			1,416
Right of use assets acquired under operating leases							32,981			—

The following table provides a reconciliation of cash and cash equivalents reported within the condensed consolidated balance sheets to the total of cash, cash equivalents and restricted cash shown above:


	Six Months Ended				Three Months Ended
	June 30, 2018		July 1, 2017		March 30, 2019		March 31, 2018
Cash and cash equivalents	$	34,642	$	24,864	$	72,506	$	58,433
Restricted cash included in other assets	1,179		1,155		1,346		1,570
Total cash, cash equivalents and restricted cash	$	35,821	$	26,019	$	73,852	$	60,003

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

Nature of Operations

National Vision Holdings, Inc. (“NVHI,” the “Company,” “we,” “our,” or “us”) is a holding company whose operating subsidiaries include its indirect wholly owned subsidiary, National Vision, Inc. (“NVI”) and NVI’s direct wholly owned subsidiaries. ~~The Company is~~We are a leading value retailer of eyeglasses and contact lenses in the United States and its territories. We operated ~~1,050~~1,105 and ~~1,013~~1,082 retail optical locations as of ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, respectively, through our five store brands, including America’s Best Contacts and Eyeglasses (“America’s Best”), Eyeglass World, Vista Optical locations on U.S. Army/Air Force military bases and within Fred Meyer stores, and our management and services arrangement with Walmart (“legacy”).

Basis of Presentation

We prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and, therefore, do not include all information and disclosures required by U.S. GAAP for complete consolidated financial statements. The condensed consolidated balance sheet as of December ~~30, 2017~~29, 2018 has been derived from the audited consolidated balance sheet for the fiscal year then ended. These unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s consolidated financial position as of ~~June~~March 30, ~~2018,~~2019, the consolidated results of operations and comprehensive income, ~~(loss) for the three and six months ended June 30, 2018 and July 1, 2017~~statements of changes in shareholders’ equity, and its statements of cash flows for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017.~~March 31, 2018.

Certain information and disclosures normally included in our annual consolidated financial statements have been condensed or omitted; however, we believe that the disclosures included herein are ~~adequate to make~~sufficient for a fair presentation of the information ~~presented not misleading.~~presented. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the fiscal year ended December ~~30, 2017~~29, 2018 included in the Company’s Annual Report on Form 10-K with the SEC for fiscal year ~~2017~~2018 filed on ~~March 8, 2018.~~February 27, 2019. The Company’s significant accounting policies are set forth in Note 1 within those consolidated financial statements. We use the same accounting policies in preparing interim condensed consolidated financial information and annual consolidated financial statements. There were no changes to our significant accounting policies during the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, except for the adoption of Accounting Standards Update (“ASU”) ~~No. 2014-09, Revenue from Contracts with Customers and ASU No. 2016-18, Restricted Cash.~~2016-02, Leases. See “Adoption of New Accounting Pronouncements” below for further discussion.

Changes to stockholder’s equity associated with changes in unrealized gains and losses on cash flow hedging instruments, exercises of stock options, and the cumulative effect of adoption of ASU No. 2014-09 are discussed in Note 3. “Fair Value Measurements of Financial Assets and Liabilities,” Note 4. “Stock Incentive Plan,” and in Note 6. “Revenue from Contracts with Customers,” respectively.

The condensed consolidated financial statements include our accounts and those of our subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.

Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31. Fiscal year ~~2018~~2019 contains 52 weeks and will end on December ~~29, 2018.~~28, 2019. All three ~~and six~~ month periods presented herein contain 13 ~~and 26 weeks, respectively.~~weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.

The consolidated results of operations for the three ~~and six~~ months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year due to seasonality and uncertainty of general economic conditions that may impact our key end markets. Historically, our business has realized a higher portion of net revenue, income from operations, and cash flows from operations in the first fiscal quarter, and a lower portion of net revenue, income from operations, and cash flows from operations in the fourth fiscal quarter. The seasonally larger first quarter is attributable primarily to the timing of our customers’ personal income tax refunds and annual health insurance program start or reset periods. Seasonality related to fourth quarter holiday spending by retail customers generally does not impact our business. Our quarterly consolidated results can also be affected by the timing of new store openings, store closings, and certain holidays.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~1. Description of Business and Basis of Presentation (continued)~~

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~Actual results could differ from those estimates.~~

Our effective income tax rate (“ETR”) was 20.1% and (76.0)% and 18.4% and 36.9% during the three and six months ended June 30, 2018 and July 1, 2017, respectively. The ETR for the three and six months ended June 30, 2018 reflected the reduced federal statutory rate from 35% to 21% as part of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”), effective for tax years beginning on or after January 1, 2018. Our expected combined statutory federal and state rate was reduced 8.4% and 8.7% due to $1.4 million and $4.1 million of income tax benefit resulting from stock option exercises during the three and six months ended June 30, 2018, respectively. In comparison, the ETR of (76.0)% for the three months ended July 1, 2017, was due to a $0.5 million valuation allowance on deferred tax assets, as well as an adjustment to our estimated annual ETR. Our ETR for the six months ended July 1, 2017 decreased 5.7% as a result of a $1.4 million benefit associated with a dividend recapitalization bonus payment, partially offset by a $0.5 million valuation allowance on deferred tax assets, as well as an adjustment to our estimated annual ETR.

Pursuant to SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Legislation, the Company recognized provisional effects of the enactment of the Tax Legislation for which measurement could be reasonably estimated. Although we continue to analyze certain aspects of the Tax Legislation and refine our assessment, the ultimate impact of the legislation may differ from these estimates due to our continued analysis or further regulatory guidance that may be issued as a result of the legislation. Adjustments to the provisional amounts recorded by the Company as of December 30, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to income tax expense in the period the amounts are determined. There were no adjustments to provisional amounts during the three and six months ended June 30, 2018.

~~Adoption of New Accounting Pronouncements~~

~~Revenue from Contracts with Customers~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers.~~ ASU No. 2014-09 provides new guidance related to the core principle that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments.

Under the new guidance, there is a five-step model to apply to revenue recognition, consisting of: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied.

The Company adopted this new guidance in the first quarter of 2018 using the modified retrospective transition method. The adoption resulted in $14.0 million and $11.8 million decrease in current and non-current deferred revenue, respectively, for certain contracts where we satisfy performance obligations over time and a related $6.6 million increase in deferred income tax liability, resulting in a net $19.2 million increase to retained earnings on the condensed consolidated balance sheet as of December 31, 2017. Our results of operations for the reported periods after December 31, 2017 are presented under this amended guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance. Adoption of this new guidance did not result in significant changes to our accounting policies, business processes, systems or controls, or have a material impact on our results of operations and cash flows. The impact of adopting the amended guidance primarily relates to the timing of revenue recognition for our eyecare club memberships, which comprised approximately 3% of our consolidated net revenue during the most recent three fiscal years. See Note 6. “Revenue From Contracts with Customers” for additional information.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation (continued)

~~Restricted Cash~~Actual results could differ from those estimates.

~~In November 2016,~~Asset Impairment

We evaluate impairment of long-lived tangible and right of use (“ROU”) store assets at the ~~FASB issued ASU No. 2016-18,~~ ~~Restricted Cash. This new guidance requires that a statement of~~store level, which is the lowest level at which independent cash flows ~~explain~~can be identified, when events or conditions indicate the ~~change during~~carrying value of such assets may not be recoverable. If the ~~period~~store's projected undiscounted net cash flows expected to be generated by the related assets over the shorter of the remaining useful life or the remaining term of the lease are less than the carrying value of the subject assets, we then measure impairment based on a discounted cash flow model and fair market value of the lease asset and record an impairment charge as the excess of carrying value over estimated fair value.

During the three months ended March 30, 2019, we identified indicators of impairment in our long-lived tangible and ROU store assets and recorded a $2.1 million impairment charge. The remaining estimated fair value of the ~~total~~impaired assets was $1.3 million.

Income Taxes

Our income tax rate for the three months ended March 30, 2019 reflected our statutory federal and state rate of ~~cash, cash equivalents,~~25.7%, and ~~amounts generally described as restricted cash or restricted cash equivalents. The Company adopted this new guidance during~~an additional discrete benefit of $0.2 million associated primarily with the ~~first quarter~~exercise of stock options. In comparison, the income tax rate associated with the three months ended March 31, 2018 ~~using full retrospective application to each period presented. The adoption of this new guidance did not have~~was reduced by a ~~material effect on the Company’s financial condition, results of operations, or cash flows.~~$2.7 million income tax benefit resulting from stock option exercises.

~~Future~~ Adoption of New Accounting Pronouncements

~~Leases~~

Leases.In February 2016, the FASB issued ASU No. 2016-02, Leases. This new guidance establishes a ~~right-of-use (“ROU”)~~ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases ~~will be~~are classified as either financing or operating, with such classification affecting the pattern of expense recognition in the statement of operations. Disclosure of key information about leasing arrangements ~~will~~is also be required.

We adopted ASU No. 2016-02, as amended, as of December 30, 2018 (the first day of fiscal year 2019), using the modified retrospective transition approach without adjusting the comparative periods presented. We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward historical lease classification for leases in existence as of the adoption date, to not assess whether any expired or existing contracts are leases or contain leases and to not assess whether unamortized initial direct costs for existing leases meet the definition of initial direct costs. In addition, we elected the practical expedients to not separate lease components from non-lease components and to not apply this new guidance to leases with terms of less than 12 months.

Upon adoption, we recorded operating lease liabilities of approximately $349.7 million as of December 30, 2018. The Company treated tenant improvement allowances (“TIAs”) and deferred rent of $28.6 million and $11.9 million, respectively, as of December 30, 2018 as reductions of lease payments used to measure ROU assets and recorded $308.5 million of lease ROU assets upon adoption. The difference between the additional lease assets and lease liabilities net of the deferred tax impact was $0.5 million and recorded as an adjustment to fiscal year 2019 opening retained earnings. Adoption of this new guidance did not result in significant changes to our results of operations and cash flows. See Note 7. “Leases” for additional information.

Future Adoption of Accounting Pronouncements

Cloud Computing. In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidance is effective for fiscal years beginning after December 15, ~~2018,~~2019, and for interim periods within those fiscal years. The Company is in the process of assessing the new guidance.

Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This new guidance requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019, and for interim reporting periods within ~~that~~those fiscal ~~year.~~ In July 2018, the FASB issued ASU 2018-11, “Leases: Targeted Improvements,” as an amendment to ASU 2016-02, “Leases,” which provides entities with an additional transition method to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will adopt this new guidance in the first quarter of 2019. We have established a cross-functional team to evaluate and implement the new standard. ~~We are~~years. The Company is in the process of ~~implementing changes~~assessing the new guidance.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to ~~our systems and processes in conjunction with our review of lease agreements~~ ~~to support recognition and disclosure upon adoption.~~ ~~We do not expect the adoption to have a significant impact on the recognition, measurement or presentation of lease expenses within our consolidated statements of operations.~~While we continue to assess all potential impacts of the standard, we currently believe the most significant impact relates to recording lease assets and related liabilities on the condensed consolidated balance sheets.

Condensed Consolidated Financial Statements (Unaudited)

2. Details of Certain Balance Sheet Accounts

In thousands As of
June 30, 2018 As of
December 30, 2017
Accounts receivable, net:
Trade receivables $ 32,619
$ 28,862
Credit card receivables 8,327
10,459
Tenant improvement allowances receivable 4,890
4,794
Other receivables 2,355
2,936
Allowance for uncollectible accounts (3,116 ) (3,858 )
$ 45,075
$ 43,193

In thousands As of
June 30, 2018 As of
December 30, 2017
Inventories:
Raw materials and work in process ⁽¹⁾
$ 43,062
$ 43,953
Finished goods 51,847
47,198
$ 94,909
$ 91,151



In thousands	As of March 30, 2019			As of December 29, 2018
Accounts receivable, net:
Trade receivables	$	33,329		$	27,356
Credit card receivables	17,216			16,636
Tenant improvement allowances receivable	6,366			5,149
Other receivables	3,992			4,206
Allowance for uncollectible accounts	(2,882		)	(2,612		)
	$	58,021		$	50,735


~~(1)~~	Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not separately present raw materials and work in process.



In thousands	As of March 30, 2019		As of December 29, 2018
Inventories:
Raw materials and work in process ⁽¹⁾	$	55,181	$	59,946
Finished goods	56,755		56,076
	$	111,936	$	116,022
(1) Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not separately present raw materials and work in process.



In thousands	As of March 30, 2019		As of December 29, 2018
Property and equipment, net:
Land and building	$	3,632	$	3,632
Equipment	173,439		160,958
Information systems hardware and software	99,696		101,809
Furniture and fixtures	50,862		48,992
Leasehold improvements	194,840		186,499
Construction in progress	31,378		40,697
Right of use assets under finance leases	33,061		25,446
	586,908		568,033
Less accumulated depreciation	222,281		212,916
	$	364,627	$	355,117



In thousands	As of March 30, 2019		As of December 29, 2018
Other payables and accrued expenses:
Employee compensation and benefits	$	35,572	$	20,529
Advertising	2,210		2,076
Self-insurance reserves	8,258		8,117
Reserves for customer returns and remakes	6,582		4,645
Capital expenditures	13,980		14,078
Legacy management and services agreement	5,237		5,383
Fair value of derivative liabilities	3,757		3,130
Supplies and other store support expenses	3,579		4,929
Litigation settlements	3,916		3,938
Other	14,577		14,179
	$	97,668	$	81,004

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

2. Details of Certain Balance Sheet Accounts (continued)

In thousands As of
June 30, 2018 As of
December 30, 2017
Property and equipment, net:
Land and building $ 3,608
$ 3,608
Equipment 238,707
220,088
Furniture and fixtures 45,785
42,708
Leasehold improvements 172,693
155,369
Construction in progress 27,557
18,375
Property under capital leases 17,422
11,756
505,772
451,904
Less accumulated depreciation 177,737
147,772
$ 328,035
$ 304,132



In thousands	As of March 30, 2019		As of December 29, 2018
Other non-current liabilities:
Fair value of derivative liabilities	$	4,151	$	3,505
Tenant improvements ⁽¹⁾	—		30,851
Deferred rental expenses ⁽¹⁾	—		11,926
Self-insurance reserves	5,159		5,114
Other	2,213		2,568
	$	11,523	$	53,964
(1) Tenant improvements and deferred rental expenses are used to measure ROU assets on the balance sheet under ASC 842, Leases as of March 30, 2019. See Note 7. “Leases” for further details.

In thousands As of
June 30, 2018 As of
December 30, 2017
Other payables and accrued expenses:
Employee compensation and benefits $ 23,481
$ 21,134
Advertising 2,046
2,900
Self-insurance reserves 6,793
6,854
Reserves for customer returns and remakes 6,256
4,565
Capital expenditures 9,264
10,782
Legacy management and services agreement 5,253
6,000
Deferred rental expenses 908
1,140
Fair value of derivative liabilities 4,077
6,969
Sales and use taxes 1,185
1,218
Supplies and other store support expenses 1,953
3,014
Litigation settlements 3,878
3,942
Other 7,311
9,093
$ 72,405
$ 77,611

In thousands As of
June 30, 2018 As of
December 30, 2017
Other non-current liabilities:
Fair value of derivative liabilities $ 2,471
$ 9,155
Tenant improvements ⁽¹⁾
24,974
22,894
Deferred rental expenses 8,050
7,246
Self-insurance reserves 4,713
4,564
Other 2,086
2,185
$ 42,294
$ 46,044


~~(1)~~	~~Obligations for tenant improvements are amortized as a reduction of rental expense over the respective lease term.~~

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

3. Fair Value Measurements of Financial Assets and Liabilities

The Company uses a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect pricing based upon a reporting entity’s pricing based upon its own market assumptions.

~~Under U.S. GAAP, the~~The Company is required to ~~(a)~~ measure certain assets and liabilities at fair value or ~~(b)~~ disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. These tiers include:

• Level 1 - Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

• Level 2 - Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in inactive markets, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of different market assumptions and/or estimation methodologies may have a material ~~effect~~impact on the estimated fair value amounts.

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates fair value due to the short term maturity of the instruments. All cash and cash equivalents are denominated in U.S. currency.

Accounts Receivable

The carrying amount of accounts receivable approximates fair value due to the short-term nature of those items and the effect of related allowances for doubtful accounts.

Accounts Payable and Other Payables and Accrued Expenses

The carrying amounts of accounts payable and other payables and accrued expenses approximate fair value due to the short-term nature of those items.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

3. Fair Value Measurement of Financial Assets and Liabilities (continued)

Long-term Debt - First Lien Credit Agreement

~~Loans under our first lien credit agreement are~~Our long-term debt is traded in private markets on a less-than-daily basis. Fair value is based on the average of trading prices and bid/ask quotes around period-end (Level 2 inputs). The estimated fair values of our ~~first lien~~long term ~~loans were $567.7~~debt was $558.2 million and ~~$570.2~~$556.1 million as of ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, respectively, compared to carrying values of ~~$555.3~~$552.8 million and ~~$557.3~~$553.6 million, respectively, which includes the current portion, and is net of unamortized discounts and deferred debt issuance costs.

