National Vision Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the National Vision Third Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to our speaker today, David Mann. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to National Vision's third quarter 2020 earnings call. Joining me on the call today are Reade Fahs, Chief Executive Officer, and Patrick Moore, Chief Financial Officer. Our earnings release issued this morning and the presentation which will be referenced during the call are both available on the Investors section of our website, nationalvision.com. and a replay of the audio webcast will be archived on the investor's page after the call. Before we begin, let me remind you that our earnings materials in today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to The factors identified in the release and in our filings with the Securities and Exchange Commission. The release in today's presentation also includes certain non-GAAP measures. Reconciliation of these measures are included in our release and the supplemental presentation. We also would like to draw your attention to slide two in today's presentation for additional information about forward-looking statements and non-GAAP measures. As a reminder, National Vision expects to provide certain supplemental materials or presentations for investor reference on the investor section of our website. Now, let me turn the call over to Reade.

Thank you, David. Good morning, everyone. I'd like to thank you all for joining us today. I hope you're all staying healthy and safe. Today, we are sharing exceptional third quarter results that highlight the strength of our business model in these challenging times. Before we begin, I want to acknowledge that these results would not have been possible without the team's great thinking, great execution, and great patient and customer care over the last few months. Our National Vision team has remained focused on our mission to make eye care and eyewear more affordable and accessible, something that continues to grow in importance throughout America. Our key priority remains the health and well-being of our store teams, our patients, and our customers. I'm pleased to report we accomplished these third quarter results with our continuing safety protocols firmly intact. Our results can be tied to many decisions made earlier this year. We were quick to act in the early days of the pandemic to put our people first, to strengthen our financial position and manage our costs. We developed enhanced safety and cleaning protocols that enabled us to safely reopen and operate during the pandemic. And we made decisions with a long-term focus on our optometrists, store associates, and our customers. We believe that these actions have placed us in an advantaged position during this continued period of disruption. Turning to slide four, let me briefly touch on trends in the third quarter. While continuing to navigate the pandemic, we managed to deliver one of our best quarters. Q3 net revenue increased over 12%. Adjusted EPS increased to 54 cents versus 16 cents last year. Thank you for joining us. As we noted on our last investor call, we extended our contract with Walmart until 2024. Regarding the five additional Walmart Vision Centers added in the second quarter, we continue to generate positive results at these stores to date. In August, we published our first ever philanthropic impact report, which details how National Vision, including through the generosity of our associates and network of doctors, is transforming the lives of people in the U.S. and around the world. We strengthened our board with the addition of two independent board members, Naomi Kellman and Susan Somersill Johnson. Both are accomplished executives. Naomi brings a strong background in contact lens and healthcare technology and digital transformation. Susan brings world-class marketing, branding, and data analytics expertise and a strong mission orientation. Randy Keeler was appointed chairperson of the board, replacing Nate Taylor, who rolled off the board after five years. I would like to sincerely thank Nate for his service and significant contributions during his tenure. Randy is our longest serving board member and has been a great strategic and operational partner with us for the past 15 years. His understanding of our business and our category is unrivaled. We love the institutional memory that his chairmanship brings while also appreciating the fresh perspectives and insights from our newer board members. Based on our recent performance and confidence in our business model, we are reinstating our fiscal 2020 outlook. In a few minutes, Patrick will take you through our Q3 results and the Q4 and 2020 outlook in more detail. Turning to slide five, as the chart shows, our business has a history of strength and resilience through a variety of economic and external challenges. This is one of the benefits of a purchase tied to a medical necessity. We're pleased with the return to positive comps this quarter, led by double-digit comps at our growth brands. Our stores experience consistently strong demand from our patients and customers, which we believe highlight that our affordable eye care and eyewear offerings are even more in need during the pandemic and in this economy. We noted that consumer demand