EYE - Earnings call transcript Q3 2019 | National Vision Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the National Vision Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference call is being record. [Operator Instructions]

to Mr. conference like speaker to now today, for would hand over the your I Mann. David go Please sir. ahead,

David Mann

you, Thank and call. third good to Welcome National morning, Vision's XXXX quarter everyone. earnings

Executive today Officer. Reade call Chief the on Patrick Moore, me Fahs, Joining Chief Officer; and Financial are

issued of and the Investors release the and replay our referenced website will presentation, on available audio morning call. are the be after of the call nationalvision.com, page the both this archived webcast the earnings which be Our during Investors on will Section a

These to we let include, and are our Exchange cause risks actual to Securities These results statements, in factors to Before the filings differ begin, our XXXX. me earnings subject and Private today's as materially release and projections. with and remind not but materials uncertainties risks and limited from the Litigation Commission. you of are forward-looking Reform in and identified that the Act presentation could our include statements Securities in the uncertainties expectations defined

release measures. are Reconciliation includes release of certain and non-GAAP and measures in our included also these today's The supplemental the presentation. presentation

forward-looking also and draw like attention about to would non-GAAP X today's presentation additional information We measures. in your for Slide to statements

Vision National As a website. our or our supplemental certain Investors of for materials to reminder, expects investor provide presentations section on reference

Now, let me turn the call over to Reade.

Reade Fahs

speaking Thank everyone. a today you with be share you, to morning third to Good results. David. pleasure our quarter It's

consistency of record that of a comparable consistently years Slide durability we was report us. X, track really to that's XXst pleased turn this of reflects. quite QX growth, proud comps, quarterly almost store our positive quarter you quarter the remain good to and If healthy We're sales consecutive XX for

which comp again performance respectively. with growth at at increase. comp X.X%, segment, sales World, increase delivered Eyeglass increase our with store led America's Also, X.X% a was at once pleased the I'm up comparable our improving and a Best, comp growth X.X% adjusted X.X% brands by Legacy were comps QX quite

a to opened in growth the QX, count comparable the stores or in combined and increase X.X% unit XX stores growth The X,XXX new store ended and sales year. We in store quarter with past XX%. income monitor revenue. Scores of net closely increased Net adjusted almost as in ambassadorship. rose XX% Adjusted customer nearly XX%, We net another Promoter and and drive increase satisfaction sign EBITDA

the overall and and year-over-year our day, Our and quarter. increased to NPS execution this commitment is store at one store, of to testament one This every time. a their level service again patient customer a customer teams every in

our that sheet on refinancing improved with borrowing in balance costs. debt last we As call, our we the July noted lowered our

with the the involvement Concurrent ownership Our the final KKR XX-year KKR. an of successful as in tenure X.X-year chapter of million very EYE company remaining relationship private KKR end with August. completed $XX purchased This sale to our equity was came in sale, of its the stock.

we loan raising our are XXXX by few you trends. take to Patrick more cash cash our pay fiscal minutes. week, our $XX excess outlook we results stock XXXX reflect stable QX will pay down strong detail. recent last our utilized And our year-to-date in on healthy outlook, and flows debt and debt. of The down strong generated model, repurchase business the million term and performance, in Based a through

comp Slide XX highlights consistency store the quarter growth. quarters to here of store store sales our gains. further another and Turning it demonstrating graph X, comps, positive consecutive The of was comparable sales and performance

correct or a need cycle, across medical contacts, eyeglasses primary Our a way this the seek consistent the necessity. over to nearly comps economic purchase time function for XX the and is and to have tied remain world this streak People vision one of believe of we loss. year nice which in been and during benefits to

by driven in were increases and Comps average in transactions. ticket both quarter customer the

Our We Legacy accelerated X.X%. at strength has continued trend from comp the of at first comp consistently the segment. was half X.X%, momentum strong and throughout improved our experienced at and our quarter trend growth brands

segment encouraged and The in by XXXX, to posted since and customer execution the are by with our being strongest that delivered energy we're believe its engage the the comp team, performance. this initiatives reflected Legacy

marketing With Overall, optical in industry, merchandising attractive team operations our positive value well new year-to-date, our experts, store growth, positive store low-cost strength, gain sales comp double-digit fragmented and growth believe and results in in reflect retail operating as operating focused growth of share net leadership we as growing by mouth. our of customers optical comparable with the of loyal on to consistent the that model. $XX a word we of an more our continue market, benefits to revenue driven billion having customers the mature segment stores, patients, and continue

look growth core by to on quarter Turning execute store continue fueled to estate, X, fronts, were to real our Slide execution drivers. results solid marketing and our this across We including operations. many

First, well we opportunity, open new stores continue and space quarter, We another expect stores following XX about locations see again our footprint. has a XX white formulaic primary sizable year-to-date that are as for to opened this opened we've to a approach this us current stores focus worked year, historically. the so given XX

locations pipeline to out strong. of XXXX, look we As look the

improved our in success, play U.S. to mission and throughout our deliver Optometrists the care key eye ongoing a in role

company, optometrists strive optometrist-centric best to to an choose are be the place We the practice. and where

We that our in continue and retention believe optometrist such, record optometrist As as off, levels. paying overall retention invest to rate is at investments recruitment our are these we programs.

work traffic, exams helps demand for This quarter, in eye increased to we ever-growing patient our coverage that stores. we believe the drive to fill as optometrist

another growth sales track in on to of deliver is XXXX. comparable team store year Our

waterfall initiatives, happy key comp positive customers. from the patients maturing vision from are comp stores, word marketing drivers Our insurance and the new of mouth and and

years Our infrequent to given to cycle several averages purchase two three stores an that take mature, years.

