UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q
_______________________________________________________________________
For the quarterly period ended June 29, 2024
OR
For the transition period from to
Commission file number 001-38257
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Zip Code) | ||||||||
| (Address of principal executive offices) | ||||||||
(770 ) 822‑3600
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
_______________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 26, 2024 | |||||||
| Common stock, $0.01 par value | ||||||||
NATIONAL VISION HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
Page | |||||||||||
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, 2023 (the “2023 Annual Report on Form 10-K”), 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, but are not limited to, the termination of our partnership with Walmart, including the transition period and other wind down activities, will have an impact on our business, revenues, profitability and cash flows, which impact could be material; market volatility, an overall decline in the health of the economy and other factors impacting consumer spending, including inflation, uncertainty in financial markets, recessionary conditions, escalated interest rates, the timing and issuance of tax refunds, governmental instability, war and natural disasters, may affect consumer purchases, which could reduce demand for our products and materially harm our sales, profitability and financial condition; failure to recruit and retain vision care professionals for in-store roles or to provide remote care offerings could adversely affect our business, financial condition and results of operations; the optical retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted; if we fail to open and operate new stores in a timely and cost-effective manner or fail to successfully enter new markets, our financial performance could be materially and adversely affected; if the performance of our Host brands declines or we are unable to maintain or extend our operating relationships with our Host partners, our business, profitability and cash flows may be adversely affected and we may be required to incur impairment charges; we are a low-cost provider and our business model relies on the low-cost of inputs and factors such as wage rate increases, inflation, cost increases, increases in the price of raw materials and energy prices could have a material adverse effect on our business, financial condition and results of operations; we require significant capital to fund our expanding business, including updating our Enterprise Resource Planning (“ERP”) and Customer Relationship Management (“CRM”), and other technological, systems and capabilities; our growth strategy could strain our existing resources and cause the performance of our existing stores to suffer; our success depends upon our marketing, advertising and promotional efforts and if we are unable to implement them successfully or efficiently, or if our competitors are more effective than we are, we may experience a material adverse effect on our business, financial condition and results of operations; we are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs; certain technological advances, greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, or future drug development for the correction of vision-related problems may reduce the demand for our products and adversely impact our business and profitability; if we fail to retain our existing senior management team or attract qualified new personnel such failure could have a material adverse effect on our business, financial condition and results of operations; our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage; our operating results and inventory levels fluctuate on a seasonal basis; our e-commerce and omni-channel business faces distinct risks, and our failure to successfully manage those risks could have a negative impact on our profitability; we depend on our distribution centers and/or optical laboratories; we may incur losses arising from our investments in technological innovators in the optical retail industry, including artificial intelligence, which would negatively affect our financial results; ESG issues, including those related to climate change, could have a material adverse effect on our business, financial condition and results of operations; changing climate and weather patterns leading to severe weather and disasters may cause significant business
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interruptions and expenditures; future operational success depends on our ability to develop, maintain and extend relationships with managed vision care companies, vision insurance providers and other third-party payors; we face risks associated with vendors from whom our products are sourced and are dependent on a limited number of suppliers; we rely heavily on our information technology systems, as well as those of our vendors, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption or security breach could adversely affect our business, financial condition and operations; we rely on third-party coverage and reimbursement, including government programs, for an increasing portion of our revenues, the future reduction of which could adversely affect our results of operations; we are subject to extensive state, local and federal vision care and healthcare laws and regulations and failure to adhere to such laws and regulations would adversely affect our business; we are subject to managed vision care laws and regulations; we are subject to rapidly changing and increasingly stringent laws, regulations, contractual obligations, and industry standards relating to privacy, data security and data protection which could subject us to liabilities that adversely affect our business, operations and financial performance; we could be adversely affected by product liability, product recall or personal injury issues; failure to comply with laws, regulations and enforcement activities or changes in statutory, regulatory, accounting and other legal requirements could potentially impact our operating and financial results; adverse judgments or settlements resulting from legal proceedings relating to our business operations could materially adversely affect our business, financial condition and results of operations; we may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business; we have a significant amount of indebtedness which could adversely affect our business and financial position, including limiting our business flexibility and preventing us from meeting our debt obligations; a change in interest rates may adversely affect our business; our credit agreement contains restrictions that limit our flexibility in operating our business; conversion of the 2025 Notes could dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock; and risks related to owning our common stock, including our ability to comply with requirements to design and implement and maintain effective internal controls.
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,” or the “Company” in this Form 10-Q mean National Vision Holdings, Inc. and its subsidiaries, unless the context otherwise requires. References to “eye care 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 eye care practitioners with which we have arrangements) and opticians.
Website Disclosure
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 National 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.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
National Vision Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
In thousands, except par value | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Noncurrent assets: | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Trademarks and trade names | |||||||||||
| Other intangible assets, net | |||||||||||
| Right of use assets | |||||||||||
| Other assets | |||||||||||
Noncurrent assets of discontinued operations | |||||||||||
| Total noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Other payables and accrued expenses | |||||||||||
| Unearned revenue | |||||||||||
| Deferred revenue | |||||||||||
| Current maturities of long-term debt and finance lease obligations | |||||||||||
| Current operating lease obligations | |||||||||||
Current liabilities of discontinued operations | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent liabilities: | |||||||||||
| Long-term debt and finance lease obligations, less current portion and debt discount | |||||||||||
| Noncurrent operating lease obligations | |||||||||||
| Deferred revenue | |||||||||||
| Other liabilities | |||||||||||
| Deferred income taxes, net | |||||||||||
| Total noncurrent liabilities | |||||||||||
| Commitments and contingencies (See Note 11) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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National Vision Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
In thousands, except earnings (loss) per share | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Net product sales | $ | $ | $ | $ | |||||||||||||||||||
| Net sales of services and plans | |||||||||||||||||||||||
| Total net revenue | |||||||||||||||||||||||
| Costs applicable to revenue (exclusive of depreciation and amortization): | |||||||||||||||||||||||
| Products | |||||||||||||||||||||||
| Services and plans | |||||||||||||||||||||||
| Total costs applicable to revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | ( | ( | |||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
Income from operations | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | ( | ||||||||||||||||||||||
Income tax provision (benefit) | ( | ||||||||||||||||||||||
Income (loss) from continuing operations, net of tax | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax (See Note 2) | ( | ( | |||||||||||||||||||||
Net income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||
Basic earnings (loss) per share: | |||||||||||||||||||||||
Continuing operations | $ | ( | $ | $ | $ | ||||||||||||||||||
Discontinued operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Total | $ | ( | $ | $ | $ | ||||||||||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||||||
Continuing operations | $ | ( | $ | $ | $ | ||||||||||||||||||
Discontinued operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Total | $ | ( | $ | $ | $ | ||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||
Net income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||
| Unrealized gain on hedge instruments | |||||||||||||||||||||||
| Tax provision of unrealized gain on hedge instruments | |||||||||||||||||||||||
Comprehensive income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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National Vision Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Three and Six Months Ended June 29, 2024 | |||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||
In thousands | Shares | Amount | |||||||||||||||||||||
| Balances at December 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Purchase of treasury stock | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain on hedge instruments, net of tax | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Balances at March 30, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Purchase of treasury stock | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain on hedge instruments, net of tax | |||||||||||||||||||||||
Net income (loss) | ( | ( | |||||||||||||||||||||
| Balances at June 29, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
Three and Six Months Ended July 1, 2023 | |||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||
In thousands | Shares | Amount | |||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
| Issuance of common stock | — | — | — | ||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | ( | — | — | — | — | ( | ( | ||||||||||||||||
| Unrealized gain on hedge instruments, net of tax | — | — | — | — | — | ||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||
| Balances at April 1, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
| Issuance of common stock | — | — | — | ||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||
| Purchase of treasury stock | ( | — | — | — | — | ( | ( | ||||||||||||||||
| Unrealized gain on hedge instruments, net of tax | — | — | — | — | — | ||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||
| Balances at July 1, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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National Vision Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Six Months Ended | |||||||||||
In thousands | June 29, 2024 | July 1, 2023 | |||||||||
| Cash flows from operating activities: | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt discount and deferred financing costs | |||||||||||
Amortization of cloud computing implementation costs | |||||||||||
| Asset impairment | |||||||||||
| Deferred income tax expense (benefit) | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Losses (gains) on change in fair value of derivatives | ( | ( | |||||||||
| Inventory adjustments | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Operating lease right of use assets and lease liabilities | ( | ||||||||||
| Other assets | |||||||||||
| Accounts payable | ( | ( | |||||||||
| Deferred and unearned revenue | ( | ||||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Other | ( | ||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments on long-term debt | ( | ||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Payments on finance lease obligations | ( | ( | |||||||||
| Net cash used for financing activities | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
| Supplemental cash flow disclosure information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for taxes | $ | $ | |||||||||
| Capital expenditures accrued at the end of the period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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National Vision Holdings, Inc. and Subsidiaries
Index to Notes to Condensed Consolidated Financial Statements
| Page | |||||
9
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 wholly-owned subsidiaries. We are a leading value retailer of eyeglasses and contact lenses in the United States (the “U.S.”). We operated 1,216 and 1,188 retail optical locations in the U.S. and its territories as of June 29, 2024 and December 30, 2023, respectively, through our four store brands, including America’s Best Contacts and Eyeglasses (“America’s Best”), Eyeglass World, Vista Optical locations on select U.S. Army/Air Force military bases (“Military”) and within select Fred Meyer stores. We operated 225 stores for Walmart Inc. (“Walmart”) as of December 30, 2023; these stores are not reflected in the store counts above and the operating results of these stores are presented as discontinued operations. Also presented in discontinued operations are the majority of the operations formerly conducted by the Company’s Arlington Contact Lens (“AC Lens”) subsidiary. Refer to Note 2. “Discontinued Operations” for more information.
Basis of Presentation and Principles of Consolidation
We prepare our unaudited interim 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, 2023 has been derived from the audited consolidated balance sheet for the fiscal year then ended. These 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 results of the interim period.
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 sufficient for a fair presentation of the information presented. These 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, 2023 included in the 2023 Annual Report on Form 10-K. 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 months ended June 29, 2024.
The condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts within the Condensed Consolidated Statements of Cash Flows and footnotes to the financial statements for fiscal year 2023 have been reclassified to conform to the fiscal year 2024 presentation. Retrospective reclassifications have been made to prior period financial statements and disclosures to present the discontinued operations. Refer to Note 2. “Discontinued Operations” for more information on discontinued operations.
Fiscal Year
Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31. Fiscal year 2024 contains 52 weeks and will end on December 28, 2024. All three and six month periods presented herein contain 13 and 26 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.
Seasonality
The consolidated results of operations for the three and six months ended June 29, 2024 and July 1, 2023, 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 markets. Historically, our business has realized a higher portion of net revenue, income from operations, and cash flows from operations in the first half of the year, and a lower portion of net revenue, income from operations, and cash flows from operations in the fourth fiscal quarter. The first half seasonality is attributable primarily to the timing of our customers’ personal income tax refunds and annual health insurance program start/reset periods. Seasonality related to fourth quarter holiday spending by retail
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customers generally does not impact our business. Our quarterly consolidated results generally may also be affected by the timing of new store openings, store closings, and certain holidays.
Use of Estimates
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.