Long-term Debt - ~~Capital~~Finance Leases

The fair value of ~~capital~~finance lease obligations is based on estimated future contractual cash flows discounted at an appropriate market rate of interest (Level 2 inputs). The estimated fair values of our ~~capital~~finance leases were ~~$22.9~~$40.0 million and ~~$14.0~~$30.7 million as of ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, respectively, compared to carrying values of ~~$19.0~~$34.1 million and ~~$12.0~~$24.5 million, respectively.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~3. Fair Value Measurements of Financial Assets and Liabilities (continued)~~

Interest Rate Derivatives

The Company is a party to three pay-fixed and receive-floating interest rate swap agreements to offset the variability of cash flows in LIBOR-indexed debt interest payments, subject to a 1.0% floor, attributable to changes in the benchmark interest rate from March 13, 2017 to March 13, 2021 related to its ~~current first lien~~ credit agreement. Changes in the cash flows of each derivative have historically been and are expected to be highly effective in offsetting the changes in interest payments on a principal balance equal to the derivative’s notional amount, attributable to the hedged risk.agreements. During the ~~three months ended March 31, 2018,~~first quarter of 2019, in accordance with the original agreements with the counterparties, the notional amount of the first derivative decreased from ~~$175~~$140 million to ~~$140~~$105 million. There were no other changes in the terms of the arrangements. ~~The change in notional amount did not impact the results of our assessment of effectiveness as of June 30, 2018.~~

We recognize as assets or liabilities at fair value the estimated amounts we would receive or pay upon a termination of interest rate swaps prior to their scheduled expiration dates. Fair value is based on information that is model-driven and whose inputs are observable (Level 2 inputs). Cumulative unrealized gains and losses on derivative instruments are recorded in accumulated other comprehensive loss (“AOCL”), net of tax. As of ~~June~~March 30, ~~2018,~~2019, the Company expects to reclassify ~~$3.0~~$2.8 million, net of tax, of ~~accumulated other comprehensive loss (“AOCL”)~~AOCL into earnings in the next 12 months. See Note ~~10.~~11. “Accumulated Other Comprehensive Loss” for further details.

Changes in the cash flows of each derivative are expected to be highly effective in offsetting the changes in interest payments on a principal balance equal to the derivative’s notional amount, attributable to the hedged risk. Our hedges have been deemed highly effective since inception as a result of our quarterly hedge effectiveness testing.

Our cash flow hedge position related to interest rate derivative contracts is as follows:

In thousands Notional Amount Final Maturity Date Other Payables and Accrued Expenses Other Liabilities
AOCL, Net of Tax⁽¹⁾
As of
June 30, 2018 $ 465,000
March 2021 $ 4,077
$ 2,471
$ 2,746
As of
December 30, 2017 $ 500,000
March 2021 $ 6,969
$ 9,155
$ 9,868



In thousands	Notional Amount		Final Maturity Date	Other Payables and Accrued Expenses		Other Liabilities		AOCL, Net of Tax⁽¹⁾
As of March 30, 2019	$	430,000	March 2021	$	3,757	$	4,151	$	3,757
As of December 29, 2018	$	465,000	March 2021	$	3,130	$	3,505	$	2,810


(1)	Includes stranded tax benefit of $2.1 million within AOCL from adopting provisions of the Tax Legislation of 2017 during the year ended December 30, 2017.

~~4. Stock Incentive Plan~~

~~2014 Stock Incentive Plan~~

~~We have reserved an aggregate of 10,988,827 shares of our common stock for issuance under our 2014 Stock Incentive Plan. As of June 30, 2018, 421,983 shares remained available for future grants.~~

~~The following presents a roll-forward of stock options for the six months ended June 30, 2018:~~

Options issued and outstanding
Rollover ⁽¹⁾
Service-Based Performance-Based Total
Balance, December 30, 2017 169,049
3,822,915
6,524,152
10,516,116
Exercised (38,490 ) (661,663 ) —
(700,153 )
Forfeited —
(61,641 ) (290,890 ) (352,531 )
Balance, June 30, 2018 130,559
3,099,611
6,233,262
9,463,432
Options vested and exercisable
Balance, December 30, 2017 169,049
1,631,023
43,478
1,843,550
Vested —
718,856
—
718,856
Exercised (38,490 ) (661,663 ) —
(700,153 )
Forfeited —
(4,548 ) —
(4,548 )
Balance, June 30, 2018 130,559
1,683,668
43,478
1,857,705


~~(1)~~	~~Reflects options under the Vision Holding Corp. Amended and Restated 2013 Equity Incentive Plan~~

During the six months ended June 30, 2018, rollover and service-based options were exercised at a weighted average price of $5.04, for a total intrinsic value of $19.6 million. The Company recorded an income tax benefit of $4.1 million in the condensed consolidated statement of operations related to these exercises.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

4. Stock Incentive ~~Plan (continued)~~Plans

~~Compensation expense associated with service-based~~The following tables summarize stock based compensation activity:



	Service-based options ⁽¹⁾		Performance-based options
Outstanding at December 29, 2018	2,583,380		4,143,781
Granted	254,712		—
Exercised	(6,284	)	(36,459	)
Forfeited	—		(42,161	)
Outstanding at March 30, 2019	2,831,808		4,065,161
Vested and exercisable at March 30, 2019	1,900,111		1,724,551
(1) Includes service-based options under the Vision Holding Corp. Amended and Restated 2013 Equity Incentive Plan, the 2014 Stock Incentive Plan, and the 2017 Omnibus Incentive Plan



	Service-based restricted stock unit (RSU) awards		Performance-based restricted stock unit (PSU) awards	Restricted stock (RSA) awards
Outstanding at December 29, 2018	98,076		—	11,431
Granted	101,014		102,936	—
Vested	—		—	(787	)
Forfeited	(2,823	)	—	—
Outstanding at March 30, 2019	196,267		102,936	10,644

Effective March 1, 2019, the Company made an annual grant of stock options, is presented in selling, general, and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations. The Company granted 217,390 performance based stock options to one of our named executive officers that vest as a result of certain profitability targets for fiscal years 2017 to 2021. Those targets were met for fiscal year 2017, resulting in vesting of 20 percent of those performance-based options as presented in the table above. Vesting of all other performance-based options is conditional upon the achievement by affiliates of Kohlberg Kravis & Co. L.P. (“KKR Sponsor”), with respect to its investment in NVHI, of both a minimum internal rate of return and a minimum multiple of invested capital and then increases proportionally as the multiple of invested capital increases up to a defined target.

~~See Note 11. “Subsequent Events,” for details regarding the secondary offering of common stock completed following the second quarter.~~

~~2017 Omnibus Incentive Plan~~

~~We have reserved an aggregate of 4,000,000 shares of our common stock for issuance under our 2017 Omnibus Incentive Plan. As of June 30, 2018, there were equity awards representing 177,678~~ restricted stock units ~~and 92,443~~(“PSUs”) and/or restricted stock ~~options issued and outstanding, and 3,729,879 shares available for future grants. There was no material activity~~units (“RSUs”) to eligible employees under the National Vision Holdings, Inc. 2017 Omnibus Incentive Plan ~~for~~(the “2017 Omnibus Incentive Plan”). The time-based options granted in fiscal 2019 vest in three equal annual installments, with one-third of the ~~six~~total number of shares underlying the options vesting on each of the first, second, and third anniversary of March 1, 2019, subject to continued employment through the applicable vesting date. The PSUs granted in fiscal 2019 are settled after the end of the performance period (i.e., cliff vesting), which begins on the first day of our 2019 fiscal year and ends on the last day of our 2021 fiscal year, and are based on the Company’s achievement of certain performance targets. The RSUs granted in fiscal 2019 vest in three equal installments through March 1, 2022. The weighted average grant date fair value of RSUs and PSUs granted during the three months ended ~~June~~March 30, ~~2018.~~2019 was $35.19.

The weighted average price of options exercised during the three months ended March 30, 2019 was $4.71. The weighted average grant date fair value of the stock options granted during the three months ended March 30, 2019 was $14.22.

~~5. Related Party Transactions~~

~~Transactions With Equity Sponsors~~

~~We recorded~~The following table summarizes stock compensation expense under the ~~following fees paid to equity sponsors,~~Company’s plans, which ~~are presented~~is included in SG&A in the accompanying ~~condensed consolidated statement~~statements of ~~operations, except for $2.3 million in KKR Sponsor fees during the six months ended July 1, 2017, which are presented in debt issuance costs.~~operations:

Three Months Ended Six Months Ended
In thousands June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
KKR Sponsor $ —
$ 220
$ —
$ 2,773
Berkshire Partners LLC $ —
$ 52
$ —
$ 104



	Three months ended
In thousands	March 30, 2019		March 31, 2018
Stock Options	$	2,352	$	1,190
RSUs and PSUs	555		391
RSAs	33		15
Associate stock purchase plan	36		—
Total stock-based compensation expense	$	2,976	$	1,596

The unrecognized compensation cost as of March 30, 2019 related to RSUs, PSUs and service-based options granted in 2019 was $3.4 million, $3.5 million and $3.5 million, respectively.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

5. Related Party Transactions

Equity in Net Assets of Non-Consolidated Investee

The Company has an investment in a private start-up company whose principal business is licensing software to eyeglass retailers. Under the equity method of accounting, we are required to record our interest in the investee’s reported net income or loss for each reporting period, which is presented in other expense, net in the Company’s condensed consolidated statements of operations. Our interest in the investee’s net losses was ~~$0.4~~$0.6 million and ~~$0.6~~$0.2 million for the three ~~and six~~ months ended ~~June~~March 30, ~~2018~~2019 and ~~$0.2 million and $0.3 million for the three and six months ended July 1, 2017,~~March 31, 2018, respectively. After adjusting ~~our investment for~~the carrying value of our interest in the investee’s reported net losses, our investment balance in the business was ~~$1.8~~$0.4 million and ~~$2.3~~$1.0 million as of ~~June~~March 30, ~~2018~~2019 and December ~~30, 2017,~~29, 2018, respectively, which is included in other assets in the accompanying condensed consolidated balance sheets.

In the ordinary course of business we are a licensee of our investee. ~~We recorded~~During the three months ended March 30, 2019, the licensing fees recorded in SG&A inwere immaterial. During the ~~accompanying condensed consolidated statements of operations in the amount of~~three months ended March 31, 2018, we recorded $0.2 million ~~during the six months ended June 30, 2018 and $0.2 million and $0.5 million during the three and six months ended July 1, 2017, respectively.~~in licensing fees. Additionally, on August 29, 2017, the investee issued a secured convertible promissory note to the Company, in the principal amount of $1.5 million, due on August 29, ~~2020.~~2020, which is included in non-current other assets in the accompanying condensed consolidated balance sheets. Interest income associated with the note was immaterial for the three ~~and six~~ months ended ~~June~~March 30, 2019 and March 31, 2018.

6. Revenue From Contracts ~~With~~with Customers

~~A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASU 2014-09, codified in ASC 606,~~ ~~Revenue from Contracts With Customers~~. As discussed in Note 1, we adopted ASC 606 in the first quarter of fiscal year 2018 using the modified retrospective transition method. All of our revenue is derived from contracts with customers and is reported as net revenue in the condensed consolidated statements of operations.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~6. Revenue From Contracts With Customers (continued)~~

We recognize revenue from the products and services we provide in accordance with the five-step process outlined in ASC 606. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer in an amount that reflects the consideration that we expect to receive. This revenue can be recognized at a point in time or over time. We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference

between when we invoice customers and when revenues are recognized, we record either a contract asset (accounts receivable) or a contract liability (deferred revenue or unearned revenue), as appropriate. See further discussion related to contract assets and liabilities below.

The majority of our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. Based on our evaluation process and review of our contracts with customers, in most circumstances the timing and amount of revenue recognized under the new guidance is consistent with our past revenue recognition policy. The majority of our annualCompany’s revenues are recognized either at the point of sale or upon delivery and customer acceptance, paid for at the time of sale in cash, credit card, or on account with ~~health~~managed care ~~plans and programs located throughout the United States (“managed care”)~~payors having terms generally between 14 and 120 days, with most paying within 90 days. ~~Revenues recognized over~~Our point in time ~~primarily include product protection plans, eyecare club memberships and management fees earned from our legacy partner.~~

Refer to Note 8 for the Company’s disaggregation of net revenue by reportable segment. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation view best depicts how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. The following disaggregation of revenues depicts our revenues based on the timing of revenue recognition.

~~Disaggregation of Revenues:~~

In thousands Three Months Ended
June 30, 2018 Six Months Ended
June 30, 2018
Revenues recognized at a point in time $ 350,345
$ 723,110
Revenues recognized over time 35,187
70,397
Total net revenue $ 385,532
$ 793,507

~~Revenues Recognized at a Point in Time~~

~~The~~ revenues include 1) retail sales of prescription and non-prescription eyewear, contact lenses and related accessories to retail customers (including those covered by managed care), 2) eye exams and 3) wholesale sales of inventory in which our customer is another retail entity.

~~Owned & Host~~

~~Within our owned & host segment, product revenues~~ Revenues recognized over time primarily include ~~sales of prescription and non-prescription eyewear, contact lenses and related accessories to retail customers.~~

For sales of in-store non-prescription eyewear and related accessories, we recognize revenue at the point of sale. For sales of prescription eyewear, we recognize revenue when the performance obligations identified under the terms of contracts with our customers are satisfied, which generally occurs, for products, when those products have been delivered and accepted by our customers.

Revenue is recognized net of sales taxes and returns. The returns allowance is based on historical return patterns. Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold.

At our America’s Best brand, our lead offer is two pairs of eyeglasses and a free eye exam for one low price (“two-pair deal”). Since an eye exam is a key component in the ability for acceptable prescription eyewear to be delivered to a customer, we concluded that the eye exam service, while capable of being distinct from the eyeglass product delivery, was not distinct in the context of the two-pair deal. As a result, we do not allocate revenue to the eye exam associated with the two-pair deal, and we record all revenue associated with the offer in owned & host net product sales when the customer has received and accepted the merchandise.

Within our owned & host segment services and plans revenues, eye exam services sold on a stand-alone basis are also recognized at the point of sale which occurs immediately after the exam is performed.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~6. Revenue From Contracts With Customers (continued)~~

~~Legacy~~

Within our legacy segment, product revenues include 1) sales of prescription and non-prescription eyewear, contact lenses and related accessories to retail customers in transactions where the retail customer uses a managed-care payor, and 2) wholesale sales of the same inventory types to the legacy partner.

~~The revenue recognition for the retail sales are identical to similar sales in the owned & host segment.~~

Wholesale sales of inventory to the legacy partner are recognized at the point in time when control of the inventory has been transferred in accordance with the contractual terms and conditions of sale. Since the wholesale sales of inventory to the legacy partner are a separate performance obligation in our management and services agreement with the legacy partner, we considered the appropriate allocation of consideration to wholesale inventory sales. We concluded that the difference between the stand-alone-selling price of the wholesale inventory and the contractual prices was not material.

Within our legacy segment services and plans revenues, eye exam services sold to retail customers covered by a managed care payor are recognized identically to similar sales in the owned & host segment.

~~Corporate/Other~~

Revenues from our non-reportable corporate/other segment are attributable to wholly owned subsidiaries Arlington Contact Lens Services, Inc. (“AC Lens”) and FirstSight Vision Services, Inc. (“FirstSight”). AC Lens sells contact lenses and optical accessory products to retail customers through e-commerce. AC Lens also distributes contact lenses to Walmart and Sam’s Club under fee for services arrangements, reports revenue on a gross basis and is the principal in the arrangement since AC Lens controls the products in those transactions before the products are transferred to the customer. FirstSight issues individual vision care benefit plans in connection with our America’s Best operations in California, and provides or arranges for the provision of optometric services at certain optometric offices next to Walmart and Sam’s Club stores in California.

~~Revenues Recognized Over Time~~

~~Owned & Host~~

~~Within our owned & host segment, services and plans revenues include revenues from~~ product protection plans, ~~(i.e. warranties),~~ eyecare club memberships and ~~HMO membership fees. We offer extended warranty plans in~~management fees earned from our ~~owned & host segment that generally provide for repair and replacement~~legacy partner.

The following disaggregation of ~~eyeglasses for primarily a one-year term after purchase. We recognize service revenue under these programs on a straight-line basis over the warranty or service period which~~revenues is consistent with our efforts expended to satisfy the obligation. Amounts collected in advance for these programs are reported as deferred revenue in the accompanying condensed consolidated balance sheets.