attracts purchase customers, cycle it then, who to tied low medical on customers returning attractive years, This become can for in resulting price a opens. in necessity, So, take store time it comp waterfall. customers offer find to potential a later new initially after a

values strive stores. are customers attract our the to When that them incredible in market, our deliver to we

introductory Our eyeglasses a comprehensive our includes to over of Best, a have eye frames from Best not At $XX.XX gets in this purchased America's for America's hundreds exam offer of free and America's including over bundle customers of choose two decade. hasn't Best, do vision insurance. pairs who changed XX% by at

two one also the free of of of from our World, the were well same-day industry. year, in the two At over as opportunity glasses to X along Eyeglass provided values exams Last a the bundle. with of offer million pairs best service part of $XX, patients pair for represents in-store labs, eye

Each spent, prices, tell how eye year, eye leads the to wear. excellent care patients their We us repeat of stores. low and received millions satisfied come to at of customers that they've as service positive customer friends great combination and customers they and service customers little and word for mouth, believe affordable the of and our

of As stores we have customers XX% existing in customers. mature are noted,

that to of World The resonate too America's factor traffic much advertising Owl paid remains in Best. be and is particular didn't to Mr. driving favorite and our continue key with marketing Owl campaigns a Marketing attracting our and them optical to they our our if vehicle marketing consumers. customers humorously continues reminding primary a they shop customers, stores. Television at

marketing Overall, our believe we effectiveness paying campaigns this a pleased that quite in off the quarter. our factor gain. share with marketing of are investments are market our We and in

this at insurance. factor Participation Healthy quarter. behind the of in We programs We remains vision remain driver. vision tied the dollars insurance a percentage for third growth stores. a coming in comp our these believe, vision further that underpenetrated, tend insurance to growth to industry go positive business revenue relative net partnerships to our the from continued is

fast of vision our while revenue be Thus, insurance, growing, to revenue. see minority growth. to continued tied opportunity continues Net we for a

We a a at retailer, low-cost. we price be cost low low everyday As everyday Vision. without we value being can't know culture promote National

Our centralized that is reason a lab network low-cost. are we everyday key

its we state-of-the-art example drive believe a new new we The in lab performance. schedule. will investments are growth Texas making future to on and Our remains ramp production that today is lab prime of continues

to efforts progress experience improve the operating to continue We customer efficiency. our omni-channel and

of focus journey, on reduce and is to engagement aspects improve the all costs. customer order Our in

appreciate customers schedule able of being appointments to such the as and patients Our ease online. things,

a an update provide tariffs. to me moment on Let take

estimate September X, As Since that to China from been these we products imported less previously disclosed, costs to products revenue. applicable represent XX% have subject than of XX% tariffs.

chain, We suppliers, of of with continued our impact these as structures. our all well mitigate reviewing areas the as tariffs. diligent to and our cost working efforts supply looking been We've at pricing our

supply We our our strategy. cost-efficient focused and low on chain a commitment price to remain industry-leading maintaining operating

tariff these of impact this As the are XX% year. initiatives, a of positioned we to result offset the

is business outlook. pleased solid, fiscal we're with year-to-date our we're momentum very The raising performance. the in our XXXX and Overall,

confident we continue to beyond we are our a attractive well positioned and for that look we in As business are growth build very in the the long-term. XXXX, strategies believe to industry,

At me the call over to this point, Patrick. hand let

Patrick Moore

good Thanks, morning, and everyone. Reade,

Turning to X. Slide

As Reade the quarter year-to-date. noted, performed our well business and in third very

complete to XXXX. year-to-date at open to compared XX new our with this nearly We've are opened plan XX We in approximately time. stores XX stores year, last

World locations, stores. Best have Eyeglass remainder with Store predominantly being been openings the America's

over quarter. For these close increased two We unit brands the did combined, XX last nearly XX%, this any growth growth stores months. not

payback stores these majority lot to about that expand In as further mature potential and markets, base customers five store approximately our these toward as and there. remain of ramping newer our where store new three invested been to years markets well and has new the XXXX our Our have note our capital. skewed We see growth to stores existing awareness. continue our building a markets, years positive taken of markets. and in are newer newer invest, We we infill historically

quarter adjusted contact X.X% The sales the cash in on by We and ticket growth average customer calculated average top lens of sales driven and basis. chart X.X% increases transactions growth on presents in increase growth, in year. The the Same-store experienced ticket both eyeglass last customer transactions. a increased third categories. was both store comp our comp and comparable of comps

importantly, customer continued by More primarily increases comps driven eyeglass in to be, transactions.

were of comps average primarily driven lenses, by contact In ticket. terms

in lens has several prices. in are have technology been believe our ongoing that of We toward trend for participation customers that increasingly Our contact are industry an higher migrating newer early years. the stages lenses, customers

and and comps Eyeglass In of produced increased the as Best World respectively. gains America's of shift FirstSight brands basis we X.X% our a third generated in X.X%, growth, this Legacy quarter, the quarter XXXX. we the benefit the X.X% solid in Legacy XXX third comps exam segment fourth revenues of of quarter, tied growth eye our from points to in from to optometrist incremental estimate in subsidiary

our driven Overall, with call. business since that by extremely execution level strong we store improved team. the believe As in Reade pleased line noted, continued the top the are by last performance our Legacy momentum was we

Turning to on the income X. Slide highlights statement

points the business contact revenue As approximately growth, comp a The net revenue unit result the lens solid growth AC contributed of XXX from distribution basis and of in net increased Lens, the increase. XX.X%.