Asset Impairment
Income Taxes
The Company’s quarterly provision (benefit) for income taxes has historically been calculated using the annualized effective tax rate (“AETR”) method, which applies an estimated annual effective tax rate to pre-tax income or loss. For the three and six months ended June 29, 2024, the Company calculated the provision (benefit) for income taxes using a discrete effective tax rate (“ETR”) method. The Company determined that due to the fact that small changes in the Company’s estimated pretax income or loss would result in significant changes in the estimated AETR, the historical method would not provide a reliable estimate for the three and six months ended June 29, 2024.
Our effective tax rate for the three months ended June 29, 2024 was 60.0 %, reflecting our statutory federal and state rate of 25.2 %, tax impacts of consolidated VIEs and effects of other permanent items. Our effective tax rate for the three months ended July 1, 2023 was 2.4 %, reflecting our statutory federal and state rate of 25.4 %, tax impacts of consolidated VIEs, employee-related federal tax credits and effects of other permanent items.
Our effective tax rate for the six months ended June 29, 2024 was 35.4 %, reflecting our statutory federal and state rate of 25.2 %, non-deductible compensation expense, tax impacts of consolidated VIEs and other permanent items. Our effective tax rate for the six months ended July 1, 2023 was 30.0 %, reflecting our statutory federal and state rate of 25.4 %, tax impacts of non-deductible compensation expenses, reduced deductibility of meals and entertainment and effects of other permanent items.
Share Repurchases
Effective February 23, 2024, the Board of Directors authorized the Company to repurchase up to $50 million aggregate amount of shares of the Company’s common stock until January 3, 2026. As of June 29, 2024, $50 million remains available under the share repurchase authorization. During the six months ended July 1, 2023, the Company repurchased 1.1 million shares of its common stock for $25.0 million.
Investments
In the second quarter of fiscal year 2023, we completed an investment in an entity specializing in applying artificial intelligence-powered screening and diagnostic tools to retinal imaging. In the second quarter of fiscal year 2024, we invested an additional $0.5 million in the entity. As of June 29, 2024, we have invested a total of $2.3 million in the entity. We have agreed to invest up to an additional $1.0 million in the entity upon the completion of certain milestones. The investment is recognized in Other assets in the Condensed Consolidated Balance Sheets as of June 29, 2024 and in Other in the investing section of the Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2024. The investment is valued at cost less impairment.
Discontinued Operations
In accordance with ASC 205-20 “Presentation of Financial Statements: Discontinued Operations,” a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. In the period in which the component meets held-for-sale or discontinued operations criteria, the major
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current assets, non-current assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations.
Future Adoption of Accounting Pronouncements
Reference Rate Reform. The Financial Accounting Standards Board (“FASB”) has issued guidance at various points over the last several years that provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that may be affected by the cessation of the London Inter-bank Offered Rate (“LIBOR”). We are currently able to apply this new guidance for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2024. Refer to Note 7. “Interest Rate Derivatives” for more information on our transition from LIBOR to Term Secured Overnight Financing Rate (“Term SOFR”).
Segment reporting. In November 2023, the FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update provides, among other things, enhanced segment disclosure requirements including disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements and disclosures.
Income taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and for interim periods within fiscal years beginning after December 15, 2025. The Company is currently evaluating the impact of the guidance on the consolidated financial statements and disclosures.
The Enhancement and Standardization of Climate-Related Disclosures for Investors. In March 2024, the SEC issued its final rule on the enhancement and standardization of climate-related disclosures for investors. Subsequent to issuance, the rule became the subject of litigation, and the SEC has issued a stay to allow the legal process to proceed. Unless legal challenges to the rule prevail or the effective date is delayed, this rule will require registrants to disclose certain climate-related information in registration statements and annual reports, and the revisions to Regulation S-X (including disclosure related to severe weather events and other natural conditions) would apply to the Company’s financial statements beginning with the Company’s fiscal year 2025. The Company is currently evaluating the rule to determine the impact on its consolidated financial statements and disclosures.
The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on the Company’s financial statements, and therefore, is not described above.
2. Discontinued Operations
On July 20, 2023, the Company received a notice of non-renewal from Walmart of the Management & Services Agreement by and between NVI and Walmart, dated as of May 1, 2012 (as amended, supplemented or otherwise modified from time to time, the “Walmart MSA”). In accordance with the terms of the Walmart MSA and the notice, the agreement terminated as of February 23, 2024 (the “Termination Date”). In connection with the termination of the Walmart MSA, the Amended and Restated Supplier Agreement between NVI and Walmart, dated as of January 17, 2017; the agreement between FirstSight Vision Services, Inc. (“FirstSight”), a wholly-owned subsidiary of the Company, and Walmart, which arranged for the provision by FirstSight of optometric services at optometric offices next to certain Walmart stores throughout California; and certain other related agreements also
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terminated as of the Termination Date. The Walmart MSA includes provisions governing the transition period and post-termination obligations of the parties.
AC Lens delivered notices of non-renewal of the agreements it has with Walmart and its affiliate Sam’s Club regarding wholesale contact lenses distribution and related services, such that these agreements terminated during the three months ended June 29, 2024, and the Company wound down the majority of AC Lens operations, including the closure of its Ohio distribution center, which largely supported the wholesale distribution and e-commerce contact lens services that the Company provided to Walmart and Sam’s Club.
During the three and six months ended June 29, 2024, we recorded $2.9 million and $5.7 million, respectively, of net expense associated with the termination of the Walmart MSA and wind down of AC Lens, which consisted of employee compensation benefits, early termination fees, and other exit related costs. These charges were recorded in both Selling, general, and administrative expenses and Costs applicable to revenue for discontinued operations.
We anticipate that we will incur approximately $2 million during the rest of fiscal year 2024 related to the termination of the Walmart MSA and wind down of AC Lens.
As a result of the termination of the Walmart MSA and wind down of AC Lens operations, our former Legacy reportable segment and certain other results previously included in our Corporate/Other and Reconciliations categories, met the criteria to be presented as discontinued operations as of June 29, 2024. Accordingly, the assets and liabilities and results of operations of the discontinued operations have been presented in the tables below.
Refer to Note 3. “Details of Cost Savings Plan” for more information on the cost savings plan related to our continuing operations.
Major classes of assets and liabilities related to discontinued operations are presented in the table below. We have retained working capital and deferred tax balances related to discontinued operations; consequently, these items are not part of the disposal group.
In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
Noncurrent assets: | |||||||||||
Property and equipment, net | $ | $ | |||||||||
Right of use assets | |||||||||||
| Other intangible assets, net | |||||||||||
Total noncurrent assets of discontinued operations | $ | $ | |||||||||
Current liabilities: | |||||||||||
| Current operating lease obligations | $ | $ | |||||||||
Total current liabilities of discontinued operations | $ | $ | |||||||||
The following table presents income (loss) from discontinued operations, net of tax:
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
Revenue: | |||||||||||||||||||||||
Net product sales | $ | $ | $ | $ | |||||||||||||||||||
Net sales of services and plans | |||||||||||||||||||||||
Total net revenue | |||||||||||||||||||||||
Costs applicable to revenue (exclusive of depreciation and amortization): | |||||||||||||||||||||||
Products | |||||||||||||||||||||||
Services and plans | |||||||||||||||||||||||
Total costs applicable to revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
Other expense (income), net | ( | ( | ( | ( | |||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
Earnings (loss) from discontinued operations before income taxes | ( | ( | |||||||||||||||||||||
Income tax provision (benefit) from discontinued operations | ( | ( | |||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||
The following table presents significant non-cash items and cash flows from investing activities related to discontinued operations:
| Six Months Ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | $ | ||||||||||
| Stock-based compensation expense | |||||||||||
| Inventory adjustments | ( | ||||||||||
Other | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ||||||||||
| Other | |||||||||||
3. Details of Cost Savings Plan
In connection with the discontinued operations, the Company implemented a cost savings plan that included optimizing non-customer facing labor costs, as well as reducing travel expenses and third-party spend. We have incurred $1.9 million since the inception of the cost savings plan, which is included within our continuing operations results. The plan has been substantially completed and we do not anticipate additional material costs related to this plan. The liability related to this plan is recorded in Other payables and accrued expenses in the Condensed Consolidated Balance Sheets. Some remaining payments are not anticipated to occur until fiscal year 2025. This disclosure excludes the impact of the Walmart partnership termination and wind down of AC Lens operations, which are currently presented under discontinued operations.
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In thousands | Employee Compensation Benefits | ||||
Balance at December 30, 2023 | $ | ||||
Expenses recognized during the period | |||||
Payments during the period | ( | ||||
Balance at June 29, 2024 | $ | ||||
Employee compensation benefits
During the six months ended June 29, 2024, we recognized $0.1 million in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income, in the Corporate/Other category, related to termination benefits for certain associates.
4. Details of Certain Balance Sheet Accounts
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 in the Condensed Consolidated Statement of Cash Flows:
| Six Months Ended | |||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other assets | |||||||||||
| $ | $ | ||||||||||
The following tables provide additional details of certain balance sheet accounts as of the dates shown below:
| In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| Accounts receivable, net: | |||||||||||
| Trade receivables | $ | $ | |||||||||
| Credit card receivables | |||||||||||
Other receivables (1) | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| $ | $ | ||||||||||
(1) Includes Coronavirus Aid, Relief, and Economic Security (“CARES”) Act receivable in the amount of $ | |||||||||||
| In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| Inventories: | |||||||||||
Raw materials and work in process (1) | $ | $ | |||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
(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. | |||||||||||
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| In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| Other payables and accrued expenses: | |||||||||||
| Associate compensation and benefits | $ | $ | |||||||||
| Self-insurance liabilities | |||||||||||
| Capital expenditures | |||||||||||
| Advertising | |||||||||||
| Reserves for customer returns and remakes | |||||||||||
Payable to Walmart | |||||||||||
Income taxes payable | |||||||||||
| Supplies and other store support expenses | |||||||||||
Litigation settlements (See Note 11) | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| Other noncurrent liabilities: | |||||||||||
| Self-insurance liabilities | $ | $ | |||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
5. Fair Value Measurement
Recurring fair value measurements
Interest Rate Derivatives
We recognize as assets or liabilities at fair value the estimated amounts we would receive or pay upon a termination of interest rate derivatives prior to their scheduled expiration dates. The fair value is based on information that is model-driven and whose inputs were observable (Level 2 inputs) such as Term SOFR forward rates. See Note 7. “Interest Rate Derivatives” for further details.
Non-recurring fair value measurements
Long-lived and ROU Store Assets
We recognized impairments of $3.5 million and $4.0 million during the three and six months ended June 29, 2024, respectively, and $0.9 million and $1.2 million during the three and six months ended July 1, 2023, respectively, related to our long-lived tangible store assets and ROU assets. The cash flows used in estimating fair value were discounted using market rates of 11.5 %. A decrease in the estimated cash flows would lead to a lower fair value measurement, as would an increase in the discount rate. These non-recurring fair value measurements are classified as Level 3 measurements in the fair value hierarchy. The estimated remaining fair value of the assets impaired during the six months ended June 29, 2024 and July 1, 2023 was $0.5 million and $1.0 million, respectively; the estimated remaining fair values include amounts estimated at various dates during the related fiscal years. Substantially all of the remaining fair value of the impaired store assets represents the fair value of ROU assets.