We offer three- and five-year eyecare club memberships in our owned & host segment to our contact lens customers. For these plans we apply the guidance in ASC 606 to a portfolio of contracts with similar characteristics. We use estimates and assumptions when accounting for a portfolio that reflect the size and composition of the portfolio of contracts. We selected the portfolio approach because our historical club membership data demonstrated that our club customers behave similarly, such that the difference between the portfolio approach and applying ASC 606 to each contract is not material. We recognize revenue across the contract portfolio based on the value delivered to the customers relative to the remaining services promised under the membership program. We determine the value delivered based on the expected timing and amount of customer usage of eyecare club benefits over the terms of the contracts. Under previous guidance, we recognized revenue for eyecare club memberships on a ratable basis over the service period. Under the new guidance the timing of revenue for three- and five-year eyecare club memberships will be accelerated when compared to straight-line amortization. This change is not expected to have a significant impact on our ongoing consolidated results of operations. The cumulative effect and the impact on revenues is described in the impact section below.

~~Legacy~~

Sales of services and plans in our legacy segment include fees earned for managing the operations of our legacy partner. These fees are recorded on a net basis and are based primarily on sales of products and product protection plans to non-managed care customers. We determined that under the terms of the arrangement our legacy partner controls the products and services in the transaction with the retail customer and therefore we act as the agent in those transactions. We recognize this service revenue using the “right to invoice” method allowed under ASC 606 because our right to payment corresponds directly with the value of the management services provided to our legacy partner.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~6. Revenue From Contracts With Customers (continued)~~

~~Impact on Condensed Consolidated Financial Statements~~

The following table summarizes the cumulative effect of adoption of ASC 606 on the Company’s condensed consolidated balance sheet as of June 30, 2018, which reflects the change in timing of revenue recognition relating to eyecare club memberships.recognition:

In thousands With ASC 606 Adoption Without ASC 606 Adoption Impact of Adoption
Current liabilities:
Deferred Revenue $ 53,221
$ 68,572
$ (15,351 )
Total current liabilities $ 189,264
$ 204,615
$ (15,351 )
Other non-current liabilities:
Deferred Revenue $ 20,496
$ 32,288
$ (11,792 )
Deferred income taxes, net $ 91,235
$ 84,281
$ 6,954
Total other non-current liabilities $ 154,025
$ 158,863
$ (4,838 )
Stockholders' equity:
Retained earnings $ 94,296
$ 74,107
$ 20,189
Total stockholders' equity $ 729,587
$ 709,398
$ 20,189



	Three Months Ended
In thousands	March 30, 2019		March 31, 2018
Revenues recognized at a point in time	$	424,214	$	372,765
Revenues recognized over time	37,001		35,210
Total net revenue	$	461,215	$	407,975

~~The following table summarizes the impact of adoption on~~Refer to Note 9."Segment Reporting" for the Company’s ~~condensed consolidated statement~~disaggregation of ~~operations for~~net revenue by reportable segment. As the ~~three months ended June 30, 2018:~~

In thousands, except earnings per share With ASC 606 Adoption Without ASC 606 Adoption Impact of Adoption
Net sales of services and plans $ 66,124
$ 65,576
$ 548
Total net revenue $ 385,532
$ 384,984
$ 548
Income from operations $ 25,793
$ 25,245
$ 548
Earnings before income taxes $ 16,369
$ 15,821
$ 548
Income tax provision $ 3,292
$ 3,432
$ (140 )
Net income $ 13,077
$ 12,669
$ 408
Earnings per share:
Basic $ 0.17
$ 0.17
$ —
Diluted $ 0.17
$ 0.16
$ 0.01

~~The following table summarizes~~reportable segments are aligned by similar economic factors, trends and customers, the ~~impact~~reportable segment disaggregation view best depicts how the nature, amount and uncertainty of ~~adoption on the Company’s condensed consolidated statement of operation for the six months ended June 30, 2018:~~

In thousands, except earnings per share With ASC 606 Adoption Without ASC 606 Adoption Impact of Adoption
Net sales of services and plans $ 135,322
$ 133,955
$ 1,367
Total net revenue $ 793,507
$ 792,140
$ 1,367
Income from operations $ 65,436
$ 64,069
$ 1,367
Earnings before income taxes $ 46,699
$ 45,332
$ 1,367
Income tax provision $ 8,575
$ 8,925
$ (350 )
Net income $ 38,124
$ 37,107
$ 1,017
Earnings per share:
Basic $ 0.51
$ 0.49
$ 0.02
Diluted $ 0.49
$ 0.48
$ 0.01

~~Table of contents~~

~~National Vision Holdings, Inc.~~revenue and ~~Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~6. Revenue From Contracts With Customers (continued)~~

~~There were no other material impacts on our condensed consolidated financial statements as a result of our adoption of this new guidance.~~cash flows are affected by economic factors.

Contract Assets and Liabilities

The Company’s contract assets and contract liabilities primarily result from timing differences between the performance of our obligations and the customer’s payment.

Accounts Receivable

Accounts receivable associated with revenues consist primarily of trade receivables and credit card receivables. Trade receivables consist primarily of receivables from managed care payors and receivables from major retailers. While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk. Trade receivables and credit card receivables are included in accounts receivable, net, on our condensed consolidated balance sheets, and are presented separately in Note 2. “Details of Certain Balance Sheet Accounts.”

Accounts receivable are reduced by allowances for amounts that may become uncollectible. Estimates of our allowance for uncollectible accounts are based on our historical and current operating, billing, and collection trends. Impairment losses (i.e., bad debt expense) recognized on our receivables were approximately ~~$1.7~~$2.0 million and ~~$3.3~~$1.6 million for the three ~~and six~~ months ended ~~June~~March 30, 2019 and March 31, 2018, respectively.

Table of contents

National Vision Holdings, Inc. and ~~$1.5 million and $2.6 million for the three and six months ended July 1, 2017, respectively. There was no impact of adoption of ASC 606 on accounts receivable, net.~~Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. Revenue From Contracts With Customers (continued)

Unsatisfied Performance Obligations (Contract Liabilities)

Our retail customers generally make payments for prescription eyewear products at the time they place an order. Amounts we collect in advance for undelivered merchandise are reported as unearned revenue in the accompanying condensed consolidated balance sheets. Unearned revenue at the end of a reporting period is estimated based on delivery times throughout the current month and generally ranges from four to 10ten days. All unearned revenue at the end of a reporting period is recognized in the next fiscal period. ~~There was no impact of adoption of ASC 606 on our unearned revenue accounts.~~

Our contract liabilities also consist of deferred revenue on services and plans obligations, primarily product protection plans and eyecare club memberships. The unamortized portion of amounts we collect in advance for these services and plans are reported as deferred revenue in the accompanying condensed consolidated balance sheets (current and non- current portions). Our deferred revenue balance as of ~~June~~March 30, ~~2018~~2019 was ~~$73.7~~$77.0 million. We expect future revenue recognition of this balance of ~~$34.0~~$47.4 million, ~~$28.2~~$21.0 million, ~~$9.8~~$7.8 million, ~~$1.5~~$0.7 million, and ~~$0.2~~$0.1 million in fiscal years ~~2018,~~ 2019, 2020, 2021, 2022, and ~~2022~~thereafter, respectively. We recognized ~~$26.1~~$27.7 million and ~~$52.0~~$25.9 million of previously deferred revenues ~~for~~during the three ~~and six~~ months ended ~~June~~March 30, 2019 and March 31, 2018, respectively.

7. Leases

We lease our stores, laboratories, distribution centers, and corporate offices. These leases generally have non-cancelable lease terms of between five and 10 years, with an option to renew for additional terms of one to 10 years or more. The lease term includes renewal option periods when the renewal is deemed reasonably certain after considering the value of the leasehold improvements at the end of the noncancelable lease period. Most leases for our stores provide for a minimum rent and typically include escalating rent over time with the exception of Military for which lease payments are variable and based on percentage of sales. For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved. The Company’s leases generally require us to pay insurance, real estate taxes and common area maintenance expenses, substantially all of which are variable and not included in the measurement of lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not consider its management and services agreement with legacy partner to contain a lease arrangement.

Our lease arrangements include TIAs, which are contractual amounts received by a lessee from a lessor for improvements made to leased properties by the lessee. For operating leases, TIAs are treated as a reduction of the lease payments used to measure the ROU assets in the accompanying consolidated balance sheet as of March 30, 2019 (non-current liabilities as of December 29, 2018), and are amortized as a reduction in rental expense over the life of the respective leases.

For finance leases, a lease ROU asset is recorded as property and equipment and corresponding amounts are recorded as debt obligations at an amount equal to the lesser of the net present value of minimum lease payments to be made over the lease term or the fair value of the property for leases in existence as of fiscal year end 2018 and at the net present value of the minimum lease payments to be made over the lease term for new finance leases entered into subsequent to fiscal year end 2018.

We rent or sublease certain parts of our stores to third parties. Our sublease portfolio consists mainly of operating leases with our ophthalmologists and optometrists within our stores.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Leases (continued)



In thousands		As of March 30, 2019
Type	Classification
	ASSETS
Finance	Property and equipment, net	$	28,192
Operating	Right of use assets^(a)	330,637
	Total leased assets	358,829
	LIABILITIES
	Current Liabilities:
Finance	Current maturities of long-term debt and finance lease obligations	3,484
Operating	Current operating lease obligations	55,967
	Other non-current liabilities:
Finance	Long-term debt and finance lease obligations, less current portion and debt discount	30,614
Operating	Non-current operating lease obligations	314,282
	Total lease liabilities	$	404,347
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the incremental borrowing rate on December 30, 2018, for operating leases that commenced prior to that date.
(a) TIA of $30.2 million, as of March 30, 2019, is treated as a reduction of lease payments used to measure ROU assets.

Finance lease assets are recorded net of accumulated amortization of $4.9 million and $4.1 million as of March 30, 2019 and December 30, 2018, respectively.



In thousands	Three Months Ended March 30, 2019
Lease cost by classification
Selling, general and administrative:
Operating lease cost ^(a)	$	18,163
Variable lease cost ^(b)	6,466
Sublease income^(c)	(962		)

Depreciation and amortization:
Amortization of lease assets	978

Interest expense, net:
Interest on lease liabilities	890

Net lease cost	$	25,535
(a) Includes short-term leases, which are immaterial.
(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable as well as lease costs above minimum thresholds for Fred Meyer stores and lease costs for Military stores.
(c) Income from sub-leasing of stores includes rental income from operating lease properties to ophthalmologists and optometrists who are independent contractors.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Leases (continued)



Lease Term and Discount Rate	As of March 30, 2019
Weighted average remaining lease term (months)
Operating leases	83
Finance leases	83
Weighted average discount rate ^(a)
Operating leases	4.6	%
Finance leases ^(b)	13.6	%
(a) The discount rate used to determine the lease assets and lease liabilities was derived upon considering (i) incremental borrowing rates on our long-term debt; (ii) fixed rates we pay on our interest rate swaps; (iii) LIBOR margins for issuers of similar credit rating; (iv) borrowing rates on five-year and ten-year US Treasuries; and (v) effect of collateralization. As a majority of our leases are five year and 10 year leases, we determined a lease discount rate for such tenors and evaluated whether this discount rate is reasonable for leases that were entered into during the quarter.
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain of those leases. The discount rate differential for those leases is not material to our results of operations.



In thousands	Three Months Ended March 30, 2019
Other Information	Three Months Ended March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows - operating leases	$	18,146

The following table represents the maturity of our lease liabilities as of March 30, 2019:



In thousands	Operating Leases ^(a)		Finance Leases^(b)
Fiscal Year	Operating Leases ^(a)		Finance Leases^(b)
2019	$	55,994	$	5,435
2020	70,545		6,984
2021	63,551		6,876
2022	56,707		6,810
2023	50,088		5,828
Thereafter	138,267		17,866
Total lease payments	435,152		49,799
Less: Interest	64,903		15,701
Present value of lease liabilities^(c)	$	370,249	$	34,098
(a) Operating lease payments include $79.8 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) There are no finance leases where the option to extend lease term is reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $29.6 million of legally binding minimum lease payments for leases signed but not yet commenced.

As of fiscal year end 2018, aggregate future minimum rental payments under our operating leases were as follows:



Fiscal Year	In thousands
2019	$	69,372
2020	63,218
2021	56,219
2022	49,303
2023	42,545
Thereafter	126,388
	$	407,045

The future minimal rental payments above do not include amounts for variable executory costs such as insurance, real estate taxes and common area maintenance. These costs were approximately $18.0 million, $14.9 million and $13.9 million during fiscal years ended 2018, 2017 and 2016, respectively.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

8. Commitments and Contingencies

From time to time, the Company is involved in various legal proceedings incidental to its business. Because of the nature and inherent uncertainties of litigation, we cannot predict with certainty the ultimate resolution of these actions and, should the outcome of these actions be unfavorable, the Company’s business, financial position, results of operations or cash flows could be materially and adversely affected.

The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, we reassess whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, we disclose the estimate of the amount of the loss or range of losses, or that an estimate of loss cannot be made. The Company expenses its legal fees as incurred.

~~The Company’s~~In January 29, 2016, FirstSight, ~~subsidiary is~~our wholly-owned specialized health maintenance organization, was named as a defendant in a ~~purported~~proposed class action filed on behalf of all persons who paid for an eye examination from an optometrist at a Walmart location in California from November 5, 2009 through the ~~U.S. District Court for~~date of the ~~Southern District~~resolution of ~~California that~~the litigation. The complaint alleges in particular that FirstSight participated in arrangements that caused the illegal delivery of eye examinations to the plaintiffs, and that FirstSight thereby violated, among other ~~laws,~~statutes, the ~~corporate practice of optometry~~Unfair Competition and ~~the unfair competition and false advertising~~False Advertising laws of California. OnIn March ~~23,~~ 2017, the ~~court~~Court granted ~~the~~a motion to dismiss previously filed by ~~FirstSight and dismissed the complaint with prejudice.~~FirstSight. The plaintiffs filed an appeal to the U.S. Court of Appeals for the Ninth Circuit in April 2017. In July 2018, the U.S. Court of Appeals for the Ninth Circuit vacated in part, and reversed in part, the district court’s dismissal and remanded for further proceedings. In October 2018, the plaintiffs filed a second amended complaint with the district court seeking, among other claims, unspecified damages and attorneys’ fees, and in November 2018, FirstSight filed a motion to dismiss. The Company believes that the claims are without merit and intends to continue to vigorously defend the ~~litigation vigorously.~~litigation.

In May 2017, a complaint (the “1-800 Contacts Matter”) was filed against the Company and other defendants alleging, on behalf of a proposed class of consumers who purchased contact lenses online, that 1-800 Contacts, Inc. entered into a series of agreements with the other defendants, including AC Lens, the Company’s ~~AC Lens~~ subsidiary, to suppress certain online advertising and that each defendant thereby engaged in anticompetitive conduct in violation of the Sherman Antitrust ~~Act (the “1-800 Contacts Matter”).~~Act. The Company has settled the 1-800 Contacts Matter for $7.0 million, without admitting liability. Accordingly, the Company recorded a ~~$7.0 million~~ charge infor this amount during the second quarter of fiscal year 2017.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~7. Commitments and Contingencies (continued)~~

On November 8, 2017, the court in the 1-800 Contacts Matter entered an order preliminarily approving the settlement agreement, subject to a settlement hearing. Pursuant to this order, the Company deposited 50% of the settlement amount, or $3.5 million, into an escrow account, to be distributed subject to and in accordance with the terms of the settlement agreement and any further order of the court.

On February 25, 2019, we were served with a lawsuit by a former employee who alleges, on behalf of himself and a proposed class, several violations of California wage and hour laws and seeks unspecified alleged unpaid wages, monetary damages, injunctive relief and attorneys’ fees. On March 21, 2019, we removed the lawsuit from state court to the United States District Court for the Northern District of California. The plaintiff moved to remand the action to state court on April 18, 2019. The Company believes that the claims are without merit and intends to vigorously defend the litigation.

8.9. Segment Reporting

The ~~Company’s reportable segments were determined on the same basis as used by the Chief Operating Decision Maker (“CODM”) to evaluate performance internally. Our operations consist of~~Company provides its principal products and services through two reportable segments:

~~Owned~~ owned & host ~~store brands - Our owned brands consist of our America’s Best~~ and Eyeglass World operating segments. Our host brands consist of our Vista Optical operating segments at certain U.S. Military Branches and inside Fred Meyer stores. We have aggregated our owned and host operating segments into a single reportable segment due to similar economic characteristics and similarity of the nature of products and services, production processes, class of customers, regulatory environment, and distribution methods of those brands.