a have which it the in so be over As incremental AC business on third Lens we in reminder, material income added the this statement. quarter will the year, quarter last last impact this will a growth

margin Cost remainder higher year, impacted XX applicable last eyeglass versus in growth basis and optometrist cost applicable cost a partially of better XX contact to points of range point negatively as reimbursed revenue the points. to by revenue higher increased percentage The exam business or cost. that of The an expectations revenue, distribution mix revenue improvement provided generated by sales, increase basis basis our a last which than XX reflected offset were which that primarily we quarter. business was XX% of applicable a of lens higher eye to net

and advertising leverage Adjusted net last SG&A X.X% or versus quarter points, certain resulted increases store coverage as pleased this percentage the and versus we of in costs X.X% with percentage points, store last inflation XXX year. expenses of third a quarter. that expenses planned payroll increased a wage of or in from a net year of The SG&A the a as XXX of achieved lesser basis optometrist We're decrease expenses increased to decrease in extent, higher a markets. basis revenue revenue.

due in and in nearly XXX growth, in improved increased primarily EBITDA partially expense change negatively net EBITDA was contact XXX impact by XX% growth adjusted our on in in lens and to revenue. margin increased EBITDA the offset quarter. leveraging, points the The margins, The Adjusted basis from impacted to margin Eyeglass increase distribution and EBITDA the XX.X% adjusted quarter. unearned points change basis by adjusted unearned revenue the the margin

was last XX% the our versus we while the net as year. bottom excellent, the The $X.XX this incremental to Adjusted diluted from XX% still on delivered solid line in quarter. Overall, $X.XX margins to flow income for pleased through more investing line almost the quarter Adjusted EPS strong we increased sales. in higher are top very growth, increased to have future. generated business

Turning to year-to-date XX, and Slide results.

predictability reflect by net EBITDA comparable year-to-date growth consistency results revenues XXX unearned net was with to EBITDA the X.X%, XX%. adjusted XX%, of the Our our model from basis up up and store and impacted about growth revenue. change up business due negatively Adjusted adjusted in margin points sales growth

Adjusted slightly declined points basis EBITDA margin XX XX.X%. to by

adjusted slower Our the margin growth, EBITDA contact rate business at distribution on and the unearned revenue, from net revenue. the due grew change a net than lens impact to in

approximately $X increase XX EBITDA million adjusted cyber-security planned year-to-date. margin investment addition, In includes a point in from headwind basis an

find an illustration Appendix included to service-based to seasonal unpack help on in income will typical business on to Similar somewhat revenue, statement. intended you explanatory traditional revenue is retailers, more unique as we slide is our recent again which how well This model impact versus the the unearned as section. have quarters, unearned our

I comment the to connected on topic adjusted revenue. of also to which store to moment sales metric, want growth comparable is our a unearned take

lower sales metric deferred an which we've additional and reflect revenues. as our XX consistently has adjusted been basis, for how unearned comps comps be explanatory section. management same-store Appendix is team equal our XX impact slide those applied. less GAAP cash for the than in comp reviewed quarter, This around Adjusted of has and the comps, on In reported the or this business has of will adjusts always a This quarters. our methodology added quarters it growth performance, been

the well growth unearned revenue business. were our unearned change third to than quarter, continued year-over-year the In as adjusted as higher comps earlier, comps, GAAP in that in I due revenue primarily in referenced

$XXX at XX, third million. of our Slide total to quarter was Turning end the the debt

from $XX the substantial $XX the deleveraging to X.X times, in last in was year. was indicates commitment or third our pre-IPO quarter year-over-year. an last at our up X.X million balance times, cash Net two ratio balance debt over improvement Our EBITDA adjusted X million to our With progress years sheet. times the

invested CapEx majority focused expenditures with the we growth in capital million the of on $XX Year-to-date, initiatives.

to capital our XXXX $XXX.X range to below or $XXX tightened level be our plan the of previous have of We CapEx million, to $XXX high-end XXXX of million our which investment would million. equal

top will in XXXX, stable for we intensity reduce an outlook is our line current relatively our strategic capital With growth ongoing which and CapEx, focus.

$XX cash with provided We activities Cash are flow encouraged the business. improving year. increased flow characteristics of operating our versus last million by

we During the offering. secondary stock, the quarter, final $XX million in repurchased concurrent with

Reade loan Even voluntary a cash we on have and down in to ample cash with total, XXXX. week. as made during debt term end expect pay our $XX noted, balance. actions, million million stock In toward $XX we last following we year Also, these the prepayment repurchase redeployed

debt our XXX borrowing in points As by on of our basis our borrowing approximately a our approximately $XXX debt we million. by XX, on increased capacity which $XX noted July, cost call, refinancing reminder completed in and million from and Slide overall last lowered

and pleased across are continued to continued We services very while tends improvements we well our achieve health in cycle. the comfortable to our structure, our efforts our leverage enhance economic with given leverage will our perform we levels, with business strengthen ratios to capital look remain

our our XXXX raising on year-to-date are for Based XX. fourth expectations quarter, outlook. the we Slide on outlook our fiscal to now Turning performance and our

expect it quarter. to saw business consistent guidance, the to same-store sales we X.X%, for plan is we press from the X% to range with continue prior range growth prudent X% release, you the of fourth in in As believe the our now to adjusted X%

has one $X.XXX relates use week less a net period now and this final revenue net negative consider, had to calendar which shift impact comps the the has of high-volume rush $X.XXX who expect day between is optical week on the and We Christmas benefits. billion. and final to factor year, of calendar historically a for One fiscal growth. revenue billion year-end shoppers of to to expiring The XXXX

to We and of net $XX.X adjusted for million, $XX.X to million million. are to EBITDA income million increasing adjusted our $XXX $XXX range a expectations to

for million expect We depreciation lower $XX $XX range also slightly million. to of a

openings Our rate interest tax and fiscal XXXX remain outlook for unchanged. effective store