Additional fair value information
Long-term Debt - Term Loan A and Revolving Loans
Since the borrowings under the $142.5 million outstanding principal first lien term loan (“Term Loan A”) and revolving credit loans in an aggregate principal amount of $300.0 million (the “Revolving Loans”) utilize variable interest rate setting mechanisms such as Term SOFR, the fair values of these borrowings are deemed to approximate the carrying values. We also considered the effect of our own credit risk on the fair values of Term Loan A and Revolving Loans. Refer to Note 6. “Long-term Debt” for more information on these borrowings.
Long-term Debt - 2025 Notes
The Company has $302.5 million in aggregate principal amount of 2.50 % convertible senior notes due on May 15, 2025 (the “2025 Notes”) issued and outstanding as of June 29, 2024. Refer to Note 6. “Long-term Debt” for more
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information on the 2025 Notes. The estimated fair value of the 2025 Notes was approximately $290.5 million and $303.3 million as of June 29, 2024 and December 30, 2023, respectively. The estimated fair value of the 2025 Notes is based on the prices the 2025 Notes have traded in the market as well as overall market conditions on the date of valuation, stated coupon rates, the number of coupon payments each year and the maturity dates, and represents a Level 2 measurement in the fair value hierarchy. Refer to Note 6. “Long-term Debt” for more information on the 2025 Notes.
6. Long-term Debt
Long-term debt consists of the following:
| In thousands | As of June 29, 2024 | As of December 30, 2023 | |||||||||
| 2025 Notes, due May 15, 2025 | $ | $ | |||||||||
Term Loan A, due June 13, 2028 | |||||||||||
| Revolving Loans, due June 13, 2028 | |||||||||||
| Long-term debt before unamortized discount and issuance costs | |||||||||||
| Unamortized discount and issuance costs - 2025 Notes | ( | ( | |||||||||
Unamortized discount and issuance costs - Term Loan A | ( | ( | |||||||||
| Long-term debt less debt discount and issuance costs | |||||||||||
| Less current maturities | ( | ( | |||||||||
| Long-term debt - noncurrent portion | |||||||||||
| Finance lease obligations | |||||||||||
| Less current maturities | ( | ( | |||||||||
| Long-term debt and finance lease obligations, less current portion, discount, and issuance costs | $ | $ | |||||||||
Scheduled annual maturities of debt are as follows:
| Fiscal Period | In thousands | |||||||
| 2024 - remainder of fiscal year | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Credit Agreement
We were in compliance with all covenants related to our long-term debt as of June 29, 2024.
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2025 Notes
The 2025 Notes mature on May 15, 2025, and due to the upcoming maturity, we have reclassified the outstanding principal balance of $302.5 293.6 million of availability under its revolving credit facility, in addition to $179.5 million of cash on hand, which provides the Company with sufficient liquidity to repay the remaining balance of the 2025 Notes as they become due.
We recognized the following in Interest expense (income), net related to the 2025 Notes:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of issuance costs | $ | $ | $ | $ | |||||||||||||||||||
As of June 29, 2024, the remaining period for the unamortized debt issuance costs balance was approximately one year .
As of June 29, 2024, the stock price conditions under which the 2025 Notes can be converted at the holders’ option were not met.
7. Interest Rate Derivatives
We are party to an interest rate collar to offset the variability of cash flows in Term SOFR-indexed debt interest payments. During the second quarter of 2023, we amended the reference rate of the collar from LIBOR to Term SOFR. The aggregate notional amount of the interest rate collar, which is not designated as a cash flow hedge, was $300.0 million as of June 29, 2024. The fair value of our interest rate collar instrument was an asset of $0.6 million, which is recorded in Prepaid expenses and other current assets as of June 29, 2024, and an asset of $5.6 million, which was recorded in Prepaid expenses and other current assets as of December 30, 2023. See Note 5. “Fair Value Measurement” for further details.
We recognized (gains) losses on the change in fair value of the interest rate collar of $(0.1 ) million and $(0.5 ) million during the three and six months ended June 29, 2024, respectively, and $(2.8 ) million and $(2.3 ) million during the three and six months ended July 1, 2023, respectively. The interest rate collar matured on July 18, 2024.
Cash flows related to derivatives qualifying as hedges are included in the same section of the Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged. Cash flows during the six months ended June 29, 2024 and July 1, 2023 related to derivatives not qualifying as hedges were included in the operating section of the Condensed Consolidated Statements of Cash Flows and were immaterial.
8. Stock Incentive Plans
On June 12, 2024, the Company’s stockholders approved the amendment and restatement of the National Vision Holdings, Inc. 2017 Omnibus Incentive Plan (as amended and restated, the “2017 Omnibus Incentive Plan”), increasing the number of shares of common stock of the Company authorized for issuance under the 2017 Omnibus Incentive Plan by an additional 5.6 million shares.
During the six months ended June 29, 2024, the Company granted 297,032 performance-based restricted stock units (“PSUs”) and 558,161 time-based restricted stock units (“RSUs”) to eligible employees and non-employee directors under the 2017 Omnibus Incentive Plan and the 2014 Stock Incentive Plan for Key Employees of National Vision Holdings, Inc. (formerly known as Nautilus Parent, Inc.) and its Subsidiaries (the “2014 Stock Incentive Plan”). The PSUs granted in fiscal 2024 will be settled after the end of the performance period (i.e., cliff vesting), which begins on the first day of our 2024 fiscal year and ends on the last day of our 2026 fiscal year, and are based on the
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Company’s achievement of certain performance targets. The RSUs granted in fiscal 2024 vest primarily in three equal annual installments.
9. Revenue from Contracts with Customers
The majority of our 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 managed care payors having terms generally between 14 and 120 days, with most paying within 90 days. For sales of in-store non-prescription eyewear and related accessories, and paid eye exams, we recognize revenue at the point of sale. Our point in time 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) and 2) eye exams. Revenues recognized over time primarily include product protection plans (i.e. warranties) and eye care club memberships.
The following disaggregation of revenues depicts our revenue based on the timing of revenue recognition:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Revenues recognized at a point in time | $ | $ | $ | $ | |||||||||||||||||||
| Revenues recognized over time | |||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | |||||||||||||||||||
Refer to Note 12. “Segment Reporting” for the Company’s disaggregation of net revenue by reportable segment. As our reportable segment is aligned by similar economic factors, trends and customers, the reportable segment disaggregation view best depicts how the nature, amount and uncertainty of revenue and cash flows are affected by economic factors.
We record reductions in revenue for estimated price concessions granted to managed care providers. The Company considers its revenue from managed care customers to include variable consideration and estimates such amounts associated with managed care customer revenues using the history of concessions provided and cash receipts from managed care providers. We reduced our net revenue for variable consideration of $3.1 million and $3.5 million during the three months ended June 29, 2024 and July 1, 2023, respectively, and $7.0 million and $7.1 million during the six months ended June 29, 2024 and July 1, 2023, respectively.
Accounts Receivable
Credit loss expense recognized on our receivables, which is presented in SG&A expenses in the Company’s Condensed Consolidated Statements of Operations, was $0.1 million and $0.2 million for the three months ended June 29, 2024 and July 1, 2023, respectively, and $0.2 million and $0.3 million for the six months ended June 29, 2024 and July 1, 2023, respectively.
Unsatisfied Performance Obligations (Contract Liabilities)
During the three months ended June 29, 2024 and July 1, 2023, we recognized $23.1 million and $23.0 million, respectively, of deferred revenues outstanding at the beginning of each respective period. During the six months ended June 29, 2024 and July 1, 2023, we recognized $41.2 million and $40.4 million, respectively, of deferred revenues outstanding at the beginning of each respective period.
Our deferred revenue balance as of June 29, 2024 and December 30, 2023 was $86.3 million and $84.3 million, respectively. We expect future revenue recognition of the June 29, 2024 balance of $50.6 million, $23.3 million, $10.9 million and $1.5 million in fiscal years 2024, 2025, 2026 and 2027, respectively.
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10. Leases
Our lease costs for the three and six months ended June 29, 2024 and July 1, 2023 were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Operating lease cost | |||||||||||||||||||||||
Fixed lease cost (a) | $ | $ | $ | $ | |||||||||||||||||||
Variable lease cost (b) | |||||||||||||||||||||||
Sublease income (c) | ( | ( | ( | ( | |||||||||||||||||||
| Finance lease cost | |||||||||||||||||||||||
| Amortization of finance lease assets | |||||||||||||||||||||||
| Interest on finance lease liabilities | |||||||||||||||||||||||
| Net lease cost | $ | $ | $ | $ | |||||||||||||||||||
| (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 leasing space to independent optometrists. | |||||||||||||||||||||||
| In thousands | Six Months Ended | |||||||||||||
| Other Information | June 29, 2024 | July 1, 2023 | ||||||||||||
| Operating cash outflows - operating leases | $ | $ | ||||||||||||
| Right of use assets acquired under operating leases | $ | $ | ||||||||||||
11. Commitments and Contingencies
Legal Proceedings
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 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.
We are currently and may in the future become subject to various claims and pending or threatened lawsuits in the ordinary course of our business.
On September 23, 2022, we were served with notice of a lawsuit filed by a former employee in California state court alleging, on behalf of a proposed class of employees, several violations of California wage and hour laws. On December 9, 2022, the case was removed to the federal District Court for the Northern District of California. On January 18, 2023, we were served with a related representative action filed in California state court pursuant to California’s Private Attorneys General Act. We filed an answer to this action on February 17, 2023. On September 29, 2023, the state court set the PAGA action for trial on October 7, 2024. The parties attended mediation on March 11, 2024, but a resolution of the matter was not reached at that time. Following mediation, the parties agreed to a settlement of all claims alleged by the named plaintiff on behalf of himself and all putative class members and other aggrieved employees. The Company will pay $4.5 million for the gross settlement fund in connection with the settlement. The settlement is subject to approval by the court following a fairness hearing.
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On June 6, 2023, the Company was served with notice of a former employee’s intention to file a representative action against the Company pursuant to California’s Private Attorneys General Act based on alleged violations of California’s wage and hour laws. On June 22, 2023, the Company was served with a related lawsuit filed by the former employee in California state court alleging, on behalf of a proposed class of employees, violations of California wage and hour laws. On July 24, 2023, the Company filed its answer and a notice of removal of the case to the federal District Court for the Southern District of California. On July 28, 2023, the Company filed a Notice of Related Cases, seeking for both the case currently pending in the Northern District of California and described in the paragraph above and this case to be assigned to the same Judge/Magistrate Judge in an effort to save judicial effort and avoid duplication of labor. On August 15, 2023, the parties filed a stipulation to stay the case in the Southern District of California pending the resolution of the lawsuit pending in the Northern District of California. On August 21, 2023, the court entered an Order to Show Cause why the action should not be either dismissed or transferred to the federal court for the Northern District of California. Following the parties’ submission of their respective responses, the court dismissed the action without prejudice on September 11, 2023. The plaintiff retains his ability to pursue a PAGA action in state court pursuant to the June 6, 2023 notice. On January 22, 2024, the plaintiff filed a demand for arbitration of the claims set forth in the Complaint previously filed in state court in June 2023. We dispute the plaintiff’s allegations and intend to vigorously defend the litigation.