Legacy - The Company manages the operations of 227 legacy retail vision centers within Walmart stores. We earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner’s customers on a net basis. We also sell to our legacy partner wholesale merchandise that is stocked in retail locations, and provide central lab processing services for the finished eyeglasses and frames expected to be sold to our legacy partner’s customers. We lease space from our legacy partner within or adjacent to each of the locations we manage and use this space for the provision of optometric examination services. Our legacy agreements were renewed on January 13, 2017, and expire on August 23, 2020, subject to extension pursuant to the terms of the agreements. Sales of services and plans in our legacy segment consist of fees earned for managing the operations of our legacy partner and revenues associated with the provision of eye exams. Revenue associated with managing operations of our legacy partner were $9.1 million and $18.4 million for the three and six months ended June 30, 2018 and $9.5 million and $19.2 million for the three and six months ended July 1, 2017, respectively. During the six months ended June 30, 2018, sales associated with our legacy partner arrangement represented 10.3% of consolidated net revenue. This exposes us to concentration of customer risk.

legacy. The “Corporate/Other” category includes the results of operations of our other operating segments, AC Lens and FirstSight, as well as corporate overhead support. The “Reconciliations” category represents other adjustments to reportable segment results necessary for the presentation of consolidated financial results in accordance with U.S. GAAP for the two reportable segments.

~~Revenues from~~The following is a summary of certain financial data for each of our segments. Reportable segment information is presented on the ~~Corporate/Other segments are attributable~~same basis as our condensed consolidated financial statements, except for net revenue and associated costs applicable to revenue, which is presented on a cash basis, including point of sales for managed care payors and excluding the ~~AC Lens~~effects of unearned and ~~FirstSight operating segments and~~deferred revenue, consistent with what the Company’s corporate function. AC Lens primarily sells contact lenses, eyeglasses and optical accessory products to retail customers through e-commerce. AC Lens also distributes contact lenses to Walmart and Sam’s Club under fee for services arrangements. FirstSight sells single service health plansCODM regularly reviews. Asset information is not included in ~~connection with~~ the ~~operations of America’s Best in California, arranges~~following summary since the CODM does not regularly review such information for the provision of eye exams at retail locations throughout California and also sells contact lenses to its members in certain locations. None of those segments met the quantitative thresholds for determining reportable ~~segments for any of the periods presented.~~

segments. Our reportable segment profit measure is ~~EBITDA,~~earnings before interest, tax, depreciation and amortization (“EBITDA”), or net revenue, less ~~cost~~costs applicable to revenue, less selling, general and administrative costs. Depreciation and amortization, asset impairment, litigation settlement and other corporate costs that are not allocated to the reportable segments, including interest expense and debt issuance costs are excluded from segment

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

9. Segment Reporting (continued)

EBITDA. There are no transactions between our reportable segments. There are no differences between the measurement of our reportable segments’ assets and consolidated assets. There have been no changes from prior periods in the measurement methods used to determine reportable segment profit or loss, and there have been no asymmetrical allocations to segments. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation view best depicts how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors.

~~The following is a summary~~



	Three Months Ended March 30, 2019
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	296,919	$	30,141	$	63,875		$	(7,775	)	$	383,160
Segment services and plans revenues	68,301		14,437		6			(4,689		)	78,055
Total net revenue	365,220		44,578		63,881			(12,464		)	461,215
Costs of products	85,246		14,130		56,595			(1,967		)	154,004
Costs of services and plans	51,664		6,301		—			—			57,965
Total costs applicable to revenue	136,910		20,431		56,595			(1,967		)	211,969
SG&A	133,213		14,237		46,426			—			193,876
Asset impairment	—		—		2,082			—			2,082
Other expense, net	—		—		473			—			473
EBITDA	$	95,097	$	9,910	$	(41,695	)	$	(10,497	)	52,815
Depreciation and amortization											20,415
Interest expense, net											9,061
Income before income taxes											$	23,339



	Three Months Ended March 31, 2018
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	261,621	$	29,109	$	50,779		$	(2,732	)	$	338,777
Segment services and plans revenues	58,776		13,649		1,054			(4,281		)	69,198
Total net revenue	320,397		42,758		51,833			(7,013		)	407,975
Costs of products	74,158		12,888		44,310			(478		)	130,878
Costs of services and plans	43,646		4,963		967			—			49,576
Total costs applicable to revenue	117,804		17,851		45,277			(478		)	180,454
SG&A	118,524		13,478		38,687			—			170,689
Other expense, net	—		—		122			—			122
EBITDA	$	84,069	$	11,429	$	(32,253	)	$	(6,535	)	56,710
Depreciation and amortization											17,862
Interest expense, net											9,313
Income before income taxes											$	29,535

Revenue associated with managing operations of ~~certain financial data~~our legacy partner were $9.3 million for each of the three months ended March 30, 2019 and March 31, 2018. During the three months ended March 30, 2019, sales associated with our ~~segments. Reportable segment information is presented on the same basis as our condensed~~legacy partner arrangement represented 9.7% of consolidated ~~financial statements, except for~~ net ~~revenue, which is presented on a cash basis, excluding the effects~~revenue. This exposes us to concentration of unearned and deferred revenue, consistent with the basis on which the CODM regularly reviews segment performance. Asset information is not included in the following summary since the CODM does not regularly review such information for the reportable segments.customer risk.

Table of contents

National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~8. Segment Reporting (continued)~~

Three Months Ended June 30, 2018
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 236,383
$ 26,156
$ 49,791
$ 7,078
$ 319,408
Segment services and plans revenues 53,230
12,950
973
(1,029 ) 66,124
Total net revenue 289,613
39,106
50,764
6,049
385,532
Cost of products 70,505
12,140
43,540
1,546
127,731
Cost of services and plans 43,481
4,878
969
—
49,328
Total costs applicable to revenue 113,986
17,018
44,509
1,546
177,059
SG&A 112,918
13,420
38,700
—
165,038
Other expense, net —
—
296
—
296
EBITDA $ 62,709

$ 8,668

$ (32,741 )
$ 4,503
43,139
Depreciation and amortization 17,346
Interest expense, net 9,424
Income before income taxes $ 16,369

Three Months Ended July 1, 2017
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 203,389
$ 25,341
$ 44,393
$ 3,837
$ 276,960
Segment services and plans revenues 46,102
12,220
3,989
(1,730 ) 60,581
Total net revenue 249,491
37,561
48,382
2,107
337,541
Cost of products 60,266
12,040
39,234
774
112,314
Cost of services and plans 36,964
3,631
3,499
—
44,094
Total costs applicable to revenue 97,230
15,671
42,733
774
156,408
SG&A 96,517
13,454
34,684
—
144,655
Asset impairment —
—
1,000
—
1,000
Litigation settlement —
—
7,000
—
7,000
Other expense, net —
—
77
—
77
EBITDA $ 55,744

$ 8,436

$ (37,112 )
$ 1,333
28,401
Depreciation and amortization 14,629
Interest expense, net 14,622
(Loss) before income taxes $ (850 )

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~8. Segment Reporting (continued)~~

Six Months Ended June 30, 2018
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 498,004
$ 55,265
$ 100,570
$ 4,346
$ 658,185
Segment services and plans revenues 112,006
26,599
2,027
(5,310 ) 135,322
Total net revenue 610,010
81,864
102,597
(964 ) 793,507
Costs of products 144,663
25,028
87,850
1,068
258,609
Costs of services and plans 87,127
9,841
1,936
—
98,904
Total costs applicable to revenue 231,790
34,869
89,786
1,068
357,513
SG&A 230,855
26,898
77,387
—
335,140
Other expense, net —
—
418
—
418
EBITDA $ 147,365

$ 20,097

$ (64,994 )
$ (2,032 )
100,436
Depreciation and amortization 35,000
Interest expense, net 18,737
Income before income taxes $ 46,699

Six Months Ended July 1, 2017
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 438,491
$ 54,325
$ 87,950
$ 2,778
$ 583,544
Segment services and plans revenues 98,296
24,976
8,164
(7,580 ) 123,856
Total net revenue 536,787
79,301
96,114
(4,802 ) 707,400
Costs of products 127,445
25,711
79,417
774
233,347
Costs of services and plans 74,507
7,330
7,032
—
88,869
Total costs applicable to revenue 201,952
33,041
86,449
774
322,216
SG&A 200,317
26,183
67,959
—
294,459
Asset impairment —
—
1,000
—
1,000
Debt issuance costs —
—
2,702
—
2,702
Litigation settlement —
—
7,000
—
7,000
Other expense, net —
—
179
—
179
EBITDA $ 134,518

$ 20,077

$ (69,175 )
$ (5,576 ) 79,844
Depreciation and amortization 29,052
Interest expense, net 26,114
Income before income taxes $ 24,678

9.10. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding for the period and includes the dilutive impact of potential new common shares issuable upon vesting and exercise of stock options and vesting of restricted stock units. Potentially dilutive securities are excluded from the computation of diluted EPS if their effect is anti-dilutive. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations is as follows:

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~9. Earnings Per Share (continued)~~


	Three Months Ended					Six Months Ended				Three Months Ended
In thousands, except EPS data	June 30, 2018		July 1, 2017			June 30, 2018		July 1, 2017
Net income (loss)	$	13,077	$	(1,496	)	$	38,124	$	15,574
In thousands, except EPS										March 30, 2019		March 31, 2018
Net income										$	17,429	$	24,455
Weighted average shares outstanding for basic EPS	75,249		56,414			74,983		56,337		78,205		74,714
Effect of dilutive securities:
Stock options	2,540		—			2,817		2,002		3,221		3,033
Restricted stock	69		—			79		—		40		90
Weighted average shares outstanding for diluted EPS	77,858		56,414			77,879		58,339		81,466		77,837
Basic EPS	$	0.17	$	(0.03	)	$	0.51	$	0.28	$	0.22	$	0.33
Diluted EPS	$	0.17	$	(0.03	)	$	0.49	$	0.27	$	0.21	$	0.31
Anti-dilutive options outstanding excluded from EPS	—		2,036			—		107		356		—

~~10.~~11. Accumulated Other Comprehensive Loss

Changes in the fair value of the Company’s cash flow hedge derivative instruments since inception are recorded in AOCL. The following table presents the change in AOCL during the three ~~and six~~ months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively:

~~Amounts reclassified from AOCL to earnings are included in interest expense in the accompanying condensed consolidated statements of operations.~~ See Note 3. “Fair Value Measurements of Financial Assets and Liabilities” for a description of the Company’s use of cash flow hedging derivatives.

~~11. Subsequent Events~~

~~Secondary Offering~~

Subsequent to June 30, 2018, we completed an underwritten public offering in which KKR Sponsor and Berkshire Partners LLC and certain management stockholders (“selling stockholders”) sold an aggregate of 16,614,852 shares of our common stock. We did not receive any proceeds from the shares sold by the selling stockholders; however, we incurred offering related expenses of approximately $0.8 million. The secondary offering constituted a vesting event for certain performance-based options, and as a result we expect to incur between $8.5 million to $10.5 million of related non-cash stock-based compensation expense during the three months ending September 29, 2018. We also expect cash expense of between $4.0 million to $5.0 million pursuant to an incentive plan for non-executive management during the three months ending September 29, 2018. Following the completion of the offering, we no longer qualify as a “controlled company” within the meaning of NASDAQ rules.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q and the audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on ~~March 8, 2018~~February 27, 2019 (the “Annual Report”). This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of the Annual Report as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Form 10-Q.

We are one of the largest and fastest growing optical retailers in the United States and a leader in the attractive value segment of the U.S. optical retail industry. We believe that vision is central to quality of life and that people deserve to see their best to live their best, no matter what their budget. Our mission is to make quality ~~eyecare~~eye care and eyewear affordable and accessible to all Americans. We achieve this by providing eye exams, eyeglasses and contact lenses to cost-conscious and low-income consumers. We deliver exceptional value and convenience to our customers, with an opening price point that strives to be among the lowest in the industry, enabled by our low-cost operating platform. We reach our customers through a diverse portfolio of ~~1,050~~1,105 retail stores across five brands and 2019 consumer websites as of ~~June~~March 30, ~~2018.~~2019.

Our operations consist of two reportable segments:

Our consolidated results also include ~~other non-reportable segment~~the following activity recorded in our ~~corporate/other category, which include:~~Corporate/Other category:

Reportable segment information is presented on the same basis as our consolidated financial statements, except ~~the~~ reportable ~~segments’ revenues~~segment sales are presented on a cash basis including point of sales for managed care payors and excluding the effects of unearned and deferred ~~revenue.~~revenue, consistent with what our chief operating decision maker (“CODM”) regularly reviews. Reconciliations of segment results to consolidated results include financial information necessary to adjust reportable segment revenues to a consolidated basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”), specifically the change in unearned and deferred revenues during the period. There are no revenue transactions between reportable segments, and there are no other items in the reconciliations other than the effects of unearned and deferred ~~and unearned revenue items previously described.~~revenue. See Note 9. “Segment Reporting” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

Deferred revenue represents ~~cash basis sales of product protection plans and club memberships, and is~~ the timing difference of when we collect the cash from the customer and ~~performance of the service~~when services related to ~~the customer. The increases~~product protection plans and club memberships are performed. Increases or decreases in deferred revenue during the reporting period represent cash collections ~~in the reporting period~~ in excess of or below the recognition of previous ~~deferrals and are presented in the reconciliation column in the tables in Note 8. “Segment Reporting” in Part I. Item 1. of this Form 10-Q.~~deferrals.

Unearned revenue represents ~~cash basis sales of prescription eyewear only for approximately the last week of the reporting period and is~~ the timing difference of when we collect the cash from the customer and the delivery/customer acceptance of prescription eyewear, and is only applicable to sales made during the ~~product.~~last week to 10 days of the reporting period.

Trends and Other Factors Affecting Our Business

Various trends and other factors will affect or have affected our operating results, including:

We expect that new stores will be a key driver of growth in our net revenue and operating profit in the future. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings. As stores mature, profitability typically increases significantly. The performance of new stores ~~may vary depending on various~~is dependent upon factors such as the store opening date, the time of year of a particular opening, the amount of store opening costs, labor costs in the specified market, the amount of store occupancy costs, its level of participation in managed care plans, and the location of ~~the~~ new ~~store,~~stores, including whether ~~it is located~~they are in a new or existing market. ~~For example, we~~We typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening ~~costs.~~costs, including training and development of our store associates. The multi-year maturation process of our stores is influenced by customer purchasing behavior in our industry, with consumers ~~getting~~returning for eye exams every 20 months on average and with a substantial majority of our customers being repeat buyers. Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our store management systems, financial and management controls and information systems. We will also be required to hire, train and retain optometric professionals, store management and store personnel, which, together with increased marketing costs, ~~affects~~may affect our operating margins.

Comparable Store Sales Growth

Comparable store sales growth is a key driver of our business. ~~Various~~Many factors affect comparable store sales, including:

A new store is included in the comparable store sales calculation during the thirteenth full fiscal month following the store’s opening. Closed stores are removed from the calculation for time periods that are not comparable. In the past, we have closed our stores as a result of poor store performance, lease expiration or non-renewal and/or the terms of our arrangements with our host and legacy partners.

Managed Care and Insurance

Our managed care business relates to vision care programs and associated benefits which are either: (i) sponsored by employers or other groups, (ii) provided by insurers and managed care entities, such as health maintenance organizations to individuals, and (iii) delivered, typically on a fee-for-service or capitated basis, by health care providers, such as ophthalmologists, optometrists and opticians. Managed care has become increasingly important to the optical retail industry.

An increasing percentage of our customers receive vision care insurance coverage through managed care payors. ~~These payors represent~~Our participation in this program represents an increasingly significant portion of our overall revenues and our revenue growth. While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk. As our participation in managed care programs continues to expand, we have incurred and expect to incur additional costs related to this area of our business. Our future operational success could depend on our ability to negotiate, maintain and extend contracts with managed vision care companies, vision insurance providers and other third-party payors, several of whom have significant market share. In addition, as our participation in managed care programs continues to approach overall industry penetration levels, we expect our associated managed care revenue growth rate to slow over time.

Vision Care Professional Recruitment and Coverage

Our ability to ~~operate our stores is largely dependent upon our ability~~continue to attract and retain qualified vision care professionals ~~and~~is key to ~~maintain~~store operations, as well as maintaining our relationships with independent optometrists and professional corporations owned by ~~eyecare~~eye care practitioners that provide vision care services in our stores.

Overall Economic Trends

Macroeconomic factors that may affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs. During periods of economic downturn and uncertainty, our customers benefit from our low prices. However, ~~eyecare~~eye care purchases are predominantly a medical necessity and are considered non-discretionary in nature. Therefore, the overall economic environment and related changes in consumer behavior may have less of an impact on our business than for retailers in other industries. WeOur customers also benefit from our low prices during periods of economic downturn and uncertainty.