As we've items previously. a several from outlook impact that outlined reminder, our the includes

First, The addition lapped business. dampened we leveraging distribution to margin expenses. incremental lens contact impact our by the Lens, SG&A have this of now increasing business cost growth adjusted our EBITDA AC and of our revenue applicable

revenue XXXX, GAAP applicable tightening For of compared to increase fiscal our XXXX, to XX points expect provided we range basis cost fiscal slight quarter. we last to now basis that a the XXX to points

to applicable cost about expect basis to XX basis XX we points. to revenue QX, For points increase

to in continue $X security incremental we investment million expect this to spend Second, year. cyber approximately in

briefly versus last we are let the revisit tariffs that to Lastly, now outlook. me Products August. the our in we that we the tariffs spoke of XXXX import context from subject China China when expected in tariffs XX% XX%

Our increased into of these account the outlook headwinds tariffs. XX% incremental XXXX takes

working diligently highlighted, on have tariff. Reade As mitigate impact been initiatives to of we the

on focused look to initiatives year, are delivering year another strategic growth. XXXX We to and finish growth executing the of forward consistent our

In call to February. fiscal we in Consistent in our conference XXXX, planning are year-end a currently with late terms year, XXXX of process. outlook look the full forward on providing we last

call At to I'll back point, turn the this Reade.

Reade Fahs

Patrick. you, Thank

share us to need. elementary a to to the ago, partnership helping to group and of and a lower National weeks day I'm Essilor exams glasses just Foundation Slide lives. XX. setting our as of some we've was last been had of kids middle free to trajectory a weeks active part in. of in school Turning In Vision impact and that income the great cause, exams Essilor support Two Dallas people's on Vision's confident regarding eye great a of industry social eyeglasses to partners worthy many I'd joined couple closing, get like involved young In efforts mission. in kids a Transitions It and at of and provide

thousands a weekend, grew in schools, as districts Optometry. fundraiser in eyeglasses Philadelphia Philadelphia a past sponsor University, graduate and have sciences This screenings, well the the of eye is exams Vision Salus health College school – that annual lead that an kids schools out for of we in the to public other an environment. The Pennsylvania of school fundraiser the sponsor band as of support a provides of of

finally, Vision optometrists, in and nearly eye of on-site free screenings, XX Atlanta's we elementary to to our with eye exams in six partnership to going Future our few and expect and people event. help Hollis National students glasses providing just associates speak, are and the care XXX as America's school Academy middle this efforts all. Atlanta. recent We're and at And more Best an on, Westside a Fund Innovation accessible than make eye at wear and Downtown, all Hollis' most These pre-vision for

want National over over to provide our patients pleased including X,XXX quarter our X,XXX services I'm at optometrists, summary, the needed Vision, In our extremely much entire thank increased third storefronts, team and results who day. medical with to at guidance. I every

be we We abroad otherwise. exams, this at glasses continue consequently improved and in see week, at those both well, and of who hometown the quality Atlanta, work home to our unable and and to and price contact low lenses, to glasses strive to would life best be to sight bring of providing while

profession. past, is retailing As I've noted believe this noble we is why a the in optical

turn call. call I'd back operator the the the like portion With of question-and-answer to start to the to that,

Operator

America. Thank from of Robert Our question you. Ohmes [Operator comes Bank first of Instructions]

open. Your line is now

Robert Ohmes

congrats and guys, questions. great two a quarter. have on actually I morning Good

Thanks. how understand sustainable why the – versus driving contacts as us is. comps us and eyeglasses, to is growth us the penetration is – and how is, on – ticket other little the how that well. maybe remind not contact some and can this remind benefiting math the and sustainable the that The question then that ticket benefit understand a the a what's first much And margins sort maybe much help and maybe of us helping help help you is is maybe from higher just is of just average or how one-time eyeglass just lenses

Reade Fahs

I overall Rob. the the pleased up transaction we're yes, company you, count growth X.X%. transaction Thank and that. overall, both appreciate And, X.X%, as growth ticket with ticket and the was

of contact side the And about our remember if overall. contact so, on business lenses – you of kind lens are XX%

sort are transactions wise, we our patient and and which the and more wise, of of And that's growing in business, doctor doctor to comps we like business. of wants. talk the the interest patient of customer-driven, is But, eyeglasses X% the were it's the best related It's contact is have not lens although that? margin sort to what faster growing done And ticket and eyeglass the in again, sort drive. are than something not so, they something about it more transaction really feels for And modality, what want you of and our growth our historically. Patrick, the up way it, not growing ticket, piece that's

Patrick Moore

few I'll things there is a margins. follow Probably, into play coming there. Yes, – eyeglass going on

mentioned couple we price have quarters I think into going new and this a occurred. a that our year, lens mid-year, loans has contract at effect – that obviously new we've of

of those time. frame bit board the also frame also both that of our have margins we've so mix this our eyeglass action mentioned – are peripheral mix, pricing at in affected helping Second, would kind a factors

Reade Fahs

real of very sort been even time. say, how to about what a been the it since I just when like similar road and about show. part look with It's at and in talking ticket, long of talking I'd we've for our that it's line transaction Again, it, feels story we've we consistent

Robert Ohmes

Thanks may. guys. just follow-up, And one I if

what happened and that highlight the comp, you Just the there improvement in sustainable? anything business legacy is can

Reade Fahs

Yes.

pleased that business. was we're Again, that there's that well. momentum with – in as nice yes we're that So, seeing

in leadership really a of our division and Legacy We there. have feeling there we're like team, new place people key has its sort going mojo

focus, energy. feeling about Yes, that. leadership I it's So, we're think good

Robert Ohmes

Terrific, so much thanks guys.