On January 27, 2023, a purported class action complaint was filed in federal court in the Northern District of Georgia against the Company and two of the Company’s officers (the “Securities Class Action”). The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 for materially false and misleading statements made between May 2021 and May 2022. The complaint seeks unspecified damages as well as equitable relief. On March 28, 2023, the original plaintiff, City of Southfield General Employees Retirement System, and a new plaintiff, International Union of Operating Engineers, Local No. 793, Members Pension Benefit Trust of Ontario, filed a lead plaintiff motion, seeking to be appointed co-lead plaintiffs. On April 3, 2023, the Company along with its named officers filed a motion to dismiss the complaint. On May 19, 2023, the court granted the lead plaintiff motion. On June 30, 2023, the plaintiffs filed an amended complaint, which added a claim under Section 20A of the Exchange Act and extended the alleged class period to February 28, 2023. On August 21, 2023, the Company filed a motion to dismiss the amended complaint. The plaintiffs filed their response in opposition to this motion on October 5, 2023. On March 30, 2024, the court granted the Company’s motion and dismissed the amended complaint with prejudice. On April 29, 2024, the plaintiffs filed a motion for reconsideration of the order granting the motion to dismiss. The Company and named officers filed a response in opposition to the plaintiffs’ motion for reconsideration on May 13, 2024, and the plaintiffs then filed a reply in support of their motion on May 28, 2024. The Company disputes the allegations asserted by plaintiffs and will continue to defend the litigation vigorously.
12. Segment Reporting
The Company provides its principal products and services through one reportable segment: Owned & Host. The “Corporate/Other” category includes the results of operations of our other operating segments, as well as corporate overhead support. Revenues from the Corporate/Other category are attributable to our dedicated e-commerce website and FirstSight operations. Our dedicated e-commerce website was previously managed by AC Lens and was transitioned to NVI. FirstSight sells single-service health plans in connection with the operations of America’s Best operations in California. The “Reconciliations” category represents other adjustments to reportable segment results necessary for the presentation of consolidated financial results in accordance with U.S. GAAP. Our former Legacy reportable segment and certain other results previously included in the Corporate/Other and Reconciliations categories met the requirements to be classified as discontinued operations as of June 29, 2024. Refer to Note 2. “Discontinued Operations” for information related to our discontinued operations.
Our reportable segment profit measure is earnings before interest, tax, depreciation and amortization (“EBITDA”) or net revenue, less costs applicable to revenue, less SG&A expenses. Depreciation and amortization, asset impairment, and other corporate costs that are not allocated to the reportable segment, including interest expense (income), net are excluded from segment EBITDA. There are no differences between the measurement of our reportable
21
segment’s 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.
The following is a summary of certain financial data for our Owned & Host reportable segment and Corporate/Other and Reconciliations categories. Reportable segment information is presented on the same basis as our consolidated financial statements, except for net revenue and associated costs applicable to revenue, which are presented on a cash basis, including point of sales for managed care payors and excluding the effects of unearned and deferred revenue, consistent with what the Chief Operating Decision Maker (“CODM”) regularly reviews.
Asset information is not included in the following summary since the CODM does not regularly review such information for our reportable segment.
| Three Months Ended June 29, 2024 | |||||||||||||||||||||||
| In thousands | Owned & Host | Corporate/Other | Reconciliations | Total | |||||||||||||||||||
| Net product sales | $ | $ | $ | $ | |||||||||||||||||||
| Net sales of services and plans | ( | ||||||||||||||||||||||
| Total net revenue | |||||||||||||||||||||||
| Costs of products | |||||||||||||||||||||||
| Costs of services and plans | |||||||||||||||||||||||
| Total costs applicable to revenue | |||||||||||||||||||||||
| SG&A | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||||||||
| EBITDA | $ | $ | ( | $ | |||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | $ | ( | |||||||||||||||||||||
| Three Months Ended July 1, 2023 | |||||||||||||||||||||||
| In thousands | Owned & Host | Corporate/Other | Reconciliations | Total | |||||||||||||||||||
| Net product sales | $ | $ | $ | $ | |||||||||||||||||||
| Net sales of services and plans | |||||||||||||||||||||||
| Total net revenue | |||||||||||||||||||||||
| Costs of products | |||||||||||||||||||||||
| Costs of services and plans | |||||||||||||||||||||||
| Total costs applicable to revenue | |||||||||||||||||||||||
| SG&A | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||||||||
| EBITDA | $ | $ | ( | $ | |||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Earnings from continuing operations before income taxes | $ | ||||||||||||||||||||||
22
| Six Months Ended June 29, 2024 | |||||||||||||||||||||||
| In thousands | Owned & Host | Corporate/Other | Reconciliations | Total | |||||||||||||||||||
| Net product sales | $ | $ | $ | $ | |||||||||||||||||||
| Net sales of services and plans | ( | ||||||||||||||||||||||
| Total net revenue | |||||||||||||||||||||||
| Costs of products | |||||||||||||||||||||||
| Costs of services and plans | |||||||||||||||||||||||
| Total costs applicable to revenue | |||||||||||||||||||||||
| SG&A | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||||||||
| EBITDA | $ | $ | ( | $ | |||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Earnings from continuing operations before income taxes | $ | ||||||||||||||||||||||
| Six Months Ended July 1, 2023 | |||||||||||||||||||||||
| In thousands | Owned & Host | Corporate/Other | Reconciliations | Total | |||||||||||||||||||
| Net product sales | $ | $ | $ | $ | |||||||||||||||||||
| Net sales of services and plans | ( | ||||||||||||||||||||||
| Total net revenue | ( | ||||||||||||||||||||||
| Costs of products | |||||||||||||||||||||||
| Costs of services and plans | |||||||||||||||||||||||
| Total costs applicable to revenue | |||||||||||||||||||||||
| SG&A | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Other expense (income), net | ( | ( | |||||||||||||||||||||
| EBITDA | $ | $ | ( | $ | ( | ||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense, net | |||||||||||||||||||||||
Earnings from continuing operations before income taxes | $ | ||||||||||||||||||||||
23
13. Earnings Per Share
Diluted EPS related to the 2025 Notes is calculated using the if-converted method; the number of dilutive shares is based on the initial conversion rate associated with the 2025 Notes. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations is as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
In Thousands, Except Earnings Per Share | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
Income (loss) from continuing operations, net of tax | $ | ( | $ | $ | $ | ||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Net income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding, Basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
| Weighted average shares outstanding, Diluted | |||||||||||||||||||||||
Basic earnings (loss) per share: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | $ | ||||||||||||||||||
| Discontinued operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Total | $ | ( | $ | $ | $ | ||||||||||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | $ | $ | ||||||||||||||||||
| Discontinued operations | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Total | $ | ( | $ | $ | $ | ||||||||||||||||||
| Anti-dilutive securities excluded from diluted weighted average common shares | |||||||||||||||||||||||
Some of the totals in the table above do not foot due to rounding differences | |||||||||||||||||||||||
24
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 (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 February 27, 2024 (the “2023 Annual Report on Form 10-K.”) This discussion contains forward-looking statements that reflect our plans, estimates and beliefs as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” sections of this Form 10-Q and the 2023 Annual Report on Form 10-K, 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.
Overview
We are one of the largest optical retailers in the U.S. 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, regardless of their budget. We achieve this by providing eye exams, eyeglasses and contact lenses to value seeking and lower income consumers 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 1,216 retail stores across four brands as well as multiple consumer websites as of June 29, 2024.
Brand and Segment Information
As of June 29, 2024, our operations consisted of one reportable segment. During the six months ended June 29, 2024, our Walmart store operations, including our former Legacy reportable segment and components of our Corporate/Other category met the requirements to be classified as discontinued operations; refer to Part I. Item 1. Note 2. “Discontinued Operations” for more information on discontinued operations.
•Owned & Host - As of June 29, 2024, our owned brands consisted of 1003 America’s Best Contacts and Eyeglasses retail stores and 130 Eyeglass World retail stores. Our Host brands consisted of 54 Vista Optical locations on select military bases and 29 Vista Optical locations within select Fred Meyer stores as of June 29, 2024. All brands utilize our centralized laboratories. This segment also includes sales from our America’s Best, Eyeglass World, and Military omni-channel websites.
Our consolidated results also include the following activity recorded in our Corporate/Other category:
•Our e-commerce website that was formerly part of AC Lens and was transitioned to NVI as part of the wind down of AC Lens’ operations.
•The business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan under California law. In connection with the termination of the Walmart MSA, the agreement between FirstSight and Walmart, which arranged for the provision by FirstSight of optometric services at optometric offices next to certain Walmart stores throughout California, terminated on February 23, 2024.
•Unallocated corporate overhead expenses.
Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except reportable segment sales which are presented on a cash basis, including point of sales for managed care payors and excluding the effects of unearned and deferred revenue, consistent with what our 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 U.S. GAAP, specifically the change in unearned and deferred revenues during the period. There are no other items in the reconciliations other than the effects of unearned and deferred revenue. See Note 12. “Segment Reporting” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.
Deferred revenue represents the timing difference of when we collect the cash from the customer and when services related to product protection plans and eye care club memberships are performed. Increases or decreases in deferred revenue during the reporting period represent cash collections in excess of, or below the recognition of, previous deferrals. Unearned revenue represents the timing difference of when we collect cash from the customer and
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delivery/customer acceptance, and includes sales of prescription eyewear during approximately the last seven to 10 days of the reporting period.
Trends and Other Factors Affecting Our Business
Current macroeconomic conditions, including elevated inflation and interest rates and overall consumer sentiment, have negatively impacted and may continue to have adverse effects on our business, results of operations and financial condition, which could be material. Inflation has resulted in increased costs and greater profitability pressure. We have experienced wage rate pressure and increases in raw materials prices, which we expect to continue. Inflationary pressures, including elevated wages, consumer confidence and preferences and increased raw material costs could impact our profitability and lead us to attempt to offset such increases through various pricing actions.We generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions. From time to time we introduce limited-time promotions or new offers designed to increase demand and drive sales. Several factors may impact the level of success of such promotions, including consumer sentiment, macroeconomic conditions and marketing effectiveness, and as a result, if they do not meet our expectations, they could negatively impact our margins and profitability.
Additionally, our ability to continue to attract and retain qualified vision care professionals may affect exam capacity. We believe the impacts of the COVID-19 pandemic on vision care professional availability, including a competitive recruiting market and preferences for adjusted work schedules, and the demand for optometrists exceeding supply in certain areas have caused constraints in exam capacity which are continuing. Due to these factors, among others, the ability to recruit and retain optometrists has become more challenging and the costs to employ or retain optometrists have increased and may increase further, potentially materially.
We believe that many customers in our target market are value seeking and lower income consumers who rely on tax refunds to pay for eyewear and eye care. Historically, our business has experienced seasonality in the first half of the year that we believe is primarily attributable to the timing of customers’ income tax refunds and health insurance start/reset periods. A delay in the issuance of tax refunds or changes in the amount of tax refunds can, accordingly. have a negative impact on our quarterly financial results in the first half of the year. Consumer behavior with respect to the utilization of tax refund proceeds is also subject to change.
In the first half of 2024, we incurred costs related to the termination of the Walmart MSA and the wind-down of AC Lens operations, as well as an immaterial amount of costs related to the actions taken in fiscal year 2023 to streamline corporate overhead. While we seek to reduce costs and replace lost business with new America’s Best or Eyeglass World stores and by other means, including anticipated non-headline pricing actions, we may not be successful in our efforts, which could impact our revenues and profitability.