Consumer Preferences and Demand

Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences and design trends. We estimate that optical consumers typically replace their eyeglasses every two to three years, ~~while~~and contact lens customers ~~typically~~ order new lenses every six to twelve months, reflecting the predictability of these recurring purchase behaviors.

Infrastructure Investment

Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth. We have made significant investments in information technology systems, supply chain systems, ~~labs~~marketing, and ~~marketing. These investments include significant additions to our~~ personnel, including experienced industry executives, and management and merchandising teams to support our long-term growth objectives. We intend to continue ~~making~~to make targeted investments in our infrastructure ~~as necessary~~ to support our growth.

We are committed to providing our products to our customers at low prices. We generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions.

Our Ability to Source and Distribute Products Effectively

Our revenue and operating income are affected by our ability to purchase our products in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of revenue could be adversely affected in the event we face constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our ~~customers, leading to lost revenue.~~customers. We rely on a ~~limited~~small number of vendors to supply the majority of our eyeglass frames, eyeglass lenses and contact lenses, and are thus exposed to concentration of supplier risk. In particular, we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier.

~~Our~~In addition, if the United States government imposes significant tariffs or other restrictions on imports from China, it could have an adverse impact on our business. We source merchandise from suppliers located in China, a significant amount of our domestically-purchased merchandise is manufactured in China, and one of our outsourced optometric labs is located in China. Any such tariffs, restrictions or other changes could lead to additional costs, delays in shipments, embargos and other uncertainties that could negatively impact our relationships with our international vendors and labs and materially adversely affect our business, including price increases or the requirement to identify alternative sources for merchandise and labs. Current tariffs do not materially impact our financial results, ~~can be expected~~and we believe that less than 16% of costs applicable to ~~be directly impacted by substantial~~revenue are subject to potential tariffs on Chinese imports.

Substantial increases in product costs due to increases in materials cost ~~increases~~ or general inflation ~~which~~ could lead to greater profitability pressure as ~~costs~~we may not be able to ~~be passed~~pass costs on to consumers. To date, changes in materials prices and general inflation have not materially impacted our business.

Interim Results and Seasonality

Historically, our business has realized a higher portion of net revenue, operating income, and cash flows from operations in the first fiscal quarter, and a lower portion of net revenue, operating income, and cash flows from operations in the fourth fiscal quarter. The seasonally larger first quarter is attributable primarily to the timing of our customers’ income tax refunds and annual health insurance program start/reset periods. Because our target market consists of cost-conscious and low-income consumers, a delay in the issuance of tax refunds or changes in the amount of tax refunds can have a negative impact on our financial results. Consumers could also alter how they utilize tax refund proceeds. With respect to our fourth quarter results, compared to other retailers, our products and services are less likely to be included in consumer’s holiday spending budgets, therefore reducing spending on personal vision correction during the weeks preceding December 25 of each year. Additionally, although the period between December 25 and the end of our fiscal year is typically a high-volume period, the net revenue associated with substantially all orders of prescription eyeglasses and contact lenses during that period is deferred until January of the next fiscal year due to our policy of recognizing revenue only after the product has been accepted by the customer, further contributing to higher first quarter results. In addition to reduced revenues in the fourth quarter compared to the other quarters, our fourth quarter operating income may include annual impairment charges, which further reduces operating income relative to other quarters.

Our quarterly results may also be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores as well as the timing of certain holidays. As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.

The U.S. optical retail industry is highly competitive. Competition is generally based upon brand name recognition, price, convenience, selection, service and product ~~quality and convenience.~~quality. We operate within the value segment of the U.S. optical retail industry, which emphasizes price and value. This segment is fragmented. We compete with mass merchants, specialty retail chains and independent eye practitioners and opticians. In the broader optical retail industry, we also compete with large national retailers such as, in alphabetical order, LensCrafters, Pearle Vision and Visionworks. This competition takes place both in physical retail locations and ~~online.~~through the internet.

Consolidation in the Industry

~~Recently announced mergers~~The recently completed merger of large, global competitors ~~will~~has created, and other consolidation activity may create, organizations that are involved in virtually every sector of the optical industry, from retail and wholesale to frames, spectacle lenses, and managed vision care. These companies will benefit from purchasing advantages and by leveraging management capabilities across a larger revenue base. Recent trends indicate that national and regional optical retail chains similar to us are gaining market share from independent vision care providers, benefiting from economies of scale unavailable to smaller competitors. Other trends include the formation of buying groups and similar forms of practice affiliations.

How We Assess the Performance of ~~our~~Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our consolidated business isand operating segments are performing are net revenue, costs applicable to revenue, and selling, general, and administrative expenses. In addition, we also review ~~other important metrics such as~~ store growth, adjusted comparable store sales growth, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income.

We report as net revenue amounts generated in transactions with customers who are the end users of our products, services, and plans. Net product sales include sales of prescription and non-prescription eyewear, contact lenses, and related accessories as well as eye exam services associated with our Americas Best brand’s signature offer of two pairs of eyeglasses and a free eye exam for one low price (“two-pair offer”) to retail customers and sales of inventory in which our customer is another retail entity. Net sales of services and plans include sales of eye exams, ~~discount clubs~~eye care club memberships, product protection plans (i.e., warranties), and ~~HMO memberships.~~single service eye care plans in California. Net sales of services and plans also includes fees we earn for managing certain Vision Centers located in Walmart stores and for laboratory services provided to ~~Walmart, and fulfillment fees earned by AC Lens.~~Walmart.

Costs Applicable to Revenue

Costs applicable to revenue include both costs of net product sales and costs of net sales of services and plans. Costs of net product sales include (i) costs to procure non-prescription eyewear, contact lenses, and accessories, which we purchase and sell in finished form, (ii) costs to manufacture finished prescription eyeglasses, including direct materials, labor, and overhead, and (iii) remake costs, warehousing and distribution expenses, and internal transfer costs. Costs of services and plans include costs associated with ~~warranty~~product protection plan programs, ~~eyecare and discount~~eye care club memberships, ~~HMO membership fees, eyecare~~single service eye care plans in California, eye care practitioner and eye exam technician payroll, taxes and benefits and optometric and other service costs. Customer tastes and preferences, product mix, changes in technology, significant increases or slowdowns in production, and other factors impact costs applicable to revenue. The components of our costs applicable to revenue may not be comparable to other retailers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, include store associate (including optician) payroll, taxes and benefits, ~~store~~ occupancy, advertising and promotion, field supervision, corporate support and other costs associated with the provision of vision care services. Non-capital expenditures associated with opening new stores, including rent, store maintenance, marketing expenses, travel and relocation costs, and training costs, are recorded in SG&A as incurred. SG&A generally fluctuates consistently with revenue due to the variable store field office and corporate support costs; however, some fixed costs slightly improve as a percentage of net revenue as our net revenues grow over time.

The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results as described above in “Trends and Other Factors Affecting Our Business.”

Adjusted Comparable Store Sales Growth

We measure adjusted comparable store sales growth as the increase or decrease in sales recorded by the comparable store base in any reporting period, compared to sales recorded by the comparable store base in the prior reporting period, which we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the order is placed and paid for or submitted to a managed care payor, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation ~~in their~~during the 13th full ~~month;~~fiscal month following the store’s opening; (iii) closed stores are removed from the calculation for time periods that are not comparable; (iv) sales from partial months of operation are ignored when stores do not open or close on the first day of the month; and (v) when applicable, we adjust for the effect of the 53rd week. Quarterly, year-to-date and annual adjusted comparable store sales are aggregated using only sales from all whole months of operation included in both the current reporting period and the prior reporting period. When a partial month is excluded from the calculation, the corresponding month in the subsequent period is also excluded from the calculation. There may be variations in the way in which some of our competitors and other retailers calculate comparable store sales. As a result, our adjusted comparable store sales may not be comparable to similar data made available by other retailers.

Adjusted comparable store sales growth is a non-GAAP financial measure, which we believe is useful because it provides timely and accurate information relating to the two core metrics of retail sales: number of transactions and value of transactions. We use adjusted comparable store sales growth as the basis for key operating decisions, such as allocation of advertising to particular markets and implementation of special marketing programs. Accordingly, we believe that adjusted comparable store sales growth provides timely and accurate information relating to the operational health and overall performance of each brand. We also believe that, for the same reasons, investors find our calculation of adjusted comparable stores sales growth to be meaningful.

Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income

We define Adjusted EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization, as further adjusted to exclude stock compensation expense, ~~costs associated with debt refinancing,~~ asset impairment, ~~non-cash inventory write-offs, management fees,~~ new store pre-opening expenses, non-cash rent, ~~litigation, and~~ secondary offering expenses, management realignment expense and other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total net revenue. We define Adjusted Net Income as net income, ~~plus~~adjusted to exclude stock compensation expense, ~~costs associated with debt refinancing,~~ asset impairment, ~~non-cash inventory write-offs, management fees,~~ new store pre-opening expenses, non-cash rent, ~~litigation settlement,~~ secondary offering expenses, management realignment expense, amortization of acquisition intangibles and deferred financing costs, ~~and~~ other expenses, the tax benefit of stock option exercises, ~~less~~effect of the Tax Cuts and Jobs Act (“Tax Legislation”), and the tax effect of ~~these adjustments.~~adjustments recorded during the quarter. Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are key metrics used by management to assess our financial performance. Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are also frequently used by analysts, investors and other interested parties. We use Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. See “Non-GAAP Financial Measures” for additional information.

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net revenue.

Table of Contents

Three Months Ended ~~June~~March 30, ~~2018~~2019 compared to Three Months Ended ~~July 1, 2017~~March 31, 2018

Net revenue

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the three months ended ~~June~~March 30, ~~2018~~2019 compared to the three months ended ~~July 1, 2017.~~March 31, 2018.


	Comparable store sales growth⁽¹⁾				Stores open at end of period		Net revenue⁽²⁾								Comparable store sales growth⁽¹⁾				Stores open at end of period		Net revenue⁽²⁾
In thousands, except percentage and store data	Three Months Ended June 30, 2018		Three Months Ended July 1, 2017		June 30, 2018	July 1, 2017	Three Months Ended June 30, 2018				Three Months Ended July 1, 2017				Three Months Ended March 30, 2019		Three Months Ended March 31, 2018		March 30, 2019	March 31, 2018	Three Months Ended March 30, 2019					Three Months Ended March 31, 2018
Owned & host segment
Owned & Host segment
America’s Best	10.2	%	12.2	%	630	559	$	239,240	62.1	%	$	203,046	60.2	%	8.2	%	4.6	%	679	608	$	305,096		66.2	%	$	264,243		64.8	%
Eyeglass World	9.5	%	9.2	%	108	108	40,473		10.5	%	36,434		10.8	%	6.5	%	6.3	%	116	107	50,214			10.9	%	45,414			11.1	%
Military	(5.2	)%	(5.9	)%	56	57	6,145		1.6	%	6,445		1.9	%	(4.4	)%	2.8	%	54	56	6,421			1.4	%	6,879			1.7	%
Fred Meyer	5.2	%	(2.2	)%	29	29	3,755		1.0	%	3,566		1.1	%	(9.7	)%	6.0	%	29	29	3,489			0.8	%	3,861			0.9	%
Owned & host segment total					823	753	$	289,613	75.1	%	$	249,491	73.9	%
Owned & Host segment total																			878	800	$	365,220		79.3	%	$	320,397		78.5	%
Legacy segment	4.4	%	0.9	%	227	227	39,106		10.1	%	37,561		11.1	%	1.8	%	3.3	%	227	227	44,578			9.7	%	42,758			10.5	%
Corporate/Other	—	%	—	%	—	—	50,764		13.2	%	48,382		14.3	%	—		—		—	—	63,881			13.7	%	51,833			12.8	%
Reconciliations	—	%	—	%	—	—	6,049		1.6	%	2,107		0.6	%	—		—		—	—	(12,464		)	(2.7	)%	(7,013		)	(1.8	)%
Total	10.4	%	8.5	%	1,050	980	$	385,532	100	%	$	337,541	100	%	6.2	%	4.6	%	1,105	1,027	$	461,215		100.0	%	$	407,975		100.0	%
Adjusted comparable store sales growth⁽³⁾	8.8	%	9.1	%											6.7	%	4.6	%

~~There are two differences between total comparable store sales growth based on consolidated net~~ revenue, ~~and~~ adjusted comparable store sales growth: (i) adjusted comparable store sales growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 1.5% and an increase of 0.8% from total comparable store sales growth based on consolidated net revenue for the three months ended June 30, 2018 and July 1, 2017, respectively, and (ii) adjusted comparable store sales growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement), resulting in a decrease of 0.1% and 0.2%~~from total comparable store sales growth based on consolidated net revenue for the three months ended June 30, 2018 and July 1, 2017, respectively.~~

Total net revenue of $385.5 million for the three months ended June 30, 2018 increased $48.0 million, or 14.2%, from $337.5 million for the three months ended July 1, 2017. This increase was driven approximately 55% by comparable store sales growth, approximately 35% by new stores and approximately 10% by order volume in our AC Lens business within the corporate/other segment.

In the three months ended June 30, 2018, we opened 25 new stores, including 23 America’s Best stores and two Eyeglass World stores. Additionally, we closed one America’s Best store and one Eyeglass World store. Overall, store count grew 7.1% from July 1, 2017 to June 30, 2018 (71 net new America’s Best locations were added and one Military location was closed in the 12 months ended June 30, 2018). Comparable store sales growth and adjusted comparable store sales growth were 10.4% and 8.8% for the three months ended June 30, 2018, respectively. Comparable store sales growth and adjusted comparable store sales growth were primarily driven by increases in customer transactions and, to a lesser extent, average ticket. We believe the increases in net revenue and customer transactions were primarily due to execution of our key strategies, including new store maturation, advertising and expansion of our participation in managed care programs.

Net product sales increased $42.4 million, or 15.3%, in the three months ended June 30, 2018 compared to the three months ended July 1, 2017, driven primarily by eyeglass sales and, to a lesser extent, contact lens sales. Net sales of services and plans increased $5.5 million, or 9.1%, driven primarily by eye exam sales in our owned & host segment. The eye exam increase was driven primarily by expanding participation in managed care programs and our store growth. To a lesser extent, warranty program sales and Eyecare Club membership sales also contributed to the increase. The warranty program sales increase was driven by our America’s Best brand. The increase in Eyecare Club membership sales was primarily driven by the $0.5 million deferred revenue accounting change in the three months ended June 30, 2018 discussed in Note 6. “Revenue From Contracts With Customers” of our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

As a result of changes in applicable California law, certain optometrists employed by FirstSight were transferred to a professional corporation that contracts directly with our legacy segment in the third quarter of fiscal year 2017. This change led to an increase in legacy segment eye exam revenue and optometrist payroll costs of $1.1 million and $0.8 million, respectively, in the three months ended June 30, 2018 and July 1, 2017, respectively. A corresponding decrease was recorded in our FirstSight subsidiary within the corporate/other segment. Therefore, the change had no impact on consolidated income from operations. As of June 30, 2018, approximately half of the applicable optometrists have been transferred, and we expect the remaining half to be transferred in the fourth quarter of fiscal year 2018.

In addition, in connection with these changes in California law, effective October 1, 2017, FirstSight ceased the sale of vision managed care products in Walmart locations in California that are not operated by the Company. As a result, FirstSight net revenue and associated costs in the second quarter of fiscal year 2018 were both approximately $1.8 million lower than the second quarter of fiscal year 2017, and there was an immaterial impact on income from operations. In the balance of fiscal year 2018, we expect this change to negatively impact FirstSight net revenue and positively impact associated costs by approximately $1.8 million to $1.9 million in the third quarter, with an immaterial impact on income from operations.

~~Owned & host segment net revenue.~~ Net revenue for our owned & host segment grew $40.1 million, or 16.1%, due to comparable store sales growth and new store openings which increased sales across our key product categories. The growth was predominantly driven by performance in America’s Best and Eyeglass World.

~~Legacy segment net revenue.~~ Net revenue for our legacy segment grew $1.5 million, or 4.1%, primarily driven by $1.2 million in incremental eye exam sales, partially offset by lower customer transactions. The increased eye exam sales were primarily the result of changes to our FirstSight operations required by changes in applicable California law discussed above. The FirstSight operations changes resulted in a favorable impact of approximately 195 basis points in comparable store sales growth in the legacy segment.

~~Corporate/Other segment net revenue.~~ Net revenue in the corporate/other segment increased $2.4 million, or 4.9%, driven by unit growth in our AC Lens online retail business, partially offset by a $2.9 million reduction in sales as a result of the FirstSight operations changes discussed above.