Operator

Morgan from comes question next our And Simeon Stanley. Gutman you. of Thank

open. now is line Your

Josh Kamboj

Josh our for Kamboj on question. is taking for Thanks This Simeon. Hi.

buckets you wage you've long will about maybe worrying in associate, remind a look to for some about going key for spoken what that worrying a we Like for hurt There's your about toward the expense As and and wages margin us the example, about? headwinds should about your and wage XXXX, time. lot rise of a inflation, talk structure. help the become some of can broader you you just are of general, the potential advertising tailwind, store buckets potential you to for is that optometrist think

Patrick Moore

I'll Hey take one. that Josh, it's Patrick.

terms on specific play. I'd February, In and in say plan. XXXX, at look kind share come that of the outset, outlook tariffs diligently of We we're still working to into

distribution in We on drag, X contact to items that million AC about strides now continue depreciation, however, the being is the fall. year, not those talked that investment months. may key lens we've great the Lens, toward make lab us for we've $X the some about cyber about continue the – of to Plano will prepared obviously or the that has over affected – and we There that EBITDA I same X.X think and past bolt-on disclosed lapped on then XX amount XXXX

and think and some that then, out look see just XXXX, we've we overall inflation. continued I've expect had margin of kind I expansion If in but these factors yes just for about general, discussed, wage and to not

evidenced in in that by stores, I think managing as well leveraging the through quarter. wages very associate our we're

drive think to and growth, We care managed we look market some gains. support share that investments other continue at key

to should that cost some business also those can improvements, Next and lab the in we're working fixed we productivity leverage be see year, levered.

to way which kind I'm of today call So, XXXX. in ready terms it for that goes not of

our all go to much we'll more a remain grower, obviously to call. continue accustomed consistent been very is to intent what Our into have and on and specificity you deliver next

Josh Kamboj

a just your the the And X% X% as is business of is you level now. wage level, because for what it overall comps? leverage quick maybe inflation, us, Thanks follow-up, it Is can Patrick. then remind point

Just, be any color helpful? on that would

Patrick Moore

Yes.

with cost kind said X% we something in we what fixed that. that we're we've of and X% working to have think do continue very to can hard to – to range, I improve

Josh Kamboj

you. thank Great,

Operator

Thank you. next of And comes Securities. from Bob our question Drbul Guggenheim

open. now is line Your

Bob Drbul

me. guys, Hi just from questions two

update The environment just how a if two sort see and years, last the couple one sort just of that first we sort being have changing could about Can it's I where it of and give years the now the you the think how talk Thanks. is one of sort you guess there? renewal and relationship relationship? you into company, over public an coming future of think together. then changed that of just up how a should Walmart prospects about is, on you maybe just tying us I and

Reade Fahs

this. to Yeah. do happy I'm Bob

more saying, the and be are doctor, from, model. to than ever in shift two So a it, ago ongoing and laid I XX% we're segment yeah, of still we industry, the trends I think independent are is and is I have an consolidation the would benefiting doctors to ongoing our that continued. challenging of anniversary our be model we just show employed think we consolidation lot value had year rather finding in weeks making a few doctors an industry as a There independent the your are in seems public I'd on say company, the out the road there to be

So, have folks us we to like coming that.

we the and value segment sides I independent that, But we at see bit affected lot to but guess, us always chains expense and really sort are came growing more there – But, of continuing, the of the the the – chain. past is that category expense at the the are expensive of growing the of the the of deal. great but saying of that a growing continued EssilorLuxottica a do the traditional is a together years, it's two thing in hasn't

we continuing three years that's consistent we expected So, all the ago, had there. and what vision and with

get considered first Walmart. year Walmart always all, within with to honor with just year On pleased a We're results Walmart. to real the we've year operate our of Walmart side, will our ending we're XXth it there, partnership and be of next our XXth great so

have, on them and frequent sort relationship the we feel a of about and we remains a quite them there sorts but things time to on We when strong, things, We the all that, are have report variety of anything we topics. we'll of with so to are all good touch with now in to talk relative right basis don't do as we you know. let

Bob Drbul

Got one perspective? just just throughout can enter inventory you from think you more, sneak year just levels it. could look the inventory you'll how if this I XXXX in you was tell an And us at I when wondering,

Patrick Moore

are probably to Bob, tariffs. Patrick. are conditional couple get probably buyings that do where fourth us forward in the trending something levels Hey times on Yeah, it's opportunities and inventory on quarter. There do a currently you've to of seen are things

levels a I consistent down well. to inventories of fairly reasonable business stay but glasses as and looking see various that's there. and for Very lens think and tweaks reasonable accordingly, now, the to have just tuned worked adjust kind we'll going how have I level terms us in high contact for to on we're to frames and think are

take monitoring or so next and So, wise and half that an action we'll as a as can. the over be month we

Reade Fahs

things to that opportunistic relate favorable increases and are inventory Broadly, for us.

