National Vision Holdings, Inc.

Thank you for standing by and welcome to the National Vision's third quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask the question at that time, please press star 1-1 on your touchtone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference to our host, Mr. David Mann, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to National Vision's third quarter 2022 earnings call. Joining me on the call today are Reid Fahs, CEO, Patrick Moore, Chief Operating and Financial Officer, and Melissa Rasmussen, CFO-elect. Our earnings release issued this morning and the presentation, which will be referenced during the call, are both available on the investor 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 our filings with the Securities and Exchange Commission. The release in today's presentation also includes certain non-GAAP measures. Reconciliation of these measures is 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 Envision provides investor presentations and supplemental materials for investor reference on the investors section of our website. Now, let me turn the call over to Reid.

Thank you, David. Good morning, everyone. Thank you all for joining us today. Let's start with slide four and a summary of Q3. For the third quarter, net revenue decreased 3.6% and adjusted comparable store sales declined 8.1% compared to the third quarter of 2021. We delivered adjusted diluted EPS of 15 cents for the quarter. Our third quarter performance was impacted by the continued weaker consumer environment, as well as constraints on our exam capacity. The macro headwinds, including higher inflation, weaker consumer confidence, and risks of recession, are pressuring our lower income, predominantly uninsured customers. But at the same time, we saw a broadening in our customer base and an acceleration in trade down of higher income customers into our stores. In terms of constraints to our exam capacity, we're making sequential progress through improved retention, strong hiring, and remote medicine. While our exam capacity remains out of sync with our needs in certain markets, which of course affects patient traffic, we expect exam capacity to gradually improve into 2023 and throughout next year. As we address these challenges, we're also focused on our growth initiatives. We opened 18 stores, including a record seven eyeglass world locations, And we are currently enabled with remote medicine in approximately 300 stores, which is two months ahead of our year-end target. Also, as shared in August, we signed a multi-year extension of our current lens purchasing agreement with SLR Luxottica. We're proud to have released our 2021 sustainability report last week, providing more in-depth disclosure of the progress we're making on our ESG journey. Finally, in today's release, we reaffirmed our 2022 outlook for revenues and profitability. In a few minutes, Patrick and Melissa will provide more detail on our Q3 results and our 2022 outlook. Turning to slide five. As the chart shows, before the pandemic, our business demonstrated quite consistent performance over time, even amidst broader economic challenges. The historical consistency of the optical category has been impacted by macro headwinds, especially higher inflation and temporary disruption to the purchase cycle that began with the start of the pandemic and has been exacerbated by the multiple waves of COVID variants. The chart on slide six highlights the volatile quarterly comp performance over the last two years and the purchase cycle disruption caused by the pandemic. The optical category has been inherently consistent over time due to the biology of the eye, and we believe we will see a return to more stable and predictable environment in the future. In terms of third quarter trends, optical consumer demand continues to be impacted by inflationary pressures and weaker consumer confidence. This weaker demand is also being felt more broadly in the industry. During the quarter, our back-to-school season was better than last year as we experienced more engagement with traditional younger school-age patients. Although we were not back to historical pre-COVID seasonal levels, we were encouraged by this movement to a more normal purchase cycle and seasonality. At the same time, we experienced weakness in broader seasonal traffic due to the macro environment and constraints to exam capacity. Near the end of the quarter, Hurricane Ian impacted our store operations in Florida. Of course, the greater concern was with the well-being of our associates and optometrists their families, and everyone affected by this natural disaster. Our hearts go out to the people whose lives were so disrupted by the storm. We worked closely with our internal store teams to help associates, optometrists, and customers in need. At Ian's peak, we had over 100 temporary store closings, and one store still remains closed due to damage. We estimate the revenue impact was approximately $2 million, or a comp impact of approximately 40 basis points, with a disproportionate effect at iGlassworld due to its concentration of stores in Florida. We would expect to recover these sales in Q4 and into 2023. Let me expand a little more on what we're seeing in terms of consumer behavior. Our lower income, predominantly uninsured consumers are feeling the greatest pressure. Demand softness is noticeably more pronounced for these customers who are paying out of pocket for our products and services. as our insured business continues to comp positively this quarter. In Q3, we also experienced an acceleration of the trade down of higher income consumers into our stores that began in the first half of 2022, what we have referred to in the past as nicer cars in the parking lot. We're encouraged by this trade down acceleration and would expect it to build further over time, as that is what happened during the last recession. In the current inflationary environment, we believe our value offering should be ever more appealing to an ever larger slice of the American public. Our business continues to face constraints on exam capacity in certain markets. In other words, demand for exam appointments in some stores goes unfulfilled due to the lack of an available optometrist. Our team is making incremental progress on key initiatives to expand our exam capacity. First, retention levels remain up versus last year. This is a testament to our multiple initiatives to drive up retention. In terms of hiring, our increased investments in recruiting continue to pay off. Year-to-date, we've experienced strong hiring of optometrists. During Q3, we saw the arrival of the wave of new hires that began to practice in our stores. Lastly, we remain excited about the progress of our remote medicine rollout. As noted in today's earnings release, Remote medicine is currently enabled in approximately 300 stores, thereby achieving our year-end target ahead of schedule. With the rollout of remote medicine and electronic health records at our stores, associates and optometrists learn new operating processes which come with a learning curve. In stores that have performed remote exams for the longest period, we're continuing to see a significant ramp in operating productivity. We are pleased with the incremental increase in exam capacity being added by remote medicine and the role it can play in serving more patients across both geography and time. Because of these initiatives, we expect that our exam capacity should gradually improve going into 2023 and throughout next year. So we're in an unusual situation today in that we are simultaneously facing both demand headwinds across our network of stores given the current macro environment as well as a supply challenge in a subgroup of stores due to the constraints on exam capacity. But we see these as temporary, and we remain confident in the long-term strength of our business model. Shifting to slide seven, we continue to progress our core growth initiative. In terms of store expansion, we continue to see a sizable white space opportunity with growth for many years to come. We had 18 openings in the third quarter, including a record seven eyeglass world locations as we ramp up the expansion of this brand. We expect to open at least 80 stores in 2022 and currently have a solid pipeline of specific locations into 2023. Our real estate team has done a fantastic job navigating the growing supply chain challenges. Marketing continues to be a key factor in driving traffic to our stores, given the infrequent purchase cycle for eyeglasses. In the current environment of high inflation, we believe budget conscious and trade down consumers are finding us attracted by our value messaging and positive word of mouth. We continue to focus on marketing efficiency and are pleased to be leveraging marketing expenses this year. Our participation in vision insurance programs continues to be a positive revenue driver, especially in the current environment. In the third quarter, we experienced growth in sales tied to vision insurance as consumers because the insurance funds most or all of their purchases are not deterred from shopping in a tight economy. Our comps related to managed care were positive and continue to outperform comps for uninsured consumers. We remain underdeveloped relative to the category and continue to see an ongoing opportunity here as managed care dollars and co-pays tend to go further in our stores than elsewhere. At this point, Let me turn the call over to Patrick for a more detailed discussion of our financial results and the 2022 outlook.