New Transformation Actions to Accelerate Growth
We have announced a new phase of our transformation efforts, which includes new additions to our executive leadership team, continued expansion of exam capacity, new traffic-driving initiatives and initiatives to strengthen the foundation of the business for profitable growth. As part of this endeavor, the Company has initiated a review of our portfolio of stores to optimize our fleet for profitability and strategic alignment.
In connection with this review, we are monitoring for whether impairment tests may be required on our non-financial assets such as property and equipment, ROU assets, and intangible assets, including goodwill. If impairment charges are required to be recorded following any required impairment tests, such charges could lead to decreased assets and reduced net income. If a significant write down were required, any such charge could have a material adverse effect on our operating results and stockholders’ equity, and could impact the trading price of our common stock.
Refer to Part I, Item 1A. “Risk Factors” in the Company’s 2023 Annual Report on Form 10-K for a more complete discussion of the risk factors we face.
How We Assess the Performance of 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 and operating segments are performing are net revenue, costs applicable to revenue, and selling, general, and administrative expenses. In addition, we also review store growth, Adjusted Comparable Store Sales Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.
26
Net Revenue
We report as net revenue amounts generated in transactions with retail customers who are the end users of our products, services and plans. Comparable store sales growth and new store openings are key drivers of net revenue and are discussed below. Also, the timing of unearned revenue can affect revenue recognized in a particular period.
Costs Applicable to Revenue
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
SG&A expenses generally fluctuate consistently with revenue due to the variable store, field office and corporate support costs; however, some fixed costs may decrease as a percentage of net revenue as our net revenues grow over time.
New Store Openings
The total number of new stores per year and the timing of store openings has had an impact, and we expect will continue to have an impact, on our results. We expect to open 65 to 70 stores in the current year. We are continuing to monitor and determine our plans for future new store openings at a level appropriate for incremental free cash flow generation and healthy growth, and based on health, safety and economic conditions.
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 during the 13th full 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 excluded 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 Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)
The Company Non-GAAP Measures are key measures used by management to assess our financial performance. The Company Non-GAAP Measures are also frequently used by analysts, investors and other interested parties. We use the Company Non-GAAP Measures to supplement U.S. 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 definitions of the Company Non-GAAP Measures and for additional information.
27
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.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
In thousands, except earnings (loss) per share, percentage and store data | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Net product sales | $ | 361,967 | $ | 352,180 | $ | 750,050 | $ | 732,333 | |||||||||||||||
| Net sales of services and plans | 89,766 | 79,606 | 184,477 | 164,265 | |||||||||||||||||||
| Total net revenue | 451,733 | 431,786 | 934,527 | 896,598 | |||||||||||||||||||
| Costs applicable to revenue (exclusive of depreciation and amortization): | |||||||||||||||||||||||
| Products | 111,213 | 106,362 | 224,417 | 217,436 | |||||||||||||||||||
| Services and plans | 82,367 | 73,960 | 164,709 | 149,013 | |||||||||||||||||||
| Total costs applicable to revenue | 193,580 | 180,322 | 389,126 | 366,449 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative expenses | 231,353 | 222,924 | 471,481 | 451,600 | |||||||||||||||||||
| Depreciation and amortization | 22,692 | 22,089 | 45,913 | 44,045 | |||||||||||||||||||
| Asset impairment | 3,519 | 893 | 3,975 | 1,247 | |||||||||||||||||||
| Other expense (income), net | (2) | (3) | (1) | (104) | |||||||||||||||||||
| Total operating expenses | 257,562 | 245,903 | 521,368 | 496,788 | |||||||||||||||||||
Income from operations | 591 | 5,561 | 24,033 | 33,361 | |||||||||||||||||||
Interest expense, net | 3,196 | 1,836 | 7,452 | 6,703 | |||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | (2,605) | 3,725 | 16,581 | 26,658 | |||||||||||||||||||
Income tax provision (benefit) | (1,564) | 88 | 5,869 | 8,007 | |||||||||||||||||||
Income (loss) from continuing operations, net of tax | (1,041) | 3,637 | 10,712 | 18,651 | |||||||||||||||||||
| Income (loss) from discontinued operations, net of tax (See Note 2) | (2,084) | 1,977 | (2,152) | 5,233 | |||||||||||||||||||
Net income (loss) | $ | (3,125) | $ | 5,614 | $ | 8,560 | $ | 23,884 | |||||||||||||||
| Supplemental operating data: | |||||||||||||||||||||||
| Number of stores open at end of period | 1,216 | 1,152 | 1,216 | 1,152 | |||||||||||||||||||
| New stores opened during the period | 17 | 24 | 31 | 32 | |||||||||||||||||||
Adjusted Operating Income from continuing operations | $ | 14,073 | $ | 12,369 | $ | 47,967 | $ | 44,934 | |||||||||||||||
Diluted earnings (loss) per share from continuing operations | $ | (0.01) | $ | 0.05 | $ | 0.14 | $ | 0.24 | |||||||||||||||
Adjusted Diluted EPS from continuing operations | $ | 0.15 | $ | 0.12 | $ | 0.44 | $ | 0.41 | |||||||||||||||
Adjusted EBITDA from continuing operations | $ | 36,383 | $ | 34,076 | $ | 93,117 | $ | 88,216 | |||||||||||||||
| Percentage of net revenue: | |||||||||||||||||||||||
| Total costs applicable to revenue | 42.9 | % | 41.8 | % | 41.6 | % | 40.9 | % | |||||||||||||||
| Selling, general and administrative expenses | 51.2 | % | 51.6 | % | 50.5 | % | 50.4 | % | |||||||||||||||
| Total operating expenses | 57.0 | % | 57.0 | % | 55.8 | % | 55.4 | % | |||||||||||||||
Income (loss) from continuing operations, net of tax | (0.2) | % | 0.8 | % | 1.1 | % | 2.1 | % | |||||||||||||||
Adjusted Operating Income from continuing operations | 3.1 | % | 2.9 | % | 5.1 | % | 5.0 | % | |||||||||||||||
Adjusted EBITDA from continuing operations | 8.1 | % | 7.9 | % | 10.0 | % | 9.8 | % | |||||||||||||||
28
Three Months Ended June 29, 2024 compared to Three Months Ended July 1, 2023
Certain components of our operations met the requirements to be classified as discontinued operations as of June 29, 2024. Refer to Part I. Item 1. Note 2. “Discontinued Operations” for information related to our discontinued operations. Unless otherwise noted, the discussion of U.S. GAAP results below is based on results from continuing operations.
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 from continuing operations for the three months ended June 29, 2024 compared to the three months ended July 1, 2023.
Comparable store sales growth from continuing operations(1) | Stores open at end of period | Net revenue(2) | ||||||||||||||||||||||||||||||||||||||||||
| In thousands, except percentage and store data | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | June 29, 2024 | July 1, 2023 | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | ||||||||||||||||||||||||||||||||||||||
| Owned & Host segment | ||||||||||||||||||||||||||||||||||||||||||||
| America’s Best | 2.9 | % | 1.8 | % | 1,003 | 926 | $ | 381,647 | 84.5 | % | $ | 354,592 | 82.1 | % | ||||||||||||||||||||||||||||||
| Eyeglass World | (0.5) | % | (2.8) | % | 130 | 143 | 49,489 | 11.0 | % | 55,730 | 12.9 | % | ||||||||||||||||||||||||||||||||
| Military | (0.1) | % | (0.1) | % | 54 | 54 | 5,625 | 1.2 | % | 5,632 | 1.3 | % | ||||||||||||||||||||||||||||||||
| Fred Meyer | (2.7) | % | (4.2) | % | 29 | 29 | 2,724 | 0.6 | % | 2,800 | 0.6 | % | ||||||||||||||||||||||||||||||||
| Owned & Host segment total | 1,216 | 1,152 | $ | 439,485 | 97.3 | % | $ | 418,754 | 97.0 | % | ||||||||||||||||||||||||||||||||||
| Corporate/Other | — | % | — | % | — | — | 8,099 | 1.8 | % | 8,348 | 1.9 | % | ||||||||||||||||||||||||||||||||
| Reconciliations | — | % | — | % | — | — | 4,149 | 0.9 | % | 4,684 | 1.1 | % | ||||||||||||||||||||||||||||||||
| Total | 2.2 | % | (0.2) | % | 1,216 | 1,152 | $ | 451,733 | 100.0 | % | $ | 431,786 | 100.0 | % | ||||||||||||||||||||||||||||||
Adjusted Comparable Store Sales Growth from continuing operations(3) | 2.4 | % | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||
(1)We calculate total comparable store sales from continuing operations based on consolidated net revenue from continuing operations excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 12. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.
(2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding.
(3)Adjusted Comparable Store Sales Growth from continuing operations includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.2% and an increase of 1.3% from total comparable store sales growth from continuing operations based on consolidated net revenue for the three months ended June 29, 2024 and July 1, 2023, respectively.
Total net revenue of $451.7 million for the three months ended June 29, 2024 increased $19.9 million, or 4.6%, from $431.8 million for the three months ended July 1, 2023. Approximately 70% of the increase was driven by growth from new store sales and approximately 50% of the increase was driven by Adjusted Comparable Store Sales Growth from continuing operations, partially offset by effects of converted and closed stores.
Comparable store sales growth from continuing operations and Adjusted Comparable Store Sales Growth from continuing operations for the three months ended June 29, 2024 were 2.2% and 2.4%, respectively, both reflecting an increase in customer transactions and higher average ticket.
In the three months ended June 29, 2024, we opened 14 America’s Best stores and three Eyeglass World stores and closed one America’s Best store and one Eyeglass World store. Overall, store count grew 5.6% from July 1, 2023 to June 29, 2024 (57 and seven net new America’s Best and Eyeglass World stores were added, respectively).
Net product sales comprised 80.1% and 81.6% of total net revenue for the three months ended June 29, 2024 and July 1, 2023, respectively. Net product sales increased $9.8 million, or 2.8%, in the three months ended June 29, 2024 compared to the three months ended July 1, 2023, driven primarily by a $4.2 million, or 5.6%, increase in contact lens sales and a $4.2 million, or 1.5% increase in eyeglass sales.
29
Net sales of services and plans for the three months ended June 29, 2024 increased $10.2 million, or 12.8%, compared to the three months ended July 1, 2023, driven primarily by higher eye exam revenues of $9.7 million, or 20.2%.
Owned & Host segment net revenue. Net revenue increased $20.7 million, or 5.0%, driven primarily by new store openings and comparable store sales growth, partially offset by converted and closed stores.
Net revenue reconciliations. The impact of reconciliations negatively impacted net revenue by $0.5 million in the three months ended June 29, 2024 primarily due to higher sales of club memberships and product protection plans in the three months ended June 29, 2024 compared to the three months ended July 1, 2023.
Costs applicable to revenue
Costs applicable to revenue of $193.6 million for the three months ended June 29, 2024 increased $13.3 million, or 7.4%, from $180.3 million for the three months ended July 1, 2023. As a percentage of net revenue, costs applicable to revenue increased from 41.8% for the three months ended July 1, 2023 to 42.9% for the three months ended June 29, 2024. This increase as a percentage of net revenue was primarily driven by lower eyeglass mix of 150 basis points, growth in optometrist-related costs of 100 basis points and 30 basis points from other mix and margin effects. These costs were partially offset by a 170 basis point effect from higher exam revenue.
Costs of products as a percentage of net product sales was 30.7% for the three months ended June 29, 2024 and 30.2% for the three months ended July 1, 2023, primarily driven by lower eyeglass mix and other mix and margin effects.