Bob Drbul

much. very you Thank it. Got

Operator

question comes And of from Thank Michael next you. UBS. our Lasser

open. now is line Your

Mark Carden

it your reason taking about care flow? the Thanks any think Walmart the to you cash Mark operations it prefer how business, did its It's would Walmart if on morning. lot Carden for that impact for free in-house eye Thanks. Michael questions. for Good ultimately, a When today. decide would bring

Patrick Moore

for Mark, question. the Hi thanks

management that at for – at There store in Walmart those corporate corporate so is the the well the look are to Legacy XXX other stores, Legacy you of managers, our costs profitability are can the other as our as our VP, brand all field gives our and segment, support. store level. P&L district leadership, kind regional some So, that personnel, the related level you segment

a you with And extended little so, have segment true of of down to terms that to number not segment. be provided careful in it cash flow. a kind We've free that an translating

about combined XX% & there. Walmart to moving something But, to as lower going down the you be for margin from think similar XX%, a EBITDA, for host owned teens XX% there's

about that. intent have is far not and be would it – less obviously the So, something than to think we segment, to our

do it best I manage a to a think best it, again, it but our could we an that in time, to be frankly grow would make manage through think, short period but to impact, they be really but ready but we're could through not through to continue partner occur and I of that and We were if we the it, have, project.

Mark Carden

helpful. you much the And quantify few then penetration care over to you then, is levels. That's And overall be your current Okay. Can that help an relative past mentioned continues Thanks. how that's opportunity. to managed years? industry changed where

Reade Fahs

Yes.

So, we exact number. don't give an

public we saying, ago, saying, was went XX% were and the XX% we years of faster between two think and rest was it were a the I business. it when than we bit growing

Best didn't to of we of a back bought than reasons. and that accept it under-developed we dimension think to and you One, continue America's developed, and So, in business our of half give could we they overall. that We are are we sense XXXX, a managed say when under any relative less is couple that, care. that the remain for category

we So, zero. at starting are

playing bit us. They come up there, we don't vision game they of were more likely had a you at were – you're have so catch but alternatively, a started to zero to we insurance plans, if no

all and a if care the it's generally your go out various money the when So, It's your us. that you're through all into seeking factoring factors in and value, you're not money managed find you you're decision, buyer.

be nicely, grow And care happy the and but for to that so, a always and business reason, piece spend bit I in we're we'll over of think a as it continues developed time business, it cultivating. non-managed with our

Mark Carden

much. Great, very thanks

Operator

our Wissink of comes Steph Thank from question Jefferies. you. next And

line now open. Your is

Steph Wissink

been appointments you. Thanks, a coverage, Reade, everyone our and used question I a incremental take is talk break to a availability one this remarks, little comp. ultimately drive benefiting about the most utilization thing think maybe stronger But, to you as investing wanted of available morning which bit rate. you asked. just improved, and down make optometrists way mentioned questions for In to appointments some had Can about have that and good how or optometrist you of you prepared sales overall in your you

Just down helpful. break business for will that be that the

Reade Fahs

time my favorite a of on. I Good. spend of topics, something That's lot one it's

remarks, in are we said, optometrist-centric organization. an I the As prepared

we leased I where are multiple us, will with have how different some I our for because the for work phrases optometrists spend environments terms of them, creating we multiple we – have of some California from relationships are and us, some in optometrists both interact with brands One employed some by their want professional HMO. corporations, we work frequently is most say environments repeat that to and career entire

relationship is strong to competencies. when this is to have So of sales the a fact very it the OD we at it barometer an fact frankly our and help ODs Key business. of our say for see us be of is, our barrier the coverage, that there higher in all-time in more is growing to America, tends a one broadly that's why OD the correspond in we of services to we refer that have high that's and our our to stores, with to that, key it, when our serve able favor that and an optometrists entry demand retention really ever health is we the I

Steph Wissink

Great, I of of what quarter. two if a just bit talk terms you the little advertising next you should over marketing did about on follow-up in to you marketing, lever wondering course look years, the can one the one mentioned for think investment. we in I'm that your

had your some of great with You've success campaigns.

or either some further you assets looking consumer? activating those new ways of reach terms in or are on to adding to the what mediums forward Now, of

Reade Fahs

always testing, media that and in for a learning the a different things on and side marketer, TV, years, our variety we're looking digital television both traditional and get is about; smarter lot make of marketing programs changing. a things of quantifying ever ever believe, digital and both America we and the efficient, the do we're to of and of market, ways marketing on with on always more side We're the I we

foolish quantifiable is, very means about it's learning thing the and digital you're testing traditional the way. if So, great always not and you're as opposed the to

of we a sort be So, continue our think and opportunity products. our marketer time, we it's demand for and that to to long a for freeze us key to we're believe a help the going consistent share grow way and

Patrick Moore

would both through of Patrick. it's Reade, did talking Hey, digital. add, a job just and I being great traditional

us as this I have of made we that yet, that shift, see advertising opportunity equalize not also do an to over time better to leverage. in degree to that and think opportunity do but little for more of you're and a today's leverage continues to think some and really invest expect transition world, sides, both I over I We've in a kind call give having time.

Reade Fahs

smarter We Yes. get go. we as

Steph Wissink

Thank you.

Operator

Citi. Lejuez you. from Thank And comes our of next question Paul

line now open. Your is

Paul Lejuez

or offsetting negotiating what and next prior just and mentioned able more Hi the on price was talk that it on margin as guys. if compared to quarter, equation? I to be tariffs any year believe you happened that in saw wanted that just offset Also maybe up you year you can anywhere? the gross this you drag And quantify thoughts Thanks. costs; cost I prices about the take a about quarters also year, to curious impacts secondly, bit you next then Reade optometrist better strictly of little you'll the side the side, if early well. this XQ curious, tariffs did from if expect

Reade Fahs

if definitive encouraging that in different we we're exactly public or you. these this. it side, competitive our one encouraged like to not, don't things, company much was how but we're we're news really by are look we'd play help too detail, the so all thank by pull pure this this study morning. mitigate at on way, doing to them, we of all morning. There is can And the Paul, provide of we very for tariff guidance. reasons, the only a Overall, it levers category and the We'll in them, see variety share sure not