~~Net revenue reconciliations.~~ Reconciliations include increases in deferred revenue of $1.0 million and $1.7 million, and decreases in unearned revenue of $7.1 million and $3.8 million for the three months ended June 30, 2018 and July 1, 2017, respectively. The accounting change described in Note 1. “Description of Business and Basis of Presentation” of our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q contributed to the lower increase in deferred revenue for the three months ended June 30, 2018 compared to the three months ended July 1, 2017, due to acceleration of deferred revenue amortization in the three months ended June 30, 2018. Deferred revenue for the three months ended June 30, 2018 was also driven by slower growth in our warranty program sales and Eyecare Club membership sales than other product categories. Differences between the change in unearned revenue for the three months ended June 30, 2018 and July 1, 2017 were primarily the result of differences in the average days for delivery and customer pick-up during those periods.

~~Costs applicable to revenue~~

Costs applicable to revenue of $177.1 million for the three months ended June 30, 2018 increased $20.7 million, or 13.2%, from $156.4 million for the three months ended July 1, 2017. As a percentage of net revenue, costs applicable to revenue decreased from 46.3% for the three months ended July 1, 2017 to 45.9% for the three months ended June 30, 2018. The decrease was primarily driven by a higher mix of eye exam sales as a result of our growing managed care business and, to a lesser extent, increased eyeglass sales mix, partially offset by increased optometrist costs in the three months ended June 30, 2018. The increased eyeglass sales mix was primarily driven by faster growth in our owned & host segment net revenue than other segments for the three months ended June 30, 2018 compared to the three months ended July 1, 2017. Our owned & host segment has a higher percentage of eyeglass net revenue than other segments.

~~Costs of products as a percentage of net product sales decreased from 40.6% for the three months ended July 1, 2017 to 40.0% for the three months ended June 30, 2018, primarily drivenby increased eyeglass sales as described above.~~

~~Owned & host segment costs of products.~~ In the owned & host segment, costs of products as a percentage of net product sales increased from 29.6% for the three months ended July 1, 2017 to 29.8% for the three months ended June 30, 2018. The increase was primarily driven by certain contact lens vendor price increases in the three months ended June 30, 2018.

~~Legacy segment costs of products.~~ In the legacy segment, costs of products as a percentage of net product sales decreased from 47.5% for the three months ended July 1, 2017 to 46.4% for the three months ended June 30, 2018. The decrease was primarily driven by increased eyeglass net revenue in the three months ended June 30, 2018 as a result of increased managed care business year-over-year. Legacy managed care net revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass costs for both managed care and non-managed care net revenue are recorded in costs of products. Changes in managed care customer mix have no impact on legacy segment EBITDA.

Costs of services and plans as a percentage of net sales of services and plans increased from 72.8% for the three months ended July 1, 2017 to 74.6% for the three months ended June 30, 2018. The increase was primarily driven by higher optometrist costs, partially offset by increased eye exam sales as a result of our growing managed care business. Optometrist costs increased as a result of store coverage in new markets and wage pressure in certain geographic markets.

~~Owned & host segment costs of services and plans.~~ Costs of services and plans as a percentage of net sales of services and plans in the owned & host segment increased from 80.2% for the three months ended July 1, 2017 to 81.7% for the three months ended June 30, 2018. The increase was driven by higher optometrist costs as described above, partially offset by increased eye exam sales as a result of our growing managed care business.

~~Legacy segment costs of services and plans.~~ In the legacy segment, costs of services and plans as a percentage of net sales of services and plans increased from 29.7% for the three months ended July 1, 2017 to 37.7% for the three months ended June 30, 2018. The increase was primarily driven by increased optometrist costs and, to a lesser extent, lower management fees, partially offset by increased eye exam sales. The higher optometrist costs and increased eye exam sales were both primarily the result of the FirstSight operations changes discussed in “—~~Net revenue”~~ ~~above. Management fees from our legacy segment declined due to the corresponding impact of the increased managed care business as described above.~~

~~Selling, general and administrative expenses~~

SG&A of $165.0 million for the three months ended June 30, 2018 increased $20.4 million, or 14.1%, from the three months ended July 1, 2017. As a percentage of net revenue, SG&A was 42.9% for the three months ended July 1, 2017 compared to 42.8% for the three months ended June 30, 2018. The decrease in SG&A as a percentage of net revenue was due to a decrease in store payroll as a percentage of net revenue partially offset by advertising expenses.

~~Owned & host SG&A.~~ In the owned & host segment, SG&A as a percentage of net revenue was 39.0% for the three months ended June 30, 2018 compared to 38.7% for the three months ended July 1, 2017, driven primarily by advertising expenses.

~~Legacy segment SG&A.~~ In the legacy segment, SG&A as a percentage of net revenue decreased from 35.8% for the three months ended July 1, 2017 to 34.3% for the three months ended June 30, 2018, driven primarily by lower payroll as a percentage of net revenue as well as advertising expenses. The decrease of lower payroll as a percentage of net revenue was related to the increase in legacy segment eye exam revenues from the FirstSight operations changes discussed in ~~“Net Revenue”~~ ~~above.~~

~~Depreciation and amortization~~

Depreciation and amortization expense of $17.3 million for the three months ended June 30, 2018 increased $2.7 million, or 18.6%, from $14.6 million for the three months ended July 1, 2017 primarily driven by new store openings, as well as investments in optical laboratories, distribution centers and information technology infrastructure, including omni-channel platform related investments. Our property and equipment balance, net, increased $17.1 million, or 5.5%, during the three months ended June 30, 2018, reflective of $26.2 million in purchases of property and equipment, $6.4 million in new capital leases, less $15.3 million in depreciation expense and $0.2 million in other adjustments. New assets are out-pacing retirements, therefore, we expect continued increases in depreciation expense for the foreseeable future as we continue to execute our growth strategy.

~~Interest expense, net~~

Interest expense, net, of $9.4 million for the three months ended June 30, 2018 decreased $5.2 million, or 35.5%, from $14.6 million for the three months ended July 1, 2017. Interest expense decreased $4.5 million resulting from the payoff of our $125.0 million second lien term loans and $235.0 million in outstanding amount of our first lien term loans, during the fourth quarter of fiscal year 2017. An additional decrease of $0.6 million resulted from a reduction of deferred debt cost amortization, and corresponding reduction of discounts, related to repayment of outstanding debt in connection with our initial public offering (the “IPO”) during the fourth quarter of fiscal year 2017. These reductions were partially offset with $0.3 million in additional interest expense relating to capital leases obligations during the three months ended June 30, 2018.

~~Income tax provision~~

Our quarterly effective income tax rate (“ETR”) was 20.1% and (76.0)% for three months ended June 30, 2018 and July 1, 2017, respectively. The ETR of 20.1% for the three months ended June 30, 2018 reflected the reduced federal statutory rate from 35% to 21% as part of the Tax Cuts and Jobs Act of 2017, effective for tax years beginning on or after January 1, 2018. During the three months ended June 30, 2018, our expected combined statutory federal and state rate was reduced 8.4% by a $1.4 million income tax benefit resulting from stock option exercises. Other items aggregated to $0.3 million or 2.1% increase in the rate for the period.

~~Six Months Ended June 30, 2018 compared to Six Months Ended July 1, 2017~~

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the six months ended June 30, 2018 compared to the six months ended July 1, 2017.

Comparable store sales growth⁽¹⁾
Stores open at end of period
Net revenue⁽²⁾
In thousands, except percentage and store data Six Months Ended
June 30, 2018 Six Months Ended
July 1, 2017 June 30, 2018 July 1, 2017 Six Months Ended
June 30, 2018 Six Months Ended
July 1, 2017
Owned & host segment
America’s Best 7.2 % 9.3 % 630
559
$ 503,482
63.5 % $ 438,837
62.0 %
Eyeglass World 7.8 % 6.3 % 108
108
85,887
10.8 % 77,653
11.0 %
Military (1.1 )% (7.1 )% 56
57
13,024
1.6 % 13,089
1.9 %
Fred Meyer 5.6 % (3.4 )% 29
29
7,617
1.0 % 7,208
1.0 %
Owned & host segment total 823
753
$ 610,010
76.9 % $ 536,787
75.9 %
Legacy segment 3.8 % (1.1 )% 227
227
81,864
10.3 % 79,301
11.2 %
Corporate/Other — % — % —
—
102,597
12.9 % 96,114
13.6 %
Reconciliations — % — % —
—
(964 ) (0.1 )% (4,802 ) (0.7 )%
Total 7.5 % 7.0 % 1,050
980
$ 793,507
100 % $ 707,400
100 %
Adjusted comparable store sales growth⁽³⁾
6.5 % 6.5 %

Total net revenue of ~~$793.5~~$461.2 million for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 increased ~~$86.1~~$53.2 million, or ~~12.2%~~13.0%, from ~~$707.4~~$408.0 million for the ~~six~~three months ended ~~July 1, 2017.~~March 31, 2018. This increase was driven approximately ~~45%~~50% by comparable store sales growth, approximately ~~45%~~40% by new stores and approximately 10% by order volume in our AC Lens business within the ~~corporate/other~~Corporate/Other segment.

In the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, we opened 4026 new stores, including ~~38 new~~24 America’s Best stores and two Eyeglass World stores. Additionally, we closed two America’s Best stores and one Eyeglass World store. Overall, store count grew ~~7.1%~~7.6% from ~~July 1, 2017~~March 31, 2018 to ~~June~~March 30, ~~2018~~2019 (71 and nine net new America’s Best and Eyeglass World locations were added, respectively, and ~~one~~two Military ~~location was~~locations were closed induring the ~~12 months ended June 30, 2018)~~same period). Comparable store sales growth and adjusted comparable store sales growth were ~~7.5%~~6.2% and ~~6.5%~~6.7% for the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, respectively. Comparable store sales growth and adjusted comparable store sales growth were driven primarily by increases in average ticket and customer ~~transactions and, to a lesser extent, average ticket.~~transactions. We believe the increases in net revenue and customer transactions were primarily due to execution of our key strategies, including new store openings and maturation, advertising and expansion of our participation in managed care ~~programs.~~programs as well as our recently expanded role in our contact lens distribution relationship with Walmart.

Net product sales comprised 83.1% and 83.0% of total net revenue for the three months ended March 30, 2019 and March 31, 2018, respectively. Net product sales increased ~~$74.6~~$44.4 million, or ~~12.8%~~13.1%, in the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 compared to the ~~six~~three months ended ~~July 1, 2017,~~March 31, 2018, driven primarily by eyeglass sales and, to a lesser extent, unit growth in our AC Lens business from the recently expanded role in the contact lens distribution relationship with Walmart and contact lens sales. Net sales of services and plans increased ~~$11.5~~$8.9 million, or ~~9.3%~~12.8%, driven primarily by eye exam sales in our owned & host segment. The eye exam increase was driven primarily by expanding participation in managed care programs and our store growth. To a lesser extent, warranty program sales and Eyecare Club membership sales also contributed to the increase. The warranty program sales increase was driven by our America’s Best brand. The increase in Eyecare Club membership sales was primarily driven by the $1.4 million deferred revenue accounting change in the six months ended June 30, 2018 discussed in Note 6. “Revenue From Contracts With Customers” of our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

As a result of changes in applicable California law, certain optometrists employed by FirstSight were transferred to a professional corporation that contracts directly with our legacy segment in the ~~third~~fourth quarter of fiscal year 2018, similar to optometrist transfers that occurred in the third quarter of 2017. This completed the transfer of optometrists from FirstSight to our legacy segment. This change led to an increase in legacy segment eye exam revenue and optometrist payroll costs of ~~$2.3~~$1.0 million and ~~$1.6~~$0.9 million, respectively, in the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. A corresponding decrease was recorded in our FirstSight subsidiary within the ~~corporate/other~~Corporate/Other segment. Therefore, the change had no impact on consolidated income from operations. ~~As of June 30, 2018, approximately half of the applicable optometrists have been transferred, and we expect the remaining half to be transferred in the fourth quarter of fiscal year 2018.~~

In addition, in connection with these changes in California law, effective October 1, 2017, FirstSight ceased the sale of vision managed care products in Walmart locations in California that are not operated by the Company. As a result, FirstSight net revenue and associated costs in the six months ended June 30, 2018 were both approximately $3.6 million lower than the six months ended July 1, 2017, and there was an immaterial impact on income from operations. In the balance of fiscal year 2018, we expect this change to negatively impact FirstSight net revenue and positively impact associated costs by approximately $1.8 million to $1.9 million in the third quarter, with an immaterial impact on income from operations.

Owned & ~~host~~Host segment net revenue. Net revenue ~~for our owned & host segment~~ increased ~~$73.2~~$44.8 million, or ~~13.6%~~14.0%, due to comparable store sales growth and new store openings which increased sales across our key product categories. The growth was predominately driven by performance in America’s Best and Eyeglass World.

Legacy segment net revenue. Net revenue ~~for our legacy segment~~ grew ~~$2.6~~$1.8 million, or ~~3.2%~~4.3%, primarily driven by ~~$2.5 million in incremental~~higher eye exam sales ~~partially offset by lower customer transactions.~~and an increase in average ticket. The increased eye exam sales were primarily the result of changes to our FirstSight operations required by changes in applicable California law discussed above. The FirstSight operations changes resulted in a favorable impact of approximately ~~200~~185 basis points in comparable store sales ~~growth in the legacy segment.~~growth.

Corporate/Other segment net revenue. Net revenue ~~in the corporate/other segment~~ increased ~~$6.5~~$12.0 million, or ~~6.7%~~23.2%, driven by unit growth in our AC Lens business from the recently expanded role in the contact lens distribution relationship with Walmart and our online retail business, ~~and, to a lesser extent, unit growth in our wholesale order fulfillment business,~~which was partially offset by a ~~$5.9~~$1.0 million reduction in sales as a result of the FirstSight operations changes discussed above.

Net revenue reconciliations. Reconciliations include increases in deferred revenue of ~~$5.3~~$4.7 million and ~~$7.6~~$4.3 million, in the owned & host segment, and ~~decreases~~increases in unearned revenue of ~~$4.3~~$7.8 million and ~~$2.8~~$2.7 million in the owned & host and legacy segments for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively. The accounting change described in Note 1. “Description of Business and Basis of Presentation” of our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q contributed to the lower increase in deferred revenue for the ~~six~~three months ended ~~June~~March 30, 2018 compared to the six months ended July 1, 2017, due to acceleration of deferred revenue amortization in the six months ended June 30, 2018. Deferred revenue for the six months ended June 30, 20182019 was ~~also~~ driven by ~~slower~~ growth in our ~~warranty program sales and~~ Eyecare Club membership sales, ~~than other~~and to a lesser extent, product ~~categories.~~protection plans.

Differences between the ~~change~~increases in unearned revenue for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 were primarily the result of calendar influences on ~~cash basis~~ sales of prescription eyewear in our stores during the last ~~few~~week to 10 days of the ~~respective quarter, and differences in the average days for delivery and customer pick-up during those periods.~~preceding quarters. Unearned revenue was higher in December ~~2016~~2017 compared to December ~~2017~~2018 due to ~~an extra~~ sales ~~day~~volume differences caused by shifts in the ~~2016 period as a result~~number of selling days after December 25. The higher opening balance for the ~~timing of the Christmas holiday. The combination of these factors~~quarter ended March 31, 2018 resulted in ~~an overall~~a lower increase in unearned revenue ~~growth in~~during the ~~six~~prior year than for the three months ended ~~June~~March 30, ~~2018 when compared to the six months ended July 1, 2017.~~2019.

Costs applicable to revenue

Costs applicable to revenue of ~~$357.5~~$212.0 million for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 increased ~~$35.3~~$31.5 million, or ~~11.0%~~17.5%, from ~~$322.2~~$180.5 million for the ~~six~~three months ended ~~July 1, 2017.~~March 31, 2018. As a percentage of net revenue, costs applicable to revenue ~~decreased~~increased from ~~45.5%~~44.2% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~45.1%~~46.0% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The ~~decrease~~increase was primarily driven by our growing AC Lens business and increased optometrist costs, partially offset by a higher mix of eye exam sales as a result of our growing managed care business ~~and a $2.3 million inventory write-off in~~during the ~~six~~three months ended ~~July 1, 2017, partially offset by increased optometrist costs in the six months ended June~~March 30, ~~2018.~~2019.

Costs of products as a percentage of net product sales ~~decreased~~increased from ~~40.0%~~38.6% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~39.3%~~40.2% for the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, driven ~~by the $2.3 million inventory write-off and the impact of legacy managed care business as further described below, partially offset~~ by our growing AC Lens business. The inventory write-off recorded in our corporate/other segment in the six months ended July 1, 2017 was related to slow-moving contact lens inventory which had expired or would expire prior to possible sale. No such write-off was recorded in the six months ended June 30, 2018. Our AC Lens net revenue grew ~~slightly~~ faster than our store brands in the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, and AC Lens had a higher cost of products as a percentage of net revenue than our other businesses.