remained healthy even after the government stimulus faded and enhanced unemployment benefits expired during the quarter. The fourth quarter is off to a strong start as the third quarter comp momentum continued throughout October. The trends that we've experienced this quarter are a testament to the essential healthcare role we play in the communities we serve, our low-cost value offerings given the state of the economy, and the combined macro and micro operational navigation by our long-tenured management and field teams. We believe that our strong sales results also continue to be helped by FedUp demands, I do want to note that our Q3 comps moderated from the June levels we reported immediately following our successful reopening. While the duration of pent-up demand is difficult to predict, we continue to expect our comps to normalize as pent-up demand further moderates. Based on industry data, we are confident that we have grown market share through the third quarter this year. The optical industry remains highly fragmented. and we believe that the current environment is hastening the trends that favor larger, better capitalized value retailers like National Vision. We also believe there will be fewer obstacle locations in the U.S. over the next year than there were prior to COVID. Thus, we continue to see a large opportunity in front of us and potentially an even larger opportunity than before. Shifting to slide six, let me provide an update on our core growth initiatives. First, After a brief pause in openings earlier in the pandemic, new stores remain a primary focus given our sizable white space opportunity. We opened 18 stores this quarter. Year-to-date, we've opened 52 new stores and now expect to open about 57 new stores this year, or a total of 62 when you include the five additional vision centers that we transitioned from Walmart last quarter. As we look out to 2021, the pipeline of locations looks strong. Turning to comparable store sales growth, this quarter's performance demonstrates the important role that optometrists play in our success and our mission to deliver low-cost eye care and eyewear throughout America. We continue to invest in our optometrist recruitment and retention programs. Our optometrist retention rates remain high at near-record levels, and our healthy doctor coverage helps to meet strong pet-up demand for eye exams. The record performance was not possible without the tireless hard work and commitment of our network of optometrists. In terms of marketing, we did not invest nearly as much this quarter as in the prior year. We experienced strong organic demand, a reminder of the fact that the optical services and products we offer are an essential medical necessity. We believe optical consumers are attracted to our extreme values, such as our introductory offer for our two growth brands, for $69.95 at America's Best, including a free comprehensive eye exam, and two for $78 at Eyeglass World with glasses available that same day. As we plan for the fourth quarter, we expect to return to more normalized marketing investments to remind consumers that they don't have to pay higher prices for their optical needs. We continue to experience strong revenue growth tied to our managed care partnerships. Net revenue tied to vision insurance remains a minority of our net revenue, and thus we remain underdeveloped relative to the category. We continue to see an ongoing opportunity here as managed care dollars and co-pays tend to go further in our stores than elsewhere. Regarding our supply chain, our lab teams have been working hard to handle the elevated business volumes this quarter, and we're very proud of their efforts. Our lab network remains a key reason that we are a low-cost provider. In September, the temporary relief on tariffs for frames imported from China expired and reverted back to the 15% level. Given the fluid nature of tariffs over the last year, we will continue to monitor ongoing developments as well as continue to progress our tariff mitigation efforts. In terms of our digital initiatives, we continue to experience an acceleration in e-commerce orders compared to pre-COVID levels. From an omnichannel perspective, we've also noted a significant increase in ship-to-home orders this year. Lastly, our remote medicine pilots are continuing as well, and we are pleased with their progress. Before I turn the call over to Patrick, let me say that we are quite happy to be reporting such strong results this quarter. But as we look ahead, we still operate within an environment of tremendous COVID uncertainty. Yet I am confident that we're well positioned as an essential healthcare retailer with thoughtful safety protocols in place to operate throughout the duration of the pandemic. That we have a strong liquidity position including $377 million in cash as a quarter end. That we have a proven team of optical veterans executing our initiatives with both thoroughness and rigor. And that we operate a business that has been resilient in previous downturns as the low price seller of a medical necessity and see the potential for an even larger opportunity on the other side of this pandemic. For all these reasons, as we navigate through an uncertain environment, Unconfident National Vision will emerge from the pandemic a stronger company. Now to Patrick.