OD, question done you one I years second action. you that levers say the But that to is that banner of have the never have is that had and change the and pricing And repeat – our offer. We episodically will and over OD? periodically on we offer over peripheral available. years, – core here our don't taken we we could there, question the the

Paul Lejuez

you Sure, just the outlook? previous quarters, expect next drag this XQ, year in quarter what versus

Patrick Moore

that one. take I'll

the tariffs As we're ready drag we a inflation, have think established. we impacted expecting make by because together on that wage out as the gross we're pressure, that growth probably and well overall, to as for momentum quarter, margins about that basis of coming great our still consistent year focused not a little a to we've that's expect statement continuing on into and points very that assuming fourth continues putting to bit XXXX plan of XX be OD of lab

Paul, a OD yet, the Steph we're we kind when say that seeing with of just and February But, – QX, brought imbalance not one demand as give couple really a factor a on come that I'm you other you course. and thing it correspond gross I should that about there. Reade lots as And there, think of give was topic kind back really coverage we get mention I'll of is earlier, the going we inflation, of in on we XXXX. when there's little wage talk and that how I'll then around there of well that's color supply occasionally a of in markets thinking But, is where color margin things

Paul Lejuez

just one follow-up. Okay. Perhaps,

This margins were quarter, in drag said excluding that think gross away goes AC up Lens I XQ. you the

XQ what the hurt curious just XQ? margins in and So, would underlying changes that compared your to

Patrick Moore

Yes.

by OD cost, you're OD was margin, was and that the So growth eyeglass right. better you Lens exams, offset AC reimbursed up and higher high QX if aside, costs. little XX%, about put business

of tariff the into going timing kind change biggest of XQ, is the assumptions today. inventory the think exist as they and I

we into down effect, those working as the we are Paul, – – those at before we had cost, some progresses. went pre-tariff So tariffs inventory time existing

a out more and XXXX, guide reason in feel And that focused So, again, of impact expect we with possible, there. lot in place. for are I of as on on main should to QX still the do as they remain coming very much mitigation kind that's

Paul Lejuez

Thank you guys. Good luck.

Reade Fahs

you. Thank

Operator

Markets. Anthony next from our Chukumba question with And you. Loop Thank comes Capital

now Your open. line is

Anthony Chukumba

quarter. the question, taking strong my congrats for on thanks morning, and Good

some there you want noteworthy just is online-only to competitive of the changes anything of the independents out that the out of question, terms mean, with point landscape? would mean, some in the anything I first that might there? I my point changes, you So, retailers. bigger or any

Reade Fahs

what – finding I'm our Overall, part offerings that so growing, think we're basis seeing been we on and versus and there – out We expectations an not still of it we've seeing the ongoing are the either think terms segment in is things or yes momentum. that's changes of offerings. our pretty consistent that value dramatic consumer

Anthony Chukumba

That's asked written call it. were advance it's to couple like see because apologize to this But, you I I'm after and been the just to so Best. to and wanted see or and you mean door a a come on now? is helpful. for two because I have at right your basically of going free Got my that blatantly FTC's of eye about, if right, foolish they're it address said because it's your but sort to be wanted follow-up, FTC on America's in just is $XX.XX that reports at the shouldn't guys, And it. knocking just of exam then you ridiculous. been address going There's all, that that's offer maybe were to if

Reade Fahs

have had topic it to is that conversation. that we interaction – – topic I'm – a is so that the that. FTC on happy you with this I that's feel and at not an is totally not there never area, address The appropriate actually had appreciate all, asked. it a

that and offer actively is communicating and and offer, offer, We people large are it. that is seriously, a are company you all abiding are that we by encourage legitimate a then our numbers of people very key as get laws, it and takes getting the the

come pairs insured year, at at offer well available away million given hang of of on. now customers have XX% million has. have well offer hat over – frames over in past our take we've X and But, and of and the X an our the their insurance we and that, no We cost exams customers it's they non-insured in, majority the whatever hundreds of customers,

topic offer. and be never. no on the out dramas the interaction So, of occurring, there would legitimacy the surprised Never FTC an had given it, by

Anthony Chukumba

Thanks. Got it. good helpful. That's Keep the work, very up guys.

Operator

next from our of Fargo. Fadem And question comes you. Zach Thank Wells

now is open. line Your

Eric Cohen

Hi, Cohen for the this for question. Thanks is Eric taking Zach. on

your nice of of QX we guys wondering sort margin if are QX. compared and and should expectations be in And and takes puts what sort had and between any that to how QX timing expansion that You just the there expenses EBIT really of? shifting I'm were. of aware

Patrick Moore

Hey and margin contact as good performance. resulting and line Lens of top the in Eric, starting AC months pleased very well as gross margin leverage thanks SG&A with for the and question. the comp We distribution. We did with were EBITDA expansion only quarter, lens EBIT two have

we've So, the we – store were advertising lapping function moved now, those and exams and focus being talked margins, frankly, started beyond as of to have of we associate both execution. we good and call, on helps reimbursed was just all really we that, a the leveraged and had more payrolls we eyeglass that good margins, really

between I that us am and my Saturday need we of our one any QX or for year Christmas I XQ of in having year. regarding the that holiday end comments XX, not timing to day beyond benefited of kind fiscal when things talk aware less last that, week about

QX, of out those there So, a but things. margins to QX guidance, our is gross you can talked kind as of out nothing and earlier, head see excluding little of call we of significant about kind couple into we

Eric Cohen

flow, business prioritizing Great. now enjoying cash opening in debt? you the And with cash down investing processing paying between flow stores, were uses behind now And year. are sort the this at of of, cash you, and you nice the how lab looking just guys

Patrick Moore

the it cash us all of Well, ample one this to benefits to of gives model do that use flows of that. business is

got capacity space. distribution been nice about lot we've have per we works to and machine for really the feel happy a year while, infrastructure the well building that white associated quite a We we're and stores XX there center that, and do like

that's of that, a kind In given. terms kind cash a flow of of the for

in million the last cash, down. repurchase, the we commensurate have debt of August a redeployed This with $XX last have been pay secondary we stock – voluntary and year, in $XX million in week

talked past to put happy was the toward in place, improving directing week really action do in cash about to some sheet So, I've last balance that.