Owned & Host segment costs of products. Costs of products as a percentage of net product sales increased from 29.3% for the three months ended July 1, 2023 to 29.7% for the three months ended June 29, 2024, primarily driven by lower eyeglass mix and other product mix and margin effects.
Costs of services and plans as a percentage of net sales of services and plans decreased from 92.9% for the three months ended July 1, 2023 to 91.8% for the three months ended June 29, 2024. The decrease was primarily driven by an increase in eye exam revenue, partially offset by growth in optometrist-related costs.
Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans decreased from 93.1% for the three months ended July 1, 2023 to 91.3% for the three months ended June 29, 2024. The decrease was primarily driven by an increase in eye exam revenue, partially offset by growth in optometrist-related costs.
Selling, general and administrative
SG&A of $231.4 million for the three months ended June 29, 2024 increased $8.4 million, or 3.8%, from the three months ended July 1, 2023. As a percentage of net revenue, SG&A decreased from 51.6% for the three months ended July 1, 2023 to 51.2% for the three months ended June 29, 2024. The decrease in SG&A as a percentage of net revenue was primarily driven by lower performance-based incentive compensation expense of 90 basis points and lower advertising expense of 40 basis points, partially offset by higher legal and professional expense of 40 basis points, higher occupancy expense of 30 basis points and other operating expenses.
Owned & Host SG&A. SG&A as a percentage of net revenue was 39.6% for the three months ended June 29, 2024 and July 1, 2023.
Depreciation and amortization
Depreciation and amortization expense of $22.7 million for the three months ended June 29, 2024 increased $0.6 million, or 2.7%, from $22.1 million for the three months ended July 1, 2023 primarily driven by new store openings and investments in remote medicine technology.
Asset Impairment
We recognized $3.5 million primarily for impairment of tangible long-lived assets associated with our retail stores during the three months ended June 29, 2024, compared to $0.9 million impairment recognized during the three months ended July 1, 2023. The store asset impairment charge is related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores, and other entity-specific assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; and the remaining useful lives of the assets. Asset impairment expenses were recognized in Corporate/Other.
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Interest expense, net
Interest expense, net, was $3.2 million for the three months ended June 29, 2024, compared to $1.8 million for the three months ended July 1, 2023. The change was primarily a result of lower derivative income of $2.7 million, partially offset by lower interest expense on our long-term debt of $0.9 million.
Income tax provision (benefit)
Our effective tax rates for the three months ended June 29, 2024 and July 1, 2023 were 60.0% and 2.4%, respectively. The change in effective tax rates reflects our statutory federal and state rates of 25.2% and 25.4%, respectively, tax impacts of consolidated VIEs as well as effects of other permanent items.
Discontinued Operations
Income (loss) from discontinued operations, net of tax of $(2.1) million for the three months ended June 29, 2024, decreased $4.1 million from $2.0 million for the three months ended July 1, 2023. Net revenue, costs applicable to revenue and SG&A from discontinued operations decreased by $40.1 million, $17.6 million and $14.5 million, respectively, as compared to the three months ended July 1, 2023, primarily due to the current year including the discontinued operations results only for a partial period prior to the Walmart MSA termination date and the wind-down of AC Lens operations. Income tax expense (benefit) decreased by $1.4 million, due to lower income (loss) before income taxes in the current period as compared to the prior year, as well as other permanent items related to discontinued operations, primarily related to tax impacts of consolidated VIEs.
Six Months Ended June 29, 2024 compared to Six Months Ended July 1, 2023
Certain components of our operations met the requirements to be classified as discontinued operations as of June 29, 2024. Refer to Part I. Item 1. Note 2. “Discontinued Operations” for information related to our discontinued operations. Unless otherwise noted, the discussion of U.S. GAAP results below is based on results from continuing operations.
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 from continuing operations for the six months ended June 29, 2024 compared to the six months ended July 1, 2023.
Comparable store sales growth from continuing operations(1) | Stores open at end of period | Net revenue(2) | ||||||||||||||||||||||||||||||||||||||||||
| In thousands, except percentage and store data | Six Months Ended June 29, 2024 | Six Months Ended July 1, 2023 | June 29, 2024 | July 1, 2023 | Six Months Ended June 29, 2024 | Six Months Ended July 1, 2023 | ||||||||||||||||||||||||||||||||||||||
| Owned & Host segment | ||||||||||||||||||||||||||||||||||||||||||||
| America’s Best | 2.0 | % | 1.8 | % | 1,003 | 926 | $ | 792,791 | 84.8 | % | $ | 746,390 | 83.2 | % | ||||||||||||||||||||||||||||||
| Eyeglass World | (2.9) | % | (2.0) | % | 130 | 143 | 106,449 | 11.4 | % | 116,846 | 13.0 | % | ||||||||||||||||||||||||||||||||
| Military | (0.8) | % | 1.6 | % | 54 | 54 | 11,714 | 1.3 | % | 11,803 | 1.3 | % | ||||||||||||||||||||||||||||||||
| Fred Meyer | (4.3) | % | (6.9) | % | 29 | 29 | 5,382 | 0.6 | % | 5,621 | 0.6 | % | ||||||||||||||||||||||||||||||||
| Owned & Host segment total | 1,216 | 1,152 | $ | 916,336 | 98.1 | % | $ | 880,660 | 98.2 | % | ||||||||||||||||||||||||||||||||||
| Corporate/Other | — | — | — | — | 16,344 | 1.7 | % | 17,227 | 1.9 | % | ||||||||||||||||||||||||||||||||||
| Reconciliations | — | — | — | — | 1,847 | 0.2 | % | (1,289) | (0.1) | % | ||||||||||||||||||||||||||||||||||
| Total | 1.8 | % | 1.6 | % | 1,216 | 1,152 | $ | 934,527 | 100.0 | % | $ | 896,598 | 100.0 | % | ||||||||||||||||||||||||||||||
Adjusted Comparable Store Sales Growth from continuing operations(3) | 1.3 | % | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||
(1)We calculate total comparable store sales from continuing operations based on consolidated net revenue from continuing operations excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 12. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.
(2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding.
(3)Adjusted Comparable Store Sales Growth from continuing operations includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 0.5% and a decrease of 0.4% from total
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comparable store sales growth from continuing operations based on consolidated net revenue for the six months ended June 29, 2024 and July 1, 2023, respectively.
Total net revenue of $934.5 million for the six months ended June 29, 2024 increased $37.9 million, or 4.2%, from $896.6 million for the six months ended July 1, 2023. Approximately 80% of the increase was driven by growth from new store sales, approximately 30% was driven by Adjusted Comparable Store Sales Growth from continuing operations, and approximately 10% was driven by the timing of unearned revenue, partially offset by effects of converted and closed stores.
Comparable store sales growth from continuing operations and Adjusted Comparable Store Sales Growth from continuing operations for the six months ended June 29, 2024 were 1.8% and 1.3%, respectively, both reflecting an higher average ticket and an increase in customer transactions.
In the six months ended June 29, 2024, we opened 28 new America’s Best stores and three Eyeglass World stores, closed two America’s Best stores and one Eyeglass World store and converted 20 Eyeglass World stores to America’s Best stores. Overall, store count grew 5.6% from July 1, 2023 to June 29, 2024 (57 and seven net new America’s Best and Eyeglass World stores, respectively).
Net product sales comprised 80.3% and 81.7% of total net revenue for the six months ended June 29, 2024 and July 1, 2023, respectively. Net product sales increased $17.7 million, or 2.4%, in the six months ended June 29, 2024 compared to the six months ended July 1, 2023, primarily due to a $10.1 million, or 1.8%, increase in eyeglass sales and a $5.7 million, or 3.7%, increase in contact lens sales.
Net sales of services and plans for the six months ended June 29, 2024 increased $20.2 million, or 12.3%, compared to the six months ended July 1, 2023, driven primarily by higher exam revenues of $19.3 million, or 19.0%.
Owned & Host segment net revenue. Net revenue increased $35.7 million, or 4.1%, driven primarily by new store openings and comparable store sales growth, partially offset by converted and closed stores.
Net revenue reconciliations. The impact of reconciliations positively impacted net revenue by $3.1 million in the six months ended June 29, 2024 compared to the six months ended July 1, 2023. Net revenue was positively impacted by $2.8 million due to the timing of unearned revenue. Net revenue was positively impacted by $0.3 million primarily due to lower sales of product protection plans and higher recognition of product protection plan revenue in the six months ended June 29, 2024 compared to the six months ended July 1, 2023.
Costs applicable to revenue
Costs applicable to revenue of $389.1 million for the six months ended June 29, 2024 increased $22.7 million, or 6.2%, from $366.4 million for the six months ended July 1, 2023. As a percentage of net revenue, costs applicable to revenue increased from 40.9% for the six months ended July 1, 2023 to 41.6% for the six months ended June 29, 2024. This increase as a percentage of net revenue was primarily driven by lower eyeglass mix of 120 basis points, growth in optometrist-related costs of 100 basis points and 10 basis points from other mix and margin effects. These costs were partially offset by a 160 basis point effect from higher exam revenue.
Costs of products as a percentage of net product sales increased from 29.7% for the six months ended July 1, 2023 to 29.9% for the six months ended June 29, 2024, primarily driven by lower eyeglass mix and other product mix and margin effects.
Owned & Host segment costs of products. Costs of products as a percentage of net product sales increased from 28.7% for the six months ended July 1, 2023 to 28.9% for the six months ended June 29, 2024, primarily driven by lower eyeglass mix and other product mix and margin effects.
Costs of services and plans as a percentage of net sales of services and plans decreased from 90.7% for the six months ended July 1, 2023 to 89.3% for the six months ended June 29, 2024. The decrease was primarily driven by higher exam revenue, partially offset by growth in optometrist-related costs.
Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans decreased from 89.5% for the six months ended July 1, 2023 to 88.3% for the six months ended June 29, 2024. The decrease was primarily driven by higher exam revenue, partially offset by growth in optometrist-related costs.
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Selling, general and administrative
SG&A of $471.5 million for the six months ended June 29, 2024 increased $19.9 million, or 4.4%, from the six months ended July 1, 2023. As a percentage of net revenue, SG&A increased from 50.4% for the six months ended July 1, 2023 to 50.5% for the six months ended June 29, 2024. The increase in SG&A as a percentage of net revenue was primarily driven by litigation settlement of 50 basis points and legal and professional expenses of 40 basis points as well as other operating expenses, partially offset by decreases in performance-based incentive compensation of 100 basis points.
Owned & Host SG&A. SG&A as a percentage of net revenue increased from 37.9% for the six months ended July 1, 2023 to 38.6% for the six months ended June 29, 2024, driven primarily by higher occupancy expense and payroll.
Depreciation and amortization
Depreciation and amortization expense of $45.9 million for the six months ended June 29, 2024 increased $1.9 million, or 4.2%, from $44.0 million for the six months ended July 1, 2023 primarily driven by new store openings and investments in remote medicine technology.
Asset impairment
We recognized $4.0 million primarily for impairment of tangible long-lived assets and ROU assets associated with our retail stores during the six months ended June 29, 2024, compared to $1.2 million impairment recognized during the six months ended July 1, 2023. The store asset impairment charge is related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores, and other entity-specific assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; and the remaining useful lives of the assets. Asset impairment expenses were recognized in Corporate/Other.