Owned & ~~host~~Host segment costs of products. ~~In the owned & host segment, costs~~Costs of products as a percentage of net product sales ~~was 29.1%~~increased from 28.3% for the ~~six~~three months ended ~~July 1, 2017 compared~~March 31, 2018 to ~~29.0%~~28.7% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The increase was primarily driven by increased contact lens costs and a lower mix of eyeglass sales.

Legacy segment costs of products. ~~In the legacy segment, costs~~Costs of products as a percentage of net product sales ~~decreased~~increased from ~~47.3%~~44.3% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~45.3%~~46.9% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The ~~decrease~~increase was ~~primarily~~ driven by increased contact lens costs combined with lower eyeglass ~~net revenue in the six months ended June 30, 2018~~margins, partially offset by eyeglass sales mix as a result of increased managed care ~~business year-over-year and the one-time sale of contact lens inventory at cost to our legacy partner in the six months ended July 1, 2017.~~transactions. Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. ~~Changes~~Increases in managed care ~~customer~~ mix have noimproved product margins and had a corresponding negative impact on service margins in our legacy ~~segment EBITDA.~~segment.

Costs of services and plans as a percentage of net sales of services and plans increased from ~~71.8%~~71.6% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~73.1%~~74.3% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The increase was primarily driven by higher optometrist costs, partially offset by increased eye exam sales as a result of ~~our growing~~increased managed care ~~business.~~transactions. Optometrist costs increased as a result of planned increases in store coverage ~~in new markets~~ and, to a lesser extent, wage pressure in certain geographic markets.

Owned & ~~host~~Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans ~~in the owned & host segment~~ increased from ~~75.8%~~74.3% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~77.8%~~75.6% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The increase was driven by higher optometrist costs as described above, partially offset by increased eye exam sales as a result of ~~our growing~~increased managed care ~~business.~~transactions, since eye exams purchased by managed care customers are excluded from our signature two-pair offer at our America’s Best brand, and are therefore recorded as services revenue.

Legacy segment costs of services and plans. ~~In the legacy segment, costs~~Costs of services and plans as a percentage of net sales of services and plans increased from ~~29.3%~~36.4% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~37.0%~~43.6% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The increase was primarily driven by increased optometrist costs and ~~to a lesser extent,~~ lower management fees, partially offset by increased eye exam sales. The higher optometrist costs and increased eye exam sales were both primarily the result of the FirstSight operations changes discussed in “Net revenue” above. ~~Management~~Additionally, management fees ~~from our legacy segment~~ declined due to the corresponding impact of ~~the~~ increased managed care ~~business~~transactions, since revenue from managed care transactions are recorded in net sales of products as described above.

Selling, general and administrative expenses

SG&A of ~~$335.1~~$193.9 million for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 increased ~~$40.7~~$23.2 million, or ~~13.8%~~13.6%, from the ~~six~~three months ended ~~July 1, 2017.~~March 31, 2018. As a percentage of net revenue, SG&A increased from ~~41.6%~~41.8% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~42.2%~~42.0% for the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. The increase in SG&A as a percentage of net revenue was primarily ~~driven~~due to non-recurring management realignment and associated stock compensation expenses and performance-based incentive compensation, partially offset by ~~advertising expenses.~~

increased net revenue from our AC Lens contact lens distribution relationship with Walmart, store payroll leverage and secondary public offering expenses incurred during the three months ended March 31, 2018 not recurring during the three months ended March 30, 2019.

Owned & ~~host~~Host SG&A. InSG&A as a percentage of net revenue decreased from 37.0% for the ~~owned & host~~three months ended March 31, 2018 to 36.5% for the three months ended March 30, 2019, driven primarily by store payroll leverage.

Legacy segment SG&A. SG&A as a percentage of net revenue increased from ~~37.3%~~31.5% for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 to ~~37.8%~~31.9% for the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, driven ~~primarily~~ by ~~advertising expenses.~~

~~Legacy segment SG&A.~~ ~~In the legacy segment, SG&A as a percentage of net revenue was 33.0%~~an increase in legal and professional fees associated with increasing managed care transactions, increases in expense associated with leasing space for the ~~six months ended July 1, 2017 compared~~provision of vision care services, and to ~~32.9% for the six months ended June 30, 2018.~~a lesser extent, increased advertising, partially offset by store payroll leverage.

Depreciation and amortization

Depreciation and amortization expense of ~~$35.0~~$20.4 million for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 increased ~~$5.9~~$2.6 million, or ~~20.5%~~14.3%, from ~~$29.1~~$17.9 million for the ~~six~~three months ended ~~July 1, 2017~~March 31, 2018 primarily driven by new store openings, as well as investments in optical laboratories, distribution centers and information technology ~~infrastructure.~~infrastructure, including omni-channel platform related investments. Beginning in 2015, we accelerated our unit growth to approximately 75 new stores annually. We also invested in more efficient lab and IT technology to support our growth. Many of these incremental investments have depreciable lives in the five to eight year categories; therefore, we expect depreciation expense to continue to outpace revenue growth over the next few years. In recent years, a higher percentage of our new store leases were deemed to be finance leases, further increasing depreciation expense on finance lease assets. Our property and equipment balance, net, increased ~~$23.9~~$9.5 million, or ~~7.9%~~2.7%, during the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, reflective of ~~$47.1~~$26.0 million in purchases of property and equipment, ~~$7.8~~$7.3 million in new ~~capital~~finance leases, less ~~$30.8~~$18.4 million in depreciation expense and ~~$0.2~~$4.7 million in impairment and other adjustments. ~~New assets are out-pacing retirements, therefore, we expect continued increases in depreciation expense for the foreseeable future as we continue to execute our growth strategy.~~

Interest expense, net

Interest expense, net, of ~~$18.7~~$9.1 million for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 decreased ~~$7.4~~$0.3 million, or ~~28.2%~~2.7%, from ~~$26.1~~$9.3 million for the ~~six~~three months ended ~~July 1, 2017.~~March 31, 2018. Interest expense decreased ~~$8.9~~$0.7 million ~~resulting~~ from the ~~payoff~~October 9, 2018 refinancing impact of ~~our $125.0 million second lien term loans~~applicable margins and ~~$235.0 million in outstanding amount of our first lien term loans,~~the credit rating upgrades received during the ~~fourth~~third quarter of fiscal year 2017, partially offset by approximately $2.2 million in interest paid to counterparties associated with our derivative cash flow hedges which became effective in March 2017, but were in effect for2018 and the full six months ended June 30, 2018. An additional decrease of $1.2 million interest expense resulted from the reduction of deferred debt cost amortization, and corresponding reduction of discounts, related to repayment of outstanding debt in connection with our IPO during the fourthfirst quarter of ~~fiscal year 2017.~~2019. These reductions were partially offset ~~with an increase of $0.5~~by $0.6 million in additional interest expense relating to ~~capital~~finance lease obligations during ~~the six~~three months ended ~~June~~March 30, ~~2018.~~2019.

Income tax provision

Our ~~ETR was 18.4% and 36.9%~~income tax expense for the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 reflected income tax expense at our statutory federal and ~~July 1, 2017, respectively. The favorable change in~~state rate of 25.7%, offset by a discrete benefit of $0.2 million associated primarily with the ~~year to date ETR for~~exercise of stock options. During the ~~six~~three months ended June 30, 2018 was due to the reduced federal statutory rate from 35% to 21% as part of the Tax Cuts and Jobs Act of 2017, effective for tax years beginning on or after January 1, 2018. During the six months ended June 30,March 31, 2018, our expected combined statutory federal and state rate was reduced ~~8.7%~~ by a ~~$4.1~~$2.7 million income tax benefit resulting from stock option exercises. ~~Other items aggregated to $0.5 million, an increase in ETR of 1.1%, in the same period.~~

Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income

We define EBITDA as net income, plus interest expense, income tax provision and depreciation and amortization. We define Adjusted EBITDA as EBITDA, further adjusted to exclude stock compensation expense, ~~costs associated with debt refinancing,~~ asset impairment, ~~non-cash inventory write-offs, management fees,~~ new store pre-opening expenses, non-cash rent, ~~litigation settlement,~~ secondary offering expenses, management realignment expenses and other expenses. We describe these adjustments reconciling net income to EBITDA and Adjusted EBITDA in the tables ~~below.We~~below. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total net revenue. We define Adjusted Net Income as net income, ~~plus~~further adjusted to exclude stock compensation expense, ~~costs associated with debt refinancing,~~ asset impairment, ~~non-cash inventory write-offs, management fees,~~ new store pre-opening expenses, non-cash rent, ~~litigation settlement,~~ secondary offering expenses, management realignment expenses and other expenses, amortization of acquisition intangibles and deferred financing costs, ~~and other expenses,~~the tax benefit of stock option exercises ~~less~~and the tax effect of these adjustments. We describe these adjustments reconciling net income to Adjusted Net Income in the tables below.

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We also use EBITDA, Adjusted EBITDA, , Adjusted EBITDA Margin and Adjusted Net Income to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income are not recognized terms under GAAP and should not be considered as an alternative to net income or income from operations as a measure of financial performance or cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. In evaluating EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on our GAAP results in addition to using EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income supplementally.

The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Because of these limitations, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table reconciles our net income to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income for the periods presented:

Three Months Ended Six Months Ended
In thousands June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Net income (loss) $ 13,077
3.4% $ (1,496 ) (0.4)% $ 38,124
4.8% $ 15,574
2.2%
Interest expense 9,424
2.4% 14,622
4.3% 18,737
2.4% 26,114
3.7%
Income tax provision 3,292
0.9% 646
0.2% 8,575
1.1% 9,104
1.3%
Depreciation and amortization 17,346
4.5% 14,629
4.3% 35,000
4.4% 29,052
4.1%
EBITDA 43,139
11.2% 28,401
8.4% 100,436
12.7% 79,844
11.3%

Stock compensation expense ^(a)
1,524
0.4% 885
0.3% 3,120
0.4% 1,989
0.3%
Debt issuance costs ^(b)
—
—% —
—% —
—% 2,702
0.4%
Asset impairment ^(c)
—
—% 1,000
0.3% —
—% 1,000
0.1%
Non-cash inventory write-offs ^(d)
—
—% 256
0.1% —
—% 2,271
0.1%
Management fees ^(e)
—
—% 290
0.1% —
—% 574
0.1%
New store pre-opening expenses ^(f)
756
0.2% 660
0.2% 1,230
0.2% 1,278
0.2%
Non-cash rent ^(g)
508
0.1% 296
0.1% 808
0.1% 654
0.1%
Litigation settlement ^(h)
—
—% 7,000
2.1% —
—% 7,000
1.0%
Secondary offering expenses ⁽ⁱ⁾
177
—% —
—% 1,140
0.1% —
1.0%
Other ^(j)
726
0.2% 831
0.2% 1,185
0.3% 1,213
0.2%
Adjusted EBITDA/ Adjusted EBITDA Margin $ 46,830
12.1% $ 39,619
11.7% $ 107,919
13.6% $ 98,525
13.9%
Note: Percentages reflect line item as a percentage of net revenue



	Three Months Ended
In thousands	March 30, 2019			March 31, 2018
Net income	$	17,429	3.8%	$	24,455	6.0%
Interest expense	9,061		2.0%	9,313		2.3%
Income tax provision	5,910		1.3%	5,080		1.2%
Depreciation and amortization	20,415		4.4%	17,862		4.4%
EBITDA	52,815		11.5%	56,710		13.9%

Stock compensation expense ^(a)	2,976		0.6%	1,596		0.4%
Asset impairment ^(b)	2,082		0.5%	—		—%
New store pre-opening expenses ^(c)	885		0.2%	474		0.1%
Non-cash rent ^(d)	1,198		0.3%	528		0.1%
Secondary offering expenses ^(e)	—		—%	963		0.2%
Management realignment expenses^(f)	2,155		0.5%	—		—%
Other ^(g)	1,192		0.3%	459		0.1%
Adjusted EBITDA/ Adjusted EBITDA Margin	$	63,303	13.7%	$	60,730	14.9%
Note: Percentages reflect line item as a percentage of net revenue

Three Months Ended Six Months Ended
In thousands June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
Net income (loss) $ 13,077
$ (1,496 ) $ 38,124
$ 15,574
Stock compensation expense ^(a)
1,524
885
3,120
1,989
Debt issuance costs ^(b)
—
—
—
2,702
Asset impairment ^(c)
—
1,000
—
1,000
Non-cash inventory write-offs ^(d)
—
256
—
2,271
Management fees ^(e)
—
290
—
574
New store pre-opening expenses ^(f)
756
660
1,230
1,278
Non-cash rent ^(g)
508
296
808
654
Litigation settlement ^(h)
—
7,000
—
7,000
Secondary offering expenses ⁽ⁱ⁾
177
—
1,140
—
Other ^(j)
726
831
1,185
1,213
Amortization of acquisition intangibles and deferred financing costs ^(k)
2,281
2,885
4,562
5,744
Tax benefit of stock option exercises ^(l)
(1,371 ) —
(4,066 ) —
Tax effect of total adjustments ^(m)
(1,528 ) (5,641 ) (3,083 ) (9,770 )
Adjusted Net Income $ 16,150
$ 6,966
$ 43,020
$ 30,229



	Three Months Ended
In thousands	March 30, 2019			March 31, 2018
Net income	$	17,429		$	24,455
Stock compensation expense ^(a)	2,976			1,596
Asset impairment ^(b)	2,082			—
New store pre-opening expenses ^(c)	885			474
Non-cash rent ^(d)	1,198			528
Secondary offering expenses ^(e)	—			963
Management realignment expenses^(f)	2,155			—
Other ^(g)	1,192			459
Amortization of acquisition intangibles and deferred financing costs ^(h)	2,258			2,281
Tax benefit of stock option exercises ⁽ⁱ⁾	(230		)	(2,695		)
Tax effect of total adjustments ^(j)	(3,263		)	(1,613		)
Adjusted Net Income	$	26,682		$	26,448

Tax benefit associated with accounting guidance adopted at the beginning of fiscal year 2017 (Accounting Standards Update 2016-09, Compensation - Stock Compensation), requiring excess tax benefits to be recorded in earnings as discrete items in the reporting period in which they occur.

Liquidity and Capital Resources

We principally rely on cash flows from operations as our primary source of liquidity and, if needed, up to $100.0 million in revolving loans under our revolving credit facility. Our primary cash needs are for inventory, payroll, store rent, capital expenditures associated with new stores and updating existing stores, as well as information technology and infrastructure, including our corporate office, distribution centers, and laboratories. The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred revenue and other payables and accrued expenses. Due to the seasonality of ~~our~~when we recognize revenue, any borrowings would generally occur in the fourth or first quarters as we prepare for our peak season, which is the first quarter. We believe that cash expected to be generated from operations and the availability of borrowings under the revolving credit facility will be sufficient for our working capital requirements, liquidity obligations, anticipated capital expenditures, and payments due under our existing credit facilities for at least the next 12 months.

As of ~~June~~March 30, ~~2018,~~2019, we had ~~$34.6~~$72.5 million in cash and cash equivalents and $94.5 million of ~~additional~~ availability under our revolving credit facility, which reflects $5.5 million in outstanding letters of credit.

We ~~spent $48.7~~purchased $26.0 million in capital ~~expenditures~~items in the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019. Approximately 80% of our ~~planned~~ capital ~~expenditures are~~spend is related to our expected growth (i.e., new stores, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments). We plan on opening approximately 75 stores during fiscal year ~~2018~~2019 (inclusive of the 4026 new stores opened through ~~June~~March 30, ~~2018)~~2019). Our working capital requirements for inventory will increase as we continue to open additional stores. We primarily fund our working capital needs using cash provided by operations.

The following table summarizes ~~the net~~ cash ~~provided by (used for)~~flows from operating activities, investing activities and financing activities for the periods indicated:

Net Cash Provided by Operating Activities

~~Net cash provided by~~Cash flows from operating activities ~~consists~~increased $5.2 million from $77.8 million during the three months ended March 31, 2018 to $83.0 million for the three months ended March 30, 2019. Net income decreased $7.0 million, primarily ~~of net income adjusted for~~due to an increase in non-cash expense items, ~~including~~such as depreciation and amortization, ~~deferred income taxes, non-cash~~asset impairment, and stock ~~option~~based compensation ~~non-cash inventory adjustments, bad debt expense, and changes in operating assets and liabilities.~~

Net cash provided by operating activities increased $12.2 million, or 18.0%, during the six months ended June 30, 2018 compared to the six months ended July 1, 2017. Net cash provided by operating activities was $80.1 million for the six months ended June 30, 2018, which consistedexpense. The impact of ~~non-cash items of $52.8 million, $38.1 million of~~reduced net income ~~offset by~~combined with an increase in non-cash expense items was an increase to cash of $2.0 million.