And that to the continue – to organically, us so, that, can cash down balance growth, we'll to continue deploy and down third to see as cash and moved now the that from number pay-downs. with continue number X.X as are think increasing get debt we to to to potential We've IPO come and flows quarter I'd to range high we're X.X you of improve pleased sheet. I expect a at very future out like to

Eric Cohen

for lot your a Thanks time.

Operator

And our question next Alex from comes Maroccia, you. Thank Berenberg.

now Your open. line is

Alex Maroccia

Hey, good morning guys.

growth managed is question managed but my like So, on care there in looked first It Can to sales utilization, segment, and just are host impact the owned and is these and there care margins? Legacy. you you decline its the some ticket relates & in optometrist trends a as business how it had on prices expand margins. on average affecting

Patrick Moore

bit I'll can talk professional in Reade kind our a chime little of on optometrists then and about margins utilization.

healthcare different were happy So, terms and that. without a patient that services take we of in patient or insurance little cash these they're and from using a are absolutely comes We patients standpoint, to insurance and a offers. showed margin in, of using our indifferent up a advantage whether

a margin a not there. huge is there standpoint, So, difference from

of – money, more as ticket have as really little other little do insurance, a their view a they're what people's which average is theirs with spend because as customers in to tendency they leveraging The terms own. well a more

than there a help associates lift to coaching our there no whatsoever see maximize insurance store those is we but trying little So, again, ticket other benefits.

Reade Fahs

managed Yes. just go benefits little lots that managed I their see care that a add of us. guess, with I'd farther customers care

they So, often insurance because theirs. better can have they the they buy they come things the and from help of in sometimes and

Alex Maroccia

And you this for got that ratio, of previous then point long-term a a year? just said times Okay, a leverage it. X on end clarification is quick or question, target

Patrick Moore

reasonable the I that. guess don't come up been on with we've that, a probably look you our want take organically, accomplishing to of put since a timeline what could and on at IPO a line

good also and debt get company a predictability in I've its intent But specifically to is capital along structure, retailers. traditional been comfortable as announced, position through compared dependability again, haven't would stable terms to other this their I fact really really pay-downs. We say, our of business, all to more what we'll that just it's to health like get down a even guy, that the because necessity, conservative gives of closer of services confidence But, higher I'm I at a us notion even leverages. tied the do medical that two. the lot to and to a operate,

Alex Maroccia

a guys. That's all Okay. Thanks helpful. lot

Operator

Dylan of Thank Carden William question you. next from our And comes Blair.

line open. is Your now

Dylan Carden

much. Thank you very

Just profitable of or expansion, World and sort expectations or of breakdown a of two around infill America's sort opportunity further to or the bit primary whether what Best, of for Eyeglass wonder at infill in more a faster there's kind be accelerate not there little maybe make opportunity rollout an of endeavor? that and looking will curious, the then banners sort infill store the and

Reade Fahs

both for lots opportunity those there's of brands. think We

So, from can see generate comps, you really nice as our they consumer both traction.

So, we're opportunities we yes, so both. for still think there's great –

We the or is stronger a space the did World have place white is X,XXX updated our Best since that America's Best. there we over XXX Eyeglass ROIC not stores, on guidance, for over believing IPO America's

see been there. itself the we the focusing a also. the TV, opportunity attention think see got effect and effect advertising, So, yes, the sort the World, and getting more question, network that's And paying – to actually why more you ROIC we've that network there to we're – we've it builds stores, that and probably improve we more on first brand your the network you of – of are sort national of on Eyeglass is on to because

those still good, both all growth love brands. of So,

Dylan Carden

advertising. curious, add otherwise sort of to on a newer just in sort penetrating? endeavor. I was And a Okay. of Any point, of sort then there know of anything far newer as or customer the weren't Spanish-language of sort as traction some relatively I markets smaller that's maybe you sort –

Reade Fahs

We consumer. development the Hispanic have among nice

Our are offerings appealing.

working of the the we that, are and strength only customer that like ways you already consumers ad there, When build have different segment. building of Hispanic strength you stronger. and of on sort make it have. other sort It's on we'll We have a on agency,

Dylan Carden

much. very you Thank Okay.

Operator

Thank gentlemen, session. the like you. our I would to remarks. and conclude question-and-answer this closing And over turn to call now ladies Reade back any does for

Reade Fahs

to like We're are I'd consecutive team our we in closing, be entire In our today, of much. you and feeling you National comp XXXX very all our you for your Vision, joining on outlook. interest when the look quarters. and very Thank report thank much. us to positive and to like in speaking solid results. for forward we we business, February, and XX of Thank in pleased support Good. We'd momentum continued to milestone congratulate our again raising fourth you to quarter all

Operator

Thank Well, ladies and conference gentlemen, concludes call. you this participating. for today’s

You may now disconnect.

National Vision (EYE) 8 Nov 192019 Q3 Earnings call transcript