Interest expense, net
Interest expense, net was $7.5 million for the six months ended June 29, 2024, compared to $6.7 million for the six months ended July 1, 2023. The change was primarily a result of lower derivative income of $1.7 million and lower income on cash balances of $0.6 million, partially offset by lower interest expense on our long-term debt of $1.3 million.
Income tax provision (benefit)
Our effective tax rates for the six months ended June 29, 2024 and July 1, 2023 were 35.4% and 30.0%, respectively. The change in effective tax rates reflects our statutory federal and state rates of 25.2% and 25.4%, respectively, tax impacts of consolidated VIEs and non-deductible compensation expense as well as effects of other permanent items.
Discontinued Operations
Income (loss) from discontinued operations, net of tax, of $(2.2) million for the six months ended June 29, 2024, decreased $7.4 million from $5.2 million for the six months ended July 1, 2023. Net revenue, costs applicable to revenue and SG&A from discontinued operations decreased by $59.5 million, $23.2 million and $19.1 million, respectively, as compared to the six months ended July 1, 2023, primarily due to the current year including the discontinued operations results only for a partial period prior to the Walmart MSA termination date and the wind-down of AC Lens operations. Income tax expense (benefit) decreased by $5.5 million, due to lower income (loss) before income taxes in the current period as compared to the prior year, as well as other permanent items related to discontinued operations, primarily related to tax impacts of consolidated VIEs.
Non-GAAP Financial Measures
Adjusted Operating Income, Adjusted Operating Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.
We define Adjusted Operating Income as net income, plus interest expense (income), net and income tax provision (benefit), further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, ERP and CRM implementation expenses and certain other expenses. We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue. We define EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization. We define Adjusted EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management
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realignment expenses, long-term incentive plan expenses, ERP and CRM implementation expenses and certain other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue. We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of debt discounts and deferred financing costs of our term loan borrowings, amortization of the conversion feature and deferred financing costs related to our 2025 Notes when not required under U.S. GAAP to be added back for diluted earnings per share, derivative fair value adjustments, ERP and CRM implementation expenses, certain other expenses, less the tax effect of these adjustments, including tax expense (benefit) from stock-based compensation.
When presenting Adjusted Operating Income from continuing operations, EBITDA from continuing operations and Adjusted EBITDA from continuing operations we use the same definitions for Adjusted Operating Income, EBITDA and Adjusted EBITDA, respectively, and also exclude income (loss) from discontinued operations, net of tax. When presenting Adjusted Diluted EPS from continuing operations, we use the same definition for Adjusted Diluted EPS, and also exclude diluted earnings per share from discontinued operations. When presenting Adjusted Operating Margin from continuing operations, we use Adjusted Operating Income from continuing operations as a percentage of total net revenue. When presenting Adjusted EBITDA Margin from continuing operations, we use Adjusted EBITDA from continuing operations as a percentage of total net revenue.
EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below.
EBITDA and the Company Non-GAAP Measures have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with U.S. 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, and the Company Non-GAAP Measures 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 and the Company Non-GAAP Measures to supplement U.S. 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 U.S. GAAP results with Non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than U.S. GAAP results alone. We continue to evaluate our use of the Company Non-GAAP measures in the context of the development of our business, and may introduce or discontinue certain measures in the future as we deem appropriate.
EBITDA and the Company Non-GAAP Measures are not recognized terms under U.S. 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 U.S. 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. In evaluating EBITDA and the Company Non-GAAP Measures, we may incur expenses in the future that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and the Company Non-GAAP Measures 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 U.S. GAAP results in addition to using EBITDA and the Company Non-GAAP Measures.
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 U.S. GAAP. Some of these limitations are:
•they do not reflect costs or cash outlays for capital expenditures or contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital needs;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect the interest expense (income), net, or the cash requirements necessary to service interest or principal payments, on our debt;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect period to period changes in taxes, income tax provision or the cash necessary to pay income taxes;
•they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
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•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
•other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, EBITDA and the Company Non-GAAP Measures should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.
The following table reconciles our Adjusted Operating Income from continuing operations, Adjusted Operating Margin from continuing operations, EBITDA from continuing operations, Adjusted EBITDA from continuing operations, and Adjusted EBITDA Margin from continuing operations to net income (loss) from continuing operations; and Adjusted Diluted EPS from continuing operations to diluted EPS from continuing operations for the periods presented:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||||||||||||||
Net income (loss) | $ | (3,125) | (0.7) | % | $ | 5,614 | 1.3 | % | $ | 8,560 | 0.9 | % | $ | 23,884 | 2.7 | % | |||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (2,084) | (3.9) | % | 1,977 | 2.1 | % | (2,152) | (1.6) | % | 5,233 | 2.7 | % | |||||||||||||||||||||||
Income (loss) from continuing operations, net of tax | (1,041) | (0.2) | % | 3,637 | 0.8 | % | 10,712 | 1.1 | % | 18,651 | 2.1 | % | |||||||||||||||||||||||
| Interest expense, net | 3,196 | 0.7 | % | 1,836 | 0.4 | % | 7,452 | 0.8 | % | 6,703 | 0.7 | % | |||||||||||||||||||||||
Income tax provision (benefit) | (1,564) | (0.3) | % | 88 | 0.0 | % | 5,869 | 0.6 | % | 8,007 | 0.9 | % | |||||||||||||||||||||||
Stock-based compensation expense (a) | 4,750 | 1.1 | % | 5,172 | 1.2 | % | 7,164 | 0.8 | % | 9,221 | 1.0 | % | |||||||||||||||||||||||
Asset impairment (b) | 3,519 | 0.8 | % | 893 | 0.2 | % | 3,975 | 0.4 | % | 1,247 | 0.1 | % | |||||||||||||||||||||||
Litigation settlement (c) | — | — | % | — | — | % | 4,450 | 0.5 | % | — | — | % | |||||||||||||||||||||||
ERP and CRM implementation expenses (f) | 2,141 | 0.5 | % | — | — | % | 2,657 | 0.3 | % | — | — | % | |||||||||||||||||||||||
Other (g) | 3,072 | 0.7 | % | 743 | 0.2 | % | 5,688 | 0.6 | % | 1,105 | 0.1 | % | |||||||||||||||||||||||
| Adjusted Operating Income from continuing operations / Adjusted Operating Margin from continuing operations | $ | 14,073 | 3.1 | % | $ | 12,369 | 2.9 | % | $ | 47,967 | 5.1 | % | $ | 44,934 | 5.0 | % | |||||||||||||||||||
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding. Some of the percentage totals in the table above do not foot due to rounding differences. | |||||||||||||||||||||||||||||||||||
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||||||||||||||
Net income (loss) | $ | (3,125) | (0.7) | % | $ | 5,614 | 1.3 | % | $ | 8,560 | 0.9 | % | $ | 23,884 | 2.7 | % | |||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (2,084) | (3.9) | % | 1,977 | 2.1 | % | (2,152) | (1.6) | % | 5,233 | 2.7 | % | |||||||||||||||||||||||
Income (loss) from continuing operations, net of tax | (1,041) | (0.2) | % | 3,637 | 0.8 | % | 10,712 | 1.1 | % | 18,651 | 2.1 | % | |||||||||||||||||||||||
Interest expense, net | 3,196 | 0.7 | % | 1,836 | 0.4 | % | 7,452 | 0.8 | % | 6,703 | 0.7 | % | |||||||||||||||||||||||
Income tax provision (benefit) | (1,564) | (0.3) | % | 88 | 0.0 | % | 5,869 | 0.6 | % | 8,007 | 0.9 | % | |||||||||||||||||||||||
| Depreciation and amortization | 22,692 | 5.0 | % | 22,089 | 5.1 | % | 45,913 | 4.9 | % | 44,045 | 4.9 | % | |||||||||||||||||||||||
EBITDA from continuing operations | 23,283 | 5.2 | % | 27,650 | 6.4 | % | 69,946 | 7.5 | % | 77,406 | 8.6 | % | |||||||||||||||||||||||
Stock-based compensation expense (a) | 4,750 | 1.1 | % | 5,172 | 1.2 | % | 7,164 | 0.8 | % | 9,221 | 1.0 | % | |||||||||||||||||||||||
Asset impairment (b) | 3,519 | 0.8 | % | 893 | 0.2 | % | 3,975 | 0.4 | % | 1,247 | 0.1 | % | |||||||||||||||||||||||
Litigation settlement (c) | — | — | % | — | — | % | 4,450 | 0.5 | % | — | — | % | |||||||||||||||||||||||
ERP and CRM implementation expenses (f) | 2,141 | 0.5 | % | — | — | % | 2,657 | 0.3 | % | — | — | % | |||||||||||||||||||||||
Other (g) | 2,690 | 0.6 | % | 361 | 0.1 | % | 4,925 | 0.5 | % | 342 | 0.0 | % | |||||||||||||||||||||||
Adjusted EBITDA from continuing operations / Adjusted EBITDA Margin from continuing operations | $ | 36,383 | 8.1 | % | $ | 34,076 | 7.9 | % | $ | 93,117 | 10.0 | % | $ | 88,216 | 9.8 | % | |||||||||||||||||||
| Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding. Some of the percentage totals in the table above do not foot due to rounding differences. | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| In thousands, except per share amounts | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
Diluted EPS | $ | (0.04) | $ | 0.07 | $ | 0.11 | $ | 0.30 | |||||||||||||||
Diluted EPS from discontinued operations | (0.03) | 0.03 | (0.03) | 0.07 | |||||||||||||||||||
| Diluted EPS from continuing operations | (0.01) | 0.05 | 0.14 | 0.24 | |||||||||||||||||||
Stock-based compensation expense (a) | 0.06 | 0.07 | 0.09 | 0.12 | |||||||||||||||||||
Asset impairment (b) | 0.04 | 0.01 | 0.05 | 0.02 | |||||||||||||||||||
Litigation settlement (c) | — | — | 0.06 | — | |||||||||||||||||||
Amortization of debt discount and deferred financing costs (d) | 0.01 | 0.01 | 0.02 | 0.02 | |||||||||||||||||||
Derivative fair value adjustments (e) | 0.04 | 0.00 | 0.07 | 0.04 | |||||||||||||||||||
ERP and CRM implementation expenses (f) | 0.03 | — | 0.03 | — | |||||||||||||||||||
Other (g) | 0.04 | 0.01 | 0.07 | 0.02 | |||||||||||||||||||
Tax effects (h) | (0.05) | (0.03) | (0.09) | (0.04) | |||||||||||||||||||
Adjusted Diluted EPS from continuing operations | $ | 0.15 | $ | 0.12 | $ | 0.44 | $ | 0.41 | |||||||||||||||
| Weighted average diluted shares outstanding | 78,575 | 78,343 | 78,774 | 78,784 | |||||||||||||||||||
| Note: Some of the totals in the table above do not foot due to rounding differences. | |||||||||||||||||||||||
(a)Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and performance vesting conditions.
(b)Reflects write-off related to impairment of long-lived assets, primarily impairment of property, equipment and lease-related assets on closed or underperforming stores.
(c)Expenses associated with settlement of certain litigation.
(d)Amortization of deferred financing costs and other non-cash charges related to our long-term debt. We adjust for amortization of deferred financing costs related to the 2025 Notes only when adjustment for these costs is not required in the calculation of diluted earnings per share under U.S. GAAP.