Decreases in net working capital and other assets and liabilities ~~of $10.8 million. Net~~contributed $3.3 million in cash ~~provided by operating activities was $67.9 million for~~compared to the ~~six~~three months ended ~~July 1, 2017, as non-cash items of $52.1~~March 31, 2018. Increases in other liabilities contributed $8.8 million ~~were combined with $15.6 million of net income~~in year-over-year cash, primarily related to increases in accruals for payroll and ~~a decrease~~incentive related items. Decreases in ~~net working capital and~~ other assets contributed $6.3 million in year-over-year cash, primarily the result of decreases in pre-paid advertising and ~~liabilities~~rent-related items. Decreases in inventory contributed $5.8 million in year-over-year cash, primarily related to the sell down of ~~$0.2 million.~~late 2018 forward buys.

~~The increase~~Off-setting these items was a $9.7 million reduction in ~~net working capital and other assets and liabilities during the six months ended June 30, 2018 was primarily due~~year-over-year cash related to increases in accounts receivable balances, reflective of $5.2 million, inventories of $5.1 million, and other assets of $0.6 million, and decreases in accounts payable of $2.9 million and accrued expenses and other liabilities of $2.2 million. These changes were partially offset by an increase in deferred revenues of $5.3 million. Decreases in accounts payable reflect the timing of payments. Increases in inventory are generally expected each period, and reflect our growth in sales of products, including product replenishment needs at existing stores and inventory needed to outfit new stores. Increases in accounts receivable, deferred revenue and other assets are generally expected each period due to net revenue growth and overallyear-over-year increases in the ~~size~~growth of ~~consolidated operations. We opened 40 new stores~~our participation in managed care programs, increases in our contact lens distribution business with other major retailers, and increases in receivables for tenant improvements. Additionally, use of cash to pay-down accounts payable during the ~~six months ended June 30, 2018, with three closures.~~

~~The decrease in net working capital and other assets and liabilities during~~quarter was $9.0 million more than the ~~six months ended July 1, 2017 was~~prior year quarter, primarily due to increases in deferred revenues of $7.6 million and accrued expenses and other liabilities of $8.4 million ($7.0 million of which was the litigation settlement on the 1-800 Contacts Matter), and a decrease in other assets of $1.8 million, offset by increases in accounts receivable of $6.4 million and inventories of $6.2 million and a decrease in accounts payable of $5.0 million. Liabilities for deferred and unearned revenues represent cash basis sales that are deferred until we meet our performance obligations to deliver products and provide services. Increases in deferred and unearned revenues are consistent with increased overall net revenue resulting from new stores and positive comparable store sales growth. Increases in accrued expenses and other liabilities is reflective of our growth as new stores are added monthly. We opened 40 new stores during the six months ended July 1, 2017, with three closures. Increases in accounts receivable and inventories are reflective of our growth as new stores were added. Decrease in accounts payable primarily reflect timing of payments to vendors.timing.

Net Cash Used for Investing Activities

Net cash used for investing activities increased by ~~$4.4~~$3.1 million, to ~~$48.6~~$25.8 million, during the ~~six~~three months ended ~~June~~March 30, ~~2018~~2019 from ~~$44.1~~$22.7 million during the ~~six~~three months ended ~~July 1, 2017.~~March 31, 2018. The change in cash used for investing activities ~~included an increase of $4.5 million in~~were due to purchases of property and equipment to support our store growth, including new stores, improvements to our optical laboratories and distribution centers, and continued development of our IT infrastructure.

Net Cash Used ~~for~~For Financing Activities

Net cash used for financing activities ~~decreased by $2.5~~increased $1.1 million, from $0.3 million to ~~$0.9~~$1.4 million during the ~~six~~three months ended ~~June~~March 30, ~~2018 from $3.5 million during the six months ended July 1, 2017.~~2019. The ~~primary drivers of the overall~~change in cash ~~used for~~provided by financing activities ~~were quarterly principal payments required under our first lien credit agreement. We paid $2.9~~was primarily due to lower net proceeds of $1.0 million and $4.2 million in principal payments during the six months ended June 30, 2018 and July 1, 2017, respectively. Additionally, we paid $0.8 million and $0.4 million in capital lease obligations during the six months ended June 30, 2018 and July 1, 2017, respectively. We received $3.5 million and $1.1 million in proceeds related tofrom the exercise of stock options ~~during~~for the three months ended ~~June~~March 30, ~~2018 and July 1, 2017, respectively. This was partially offset by purchases of treasury stock in~~2019 as compared to the ~~amount of $0.9 million during the six~~three months ended ~~June 30,~~March 31, 2018. ~~No purchases of treasury stock occurred during the six months ended July 1, 2017.~~

Off-balance Sheet Arrangements

We follow U.S. GAAP in making the determination as to whether or not to record an asset or liability related to our arrangements with third parties. Consistent with current accounting guidance, we do not record an asset or liability associated with ~~operating leases or with~~ long-term marketing and promotional ~~commitments.~~commitments, or commitments to philanthropic endeavors. We have disclosed the amount of future commitments associated with these items in our fiscal year 2018 annual consolidated financial ~~statements.~~statements filed on the Form 10-K. We ~~are~~were not a party to any other off-balance sheet arrangements during the ~~six~~three months ended ~~June~~March 30, ~~2018.~~2019.

Contractual Obligations

During the ~~six~~three months ended ~~June~~March 30, ~~2018,~~2019, there were no material changes outside the ordinary course of business in our contractual obligations and commercial commitments from those reported as of December ~~30, 2017~~29, 2018 in the Annual Report.

Critical Accounting Policies and Estimates

Management has evaluated the accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements and related notes and believe those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Annual Report dated December ~~31, 2017,~~29, 2018, in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Annual Report, except for the adoption of Accounting Standards Update (“ASU”) No. ~~2014-09,~~2016-02, ~~Revenue from Contracts with Customers~~ ~~andASU No. 2016-18,~~ ~~Restricted Cash~~Leases discussed in Note 1. “Description of Business and Basis of Presentation” of our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

Adoption of New Accounting Pronouncements

The information set forth in Note 1. “Description of Business and Basis of Presentation” to our unaudited condensed consolidated financial statements under Part I. Item 1. under the heading “Adoption of New Accounting Pronouncements” of this Form 10-Q is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have market risk exposure from changes in interest rates. ~~We, when~~When appropriate, we use derivative financial instruments to mitigate the risk from such exposure. A discussion of our accounting policies for derivative financial instruments is included in Note 3. “Fair Value Measurement of Financial Assets and Liabilities,” to our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.



Delaware (State or other jurisdiction of incorporation or organization)		~~46‑~~46��4841717 (I.R.S. Employer Identification No.)

2435 Commerce Ave, Building 2200 Duluth, Georgia (Address of principal executive offices)		30096 (Zip Code) Not Applicable (Former name, former address and former fiscal year, if changed since last report)

(770) 822‑3600 (Registrant’s telephone number, including area code)



Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer ~~(Do not check if a smaller reporting company)~~	☒☐	Smaller reporting company Emerging growth company	☐ ☐



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	EYE	Nasdaq



			Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			3
Part I – Financial Information			5
	Item 1.	Financial Statements (Unaudited)	5
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Operations and Comprehensive Income	6
		Condensed Consolidated Statements of Shareholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	78
		Notes to Condensed Consolidated Financial Statements	89
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2322
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4137
	Item 4.	Controls and Procedures	4237
Part II – Other Information			4438
	Item 1.	Legal Proceedings	4438
	Item 1A.	Risk Factors	4438
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4438
	Item 3.	Defaults Upon Senior Securities	4439
	Item 4.	Mine Safety Disclosures	4439
	Item 5.	Other Information	4439
	Item 6.	Exhibits	4540
		Signatures	4741


	Three Months Ended						Six Months Ended						Three Months Ended
In thousands	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018
Cash flow hedging activity
Cash flow hedging activity:
Balance at beginning of period	$	(5,244	)	$	(14,760	)	$	(9,868	)	$	(14,556	)	$	(2,810	)	$	(9,868	)
Other comprehensive income (loss) before reclassification	1,749			(2,645		)	5,842			(3,580		)	(2,188		)	4,093
Tax effect of other comprehensive (loss) income before reclassification	(449		)	1,092			(1,497		)	1,450
Amount reclassified from AOCL	1,610			2,896			3,733			3,501
Tax effect of amount reclassified from AOCL	(412		)	(1,188		)	(956		)	(1,420		)
Tax effect of other comprehensive income (loss) before reclassification													561			(1,048		)
Amount reclassified from AOCL into interest expense													915			2,123
Tax effect of amount reclassified from AOCL into interest expense													(235		)	(544		)
Net current period other comprehensive income (loss), net of tax	2,498			155			7,122			(49		)	(947		)	4,624
Balance at end of period	$	(2,746	)	$	(14,605	)	$	(2,746	)	$	(14,605	)	$	(3,757	)	$	(5,244	)



Options issued and outstanding	Rollover ⁽¹⁾		Service-Based		Performance-Based		Total
Balance, December 30, 2017	169,049		3,822,915		6,524,152		10,516,116
Exercised	(38,490	)	(661,663	)	—		(700,153	)
Forfeited	—		(61,641	)	(290,890	)	(352,531	)
Balance, June 30, 2018	130,559		3,099,611		6,233,262		9,463,432
Options vested and exercisable
Balance, December 30, 2017	169,049		1,631,023		43,478		1,843,550
Vested	—		718,856		—		718,856
Exercised	(38,490	)	(661,663	)	—		(700,153	)
Forfeited	—		(4,548	)	—		(4,548	)
Balance, June 30, 2018	130,559		1,683,668		43,478		1,857,705



In thousands	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Revenues recognized at a point in time	$	350,345	$	723,110
Revenues recognized over time	35,187		70,397
Total net revenue	$	385,532	$	793,507



In thousands	With ASC 606 Adoption		Without ASC 606 Adoption		Impact of Adoption
Current liabilities:
Deferred Revenue	$	53,221	$	68,572	$	(15,351	)
Total current liabilities	$	189,264	$	204,615	$	(15,351	)
Other non-current liabilities:
Deferred Revenue	$	20,496	$	32,288	$	(11,792	)
Deferred income taxes, net	$	91,235	$	84,281	$	6,954
Total other non-current liabilities	$	154,025	$	158,863	$	(4,838	)
Stockholders' equity:
Retained earnings	$	94,296	$	74,107	$	20,189
Total stockholders' equity	$	729,587	$	709,398	$	20,189



	Three Months Ended June 30, 2018
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	236,383	$	26,156	$	49,791		$	7,078		$	319,408
Segment services and plans revenues	53,230		12,950		973			(1,029		)	66,124
Total net revenue	289,613		39,106		50,764			6,049			385,532
Cost of products	70,505		12,140		43,540			1,546			127,731
Cost of services and plans	43,481		4,878		969			—			49,328
Total costs applicable to revenue	113,986		17,018		44,509			1,546			177,059
SG&A	112,918		13,420		38,700			—			165,038
Other expense, net	—		—		296			—			296
EBITDA	$	62,709	$	8,668	$	(32,741	)	$	4,503		43,139
Depreciation and amortization											17,346
Interest expense, net											9,424
Income before income taxes											$	16,369



	Three Months Ended July 1, 2017
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	203,389	$	25,341	$	44,393		$	3,837		$	276,960
Segment services and plans revenues	46,102		12,220		3,989			(1,730		)	60,581
Total net revenue	249,491		37,561		48,382			2,107			337,541
Cost of products	60,266		12,040		39,234			774			112,314
Cost of services and plans	36,964		3,631		3,499			—			44,094
Total costs applicable to revenue	97,230		15,671		42,733			774			156,408
SG&A	96,517		13,454		34,684			—			144,655
Asset impairment	—		—		1,000			—			1,000
Litigation settlement	—		—		7,000			—			7,000
Other expense, net	—		—		77			—			77
EBITDA	$	55,744	$	8,436	$	(37,112	)	$	1,333		28,401
Depreciation and amortization											14,629
Interest expense, net											14,622
(Loss) before income taxes											$	(850	)



	Six Months Ended June 30, 2018
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	498,004	$	55,265	$	100,570		$	4,346		$	658,185
Segment services and plans revenues	112,006		26,599		2,027			(5,310		)	135,322
Total net revenue	610,010		81,864		102,597			(964		)	793,507
Costs of products	144,663		25,028		87,850			1,068			258,609
Costs of services and plans	87,127		9,841		1,936			—			98,904
Total costs applicable to revenue	231,790		34,869		89,786			1,068			357,513
SG&A	230,855		26,898		77,387			—			335,140
Other expense, net	—		—		418			—			418
EBITDA	$	147,365	$	20,097	$	(64,994	)	$	(2,032	)	100,436
Depreciation and amortization											35,000
Interest expense, net											18,737
Income before income taxes											$	46,699



	Six Months Ended July 1, 2017
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	438,491	$	54,325	$	87,950		$	2,778		$	583,544
Segment services and plans revenues	98,296		24,976		8,164			(7,580		)	123,856
Total net revenue	536,787		79,301		96,114			(4,802		)	707,400
Costs of products	127,445		25,711		79,417			774			233,347
Costs of services and plans	74,507		7,330		7,032			—			88,869
Total costs applicable to revenue	201,952		33,041		86,449			774			322,216
SG&A	200,317		26,183		67,959			—			294,459
Asset impairment	—		—		1,000			—			1,000
Debt issuance costs	—		—		2,702			—			2,702
Litigation settlement	—		—		7,000			—			7,000
Other expense, net	—		—		179			—			179
EBITDA	$	134,518	$	20,077	$	(69,175	)	$	(5,576	)	79,844
Depreciation and amortization											29,052
Interest expense, net											26,114
Income before income taxes											$	24,678


(2)	Percentages reflect line item as a percentage of net ~~revenue.~~


~~(2)~~	~~Percentages reflect line item as a percentage of net revenue.~~rounding.


(a)	Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of ~~awards.~~awards and performance vesting conditions.


(b)	~~Fees associated with~~Reflects write-off of property and equipment for the ~~borrowing of $175.0 million in additional principal under our first lien credit agreement during the first fiscal quarter of 2017.~~three months ended March 30, 2019.


(c)	~~Non-cash charges related to impairment of long-lived assets, primarily the complete write-off of a cost basis investment.~~


~~(d)~~	~~Reflects write-offs of inventory relating to the expiration of a specific type of contact lenses that could not be sold and required disposal.~~


~~(e)~~	Reflects management fees paid to KKR Sponsor and Berkshire in accordance with our monitoring agreement with them. The monitoring agreement was terminated automatically in accordance with its terms upon the consummation of the IPO in October 2017


~~(g)~~(d)	Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under GAAP exceeds or is less than our cash rent payments.


~~(h)~~	Amounts accrued related to settlement of litigation. See Note 7. “Commitments and Contingencies “ in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q for further details.


~~(i)~~(e)	Expenses related to our secondary public offerings for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018.


~~(j)~~(f)	Expenses related to a non-recurring realignment of management described on the Form 8-K filed with the SEC on January 10, 2019.


~~(l)~~(i)	Tax benefit associated with accounting guidance adopted at the beginning of fiscal year 2017 (Accounting Standards Update 2016-09, Compensation - Stock Compensation), requiring excess tax benefits to be recorded in earnings as discrete items in the reporting period in which they occur.


~~(m)~~(j)	Represents the income tax effect of the total adjustments at our ~~estimated annual effective~~combined statutory federal and state income tax ~~rate.~~rates.



Exhibit No.		Exhibit Description
3.1		Second Amended and Restated Certificate of Incorporation of National Vision Holdings, Inc. -incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 31, 2017.
3.2		Second Amended and Restated Bylaws of National Vision Holdings, Inc. -incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 31, 2017.
10.1		Transition Agreement, dated as of February 1, 2019, between National Vision Holdings, Inc. and Jeff McAllister - incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 1, 2019.
10.2		Form of Stock Option Agreement under the 2017 Omnibus Incentive Plan, as adopted February 2019.
10.3		Form of Restricted Stock Unit Agreement under the 2017 Omnibus Incentive Plan, as adopted February 2019.
10.4		Form of Performance Stock Unit Agreement under the 2017 Omnibus Incentive Plan, as adopted February 2019.
10.5		Form of Restricted Stock Agreement for Non-Employee Directors, as adopted February 2019.
31.1		Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.



	National Vision Holdings, Inc.

Dated: ~~August 14, 2018~~May 9, 2019	By:	/s/ L. Reade Fahs
		Chief Executive Officer and Director
		(Principal Executive Officer)

Dated: ~~August 14, 2018~~May 9, 2019	By:	/s/ Patrick R. Moore
		Senior Vice President, Chief Financial Officer
		(Principal Financial Officer)