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(e)The adjustments for the derivative fair value (gains) and losses have the effect of adjusting the (gain) or loss for changes in the fair value of derivative instruments and amortization of AOCL for derivatives not designated as accounting hedges. This results in reflecting derivative (gains) and losses within Adjusted Diluted EPS during the period the derivative is settled.
(f)Costs related to the Company’s ERP and CRM implementation.
(g)Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), which are primarily related to costs associated with the digitization of paper-based records of $2.3 million and $4.1 million for the three and six months ended June 29, 2024, respectively, and other expenses and adjustments. Other adjustments for both Adjusted Operating Income and Adjusted Diluted EPS include amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting following the acquisition of the Company by affiliates of KKR & Co. Inc. Adjusted Diluted EPS is also adjusted to include debt issuance costs.
(h)Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates, including tax expense (benefit) from stock-based compensation.
Liquidity and Capital Resources
Our primary cash needs are for inventory, payroll, store rent, advertising, capital expenditures associated with new stores and updating existing stores, as well as information and remote medicine technology and infrastructure, including our corporate office, distribution centers, and laboratories. When appropriate, the Company may utilize excess liquidity towards debt service requirements, including voluntary debt prepayments, or required interest and principal payments, if any, as well as repurchases of common stock or other securities, based on excess cash flows. The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred and unearned revenue and other payables and accrued expenses. We exercise prudence in our use of cash and closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding. We continue to be focused on these items in addition to other key measures we use to determine how our consolidated business and operating segments are performing. We believe that cash on hand, cash expected to be generated from operations and the availability of borrowings under our Revolving Loans will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures, and payments due under our existing debt for the next 12 months and thereafter for the foreseeable future. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the prepayment, refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional liquidity for our operations, as well as modifications to our Term Loan A where possible. In addition, depending on market conditions and other factors, we may elect to repurchase all or a significant portion of our outstanding 2025 Notes prior to their maturity on May 15, 2025, utilizing cash on hand and/or one or more of the additional liquidity sources noted above. Our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. We primarily fund our working capital needs using cash provided by operations. Our working capital requirements for inventory will increase as we continue to open additional stores.
As of June 29, 2024, we had $179.5 million in cash and cash equivalents and $293.6 million of availability under our Revolving Loans, which includes $6.4 million in outstanding letters of credit.
As of June 29, 2024, we had $142.5 million of Term Loan A outstanding under our credit agreement. We were in compliance with all covenants related to our long-term debt as of June 29, 2024.
The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:
| Six Months Ended | |||||||||||
| In thousands | June 29, 2024 | July 1, 2023 | |||||||||
| Cash flows provided by (used for): | |||||||||||
| Operating activities | $ | 75,448 | $ | 112,216 | |||||||
| Investing activities | (38,043) | (54,785) | |||||||||
| Financing activities | (7,440) | (32,071) | |||||||||
| Net change in cash, cash equivalents and restricted cash | $ | 29,965 | $ | 25,360 | |||||||
Net Cash Provided by Operating Activities
Cash flows provided by operating activities decreased by $36.8 million to $75.4 million, during the six months ended June 29, 2024 from $112.2 million for the six months ended July 1, 2023 as a result of a decrease in net income and non-cash reconciling items of $21.5 million, as compared to the six months ended July 1, 2023. The
37
decrease was also driven by changes in net working capital and other assets and liabilities, which used $15.3 million of cash year-over-year.
Decreases in other liabilities during the six months ended June 29, 2024 used $37.6 million in year-over-year cash, primarily due to decreases in compensation-related accruals. Decreases in accounts payable used $16.4 million in year-over-year cash, primarily as a result of the AC Lens wind down. These were partially offset by decreases in inventories which contributed $25.7 million in year-over-year cash, primarily due to AC Lens inventory decreasing and decreases in accounts receivable which contributed $23.8 million in year-over-year cash, primarily due to decreases in trade and credit card receivables during the six months ended June 29, 2024, compared to the six months ended July 1, 2023.
Net Cash Used for Investing Activities
Net cash used for investing activities decreased by $16.7 million, to $38.0 million, during the six months ended June 29, 2024 from $54.8 million during the six months ended July 1, 2023. The year-over-year decrease was primarily due to lower investments in doctor and in-store lab equipment, labs and distribution center, and new stores.
Net Cash Used For Financing Activities
Net cash used for financing activities was $7.4 million during the six months ended June 29, 2024 as compared to $32.1 million during the six months ended July 1, 2023. The $24.6 million year-over-year decrease in cash used for financing activities was primarily due to decreased purchases of treasury stock of $24.8 million during the six months ended June 29, 2024.
Share Repurchases
Effective February 23, 2024, the Board of Directors authorized the Company to repurchase up to $50 million aggregate amount of shares of the Company’s common stock until January 3, 2026. During the six months ended July 1, 2023, the Company repurchased 1.1 million shares of its common stock for $25.0 million. As of June 29, 2024, $50 million remains available under the share repurchase authorization.
Material Cash Requirements
There were no material changes outside the ordinary course of business in our material cash requirements and commercial commitments from those reported in the 2023 Annual Report on Form 10-K.
We follow U.S. GAAP in making the determination as to whether 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 long-term purchase, marketing and promotional commitments, or commitments to philanthropic endeavors. We have disclosed the amount of future commitments associated with these items in the 2023 Annual Report on Form 10-K. We are not a party to any other material off-balance sheet arrangements.
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 believes 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 2023 Annual Report on Form 10-K, 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 2023 Annual Report on Form 10-K.
Adoption of New Accounting Pronouncements
There have been no material changes due to recently issued or adopted accounting standards since those disclosed in our 2023 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have market risk exposure from changes in interest rates. 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 5. “Fair Value Measurement” and Note 7. “Interest Rate Derivatives” to our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.
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A portion of our debt bears interest at variable rates. If market interest rates increase, the interest rate on our variable rate debt will increase and will create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations.
As of June 29, 2024, $142.5 million of term loan borrowings were subject to variable interest rates, and we had total borrowings of $445.0 million with a weighted average borrowing rate of 3.4%, inclusive of the effects of our interest rate collar. Our interest rate collar matured on July 18, 2024 and our variable interest rate term loan borrowings are exposed to changes in market rates. A 1.0% increase in market rates would result in a $1.4 million increase in interest expense. For more information about quantitative and qualitative disclosures about market risk, please see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in Part II. of the 2023 Annual Report on Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In accordance with Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 29, 2024. Based on that evaluation, the CEO and the CFO have concluded that the Company’s current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company’s periodic filings with the SEC is made known to them in a timely manner.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the second quarter of fiscal year 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 11. “Commitments and Contingencies” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q for information regarding certain legal proceedings in which we are involved, which discussion is incorporated herein by reference.
Item 1A. Risk Factors.
For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed in Part I. Item 1A. “Risk Factors” in our 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors described in our 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
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Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Executive Officer Updates
On August 7, 2024, the Company appointed Alex Wilkes as President, effective August 19, 2024 (the “Start Date”). Mr. Wilkes, 46, most recently served as President of the Americas of CooperVision, a global leader in contact lenses, since June 2022. Prior to joining CooperVision, Mr. Wilkes spent over a decade at Luxottica, a leading global eyewear company, in various roles, including as Senior Vice President & General Manager of Pearle Vision from February 2016 to June 2022, where he was responsible for oversight of the brand.
Mr. Wilkes was not appointed pursuant to any arrangement or understanding with any other person. Mr. Wilkes has no family relationships with any director or executive officer of the Company and there are no transactions in which Mr. Wilkes has an interest requiring disclosure under Item 404(a) of Regulation S-K.
Upon assuming the role of President, Mr. Wilkes will receive an annual base salary of $600,000, and, beginning in 2025, will be eligible to receive an annual cash incentive award under the Company’s Short Term Incentive Plan with a target opportunity of 75% of his base salary. He will also be eligible to participate in the Company’s Long-Term Incentive Program with the equity award value, mix and metrics of future awards to be determined by the Board or Compensation Committee. In part to make Mr. Wilkes whole for compensation he forfeited with his previous employer, Mr. Wilkes will receive the following additional compensation: (i) a grant of restricted stock units on the Start Date having a grant date value equal to $2,000,000, and (ii) a cash sign-on bonus of $232,000 to be paid within 30 days of the Start Date. The restricted stock units will vest in three substantially equal annual installments beginning on the first anniversary of the Start Date, subject to Mr. Wilkes’ continued employment through each vesting date.
Mr. Wilkes will receive other standard retirement and health and welfare benefits under the terms of the Company’s benefit plans as generally applicable to the Company’s senior executives, including the Company’s Executive Severance Plan. See the Company’s Current Report on Form 8-K filed on December 18, 2018, regarding the level of benefits which will apply to Mr. Wilkes under the Executive Severance Plan. Mr. Wilkes will be eligible to receive relocation benefits pursuant to the Company’s relocation policy.
On August 7, 2024, the Company also announced that Mr. Patrick Moore, the Company’s Chief Operating Officer and former Chief Financial Officer, has shared his plans to retire at the end of this year. Mr. Moore will remain in his role until August 19, 2024, at which time he will shift to an advisory role focused on supporting the leadership transitions.
10b5-1 Trading Arrangements
Except as set forth below, during the three months ended June 29, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted , terminated
On May 31, 2024 , Melissa Rasmussen , Chief Financial Officer of the Company, adopted a trading arrangement for the sale of the Company’s common stock (a “Rule 10b5-1 Trading Plan”) that is intended to satisfy the affirmative defense conditions of the Exchange Act Rule 10b5-1(c). Ms. Rasmussen’s Rule 10b5-1 Trading Plan provides for the sale of up to 10,000 shares of common stock pursuant to one or more limit orders from August 30, 2024, until May 30, 2025 .
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Item 6. Exhibits.
Exhibit Index
| Exhibit No. | Exhibit Description | |||||||
| Third 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 June 10, 2021. | ||||||||
Fourth Amended and Restated Bylaws 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 December 12, 2023. | ||||||||
National Vision Holdings, Inc. Amended and Restated 2017 Omnibus Incentive Plan - incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2024. | ||||||||
| Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||||||||
| Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | ||||||||
| 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). | ||||||||
| 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 | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | The cover page of the Company’s Quarterly report on Form 10-Q for the quarter ended June 29, 2024, formatted in Inline XBRL (included within the Exhibit 101 attachments). | |||||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| National Vision Holdings, Inc. | ||||||||
| Dated: August 7, 2024 | By: | /s/ L. Reade Fahs | ||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Dated: August 7, 2024 | By: | /s/ Melissa Rasmussen | ||||||
| Senior Vice President, Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
42
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, L. Reade Fahs, certify that:
1.I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 29, 2024 of National Vision Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024
| /s/ L. Reade Fahs | ||||||||
| L. Reade Fahs | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Melissa Rasmussen, certify that:
1.I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 29, 2024 of National Vision Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024
| /s/ Melissa Rasmussen | ||||||||
| Melissa Rasmussen | ||||||||
| Senior Vice President, Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of National Vision Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 29, 2024 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L. Reade Fahs, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
a.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
Date: August 7, 2024
| /s/ L. Reade Fahs | ||||||||
| L. Reade Fahs | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of National Vision Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 29, 2024 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Melissa Rasmussen, Senior Vice President, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
a.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
Date: August 7, 2024
| /s/ Melissa Rasmussen | ||||||||
| Melissa Rasmussen | ||||||||
| Senior Vice President, Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||