National Vision Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q4 2022 National Vision Earnings Conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Caitlin Churchill, Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to National Vision's fourth quarter 2022 earnings call. Joining me on the call today are Reid Fahs, CEO, Melissa Rasmussen, CFO, Patrick Moore, COO, is also with us and will be available during this Q&A portion of the call. 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 and 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 and today's presentation also include certain non-GAAP measures. Reconciliation of these measures is included in our release and 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 provides investor presentations and supplemental materials for investor reference on the investor section of our website. Now, let me turn the call over to Reid.

Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. I thought I'd start today with an overview of what we're going to take you through to provide context and a framework for the further details that Melissa and I will then be providing. As we've discussed before, the pandemic disrupted the historically consistent optical purchase cycle. In addition, it impacted global supply chains, leading to increased costs and inflation, and created a challenging labor market, especially impacting doctor availability, as seen in other areas of specialty healthcare as well. While we believe that we will return to a more normalized purchase cycle and cost environment, we're addressing the new reality of the optometrist market and overall business environment in which we are operating today. As we will discuss, optometrists and our network are now being offered a greater variety of scheduling options, and improved variable compensation programs, and we are progressing the remote medicine initiative that we've been discussing in our last few calls. We are also resetting our management short-term incentive plan to ensure that we keep our team highly incentivized to perform. In addition, like all companies, we must evolve our systems to support our growing business and gain advantages and efficiencies of ongoing digitization. As we enter 2023, While the actions we are continuing to take will have an impact on our operating margins in the near term and the macroeconomic factors remain challenging, we are intently focused on continuing to further adapt and transform our business to excel in the post-pandemic new normal business environment. Before I discuss our plans and initiatives for 2023 in more detail, let me first review highlights from our fourth quarter and full year performance. Turning to slide four. 2022 was a challenging year for the optical industry overall and for National Vision. We ended the year in line with our guidance expectations while navigating a difficult macroeconomic environment, which especially impacted our core, budget-conscious, uninsured customer base, and we contended with exam capacity constraints in certain markets. I continue to be very proud of our entire team and their commitment to providing patient care and customer service while also remaining focused on our strategic initiatives. These include the rollout of remote care and electronic health record capabilities to over 300 locations and the opening of 80 new stores despite many supply chain obstacles. For the fourth quarter specifically, net revenue declined 1.9% and adjusted comparable store sales declined 2.4% compared to the prior year period. We delivered adjusted diluted EPS of negative $0.08 for the period inclusive of a $0.10 negative impact from unearned revenue, as well as a $5 million investment in retention bonuses for our associates. Importantly, underlying these results was a strong finish to the quarter, particularly with respect to our managed care sales, as we saw a notable improvement in the last week of the year, traditionally a very important time in optics as various annual insurance benefits end. These trends help to also support positive comp growth for both the quarter and the year in our managed care business, representing an increase in customers with vision insurance. Insured customers are less sensitive to the elevated inflationary and macro pressures facing our uninsured customers. In addition, we continue to see evidence of trade down in the fourth quarter from higher income consumers in our stores. Now, turning to slide five, Our plans for 2023 continue to focus on our transformation with the expansion of our remote care offering, strategic investments in optometric recruiting and retention initiatives, our omni-channel capabilities, the further digitization of our stores and corporate office, as well as continued store openings based on the significant white space opportunities still ahead. Turning to slide six, As I've explained, the pandemic created unprecedented and unique challenges to the optical industry by not only impacting the historically consistent purchase cycle, but also optometrist availability. This has significantly impacted eye exam capacity for the industry. Of these factors, the one that we believe we can influence the most is recruiting and retaining doctors in an effort to expand exam capacity, albeit with increased levels of investment. We believe that the pandemic led to more doctors retiring from the field or significantly cutting back the number of days they work each week. Accordingly, changes were needed to continue to maintain healthy retention rates and recruit new talent to our doctor network. Doctor retention rates have historically ranged between 80 and 90%. We were pleased with the improvement we saw in 2022 in our recruitment efforts, including delivering the best year ever for optometrist student recruiting. In 2023, we believe there is an opportunity to build on this improvement in momentum through investments in a number of additional initiatives, including increased scheduling options and OD variable compensation program updates. These initiatives were piloted in select markets during the fourth quarter, and given early positive results, a strategic decision was made to expand these programs throughout our America's Best brand in 2023. In addition to these initiatives, we're also continuing the rollout of remote care capabilities, which provide doctors with additional levels of flexibility and expand exam capacity in many areas. By the end of 2022, we had rolled out remote care capabilities to approximately 300 stores. While this is a nascent program, we're pleased with the initial results and have incorporated key learnings from the rollout related to the productivity ramp and learning curve needed for doctors to transition to the new system. We've implemented new techniques and training to minimize the productivity loss. We plan to continue to expand this program further in additional America's Best locations in 2023, and we're evaluating approaches to remote practice in other brands as well. We see this mode of practice as being highly appealing to optometrists now and going forward, without sacrificing quality of patient satisfaction. We believe that with the one-two punch of enhanced recruiting and retention initiatives and expanded remote capabilities, we are increasing the competitive moat around our business while significantly improving exam capacity. In addition to the investments in remote technology and doctor recruiting and retention efforts, we remain focused on the important role that our associates play in supporting our business and providing the great customer service that our patients and customers expect. We take pride in training and growing the talent needed to support our white space expansion and are proud that approximately 40% of current store managers started with us in entry-level positions. We've also implemented an optometric technician certification program that's improved the quality of our technicians and consequently the job satisfaction of the optometrist. Currently, over three-quarters of our optometric technicians are certified. Turning next to slide seven and our plan for furthering the digitization of our stores and corporate offices, as well as enhancing our omnichannel capabilities. As part of our remote care rollout, we've begun to implement electronic health records in our stores. A key learning that we gained with our initial rollout of this initiative has been the productivity ramp and learning curve needed for many doctors as they get used to working with the new platform. given that enhanced training for doctors has been implemented. While these additional costs and length of productivity ramps will be short-term margin drag, we believe the digitization of patient records is a necessity for today's operating environment that should provide longer-term patient and customer experience benefits as well as more efficient store flow. To further support our stores and growing business, we expect to start a back-office ERP implementation for our corporate office in late 2023. In addition, we're continuing to invest in our omnichannel capabilities and other enhancements to the customer experience, which are showing initial encouraging results. As seen on slide eight, we remain focused on our significant white space opportunity for store growth. We continue to believe we have an opportunity to grow at least 2,150 stores with similar economics to the existing base, And in 2023, we expect to open approximately 65 to 70 new stores. Our planned openings reflect anticipated supply chains and permitting delays, and secondarily, doctor recruitment timing. In summary, while the macro pressures continue to weigh on our core budget-conscious uninsured customers, we are navigating this backdrop while taking actions to improve exam capacity, further the digitization of our stores and corporate office, leverage our omni-channel capabilities, and continue to capitalize on our white space opportunity as we move into 2023. While early, we've been encouraged by the results to date from doctor retention and recruiting initiatives. While we expect profitability in 2023 to be impacted by cost pressures, as Melissa will discuss, we believe the initiatives we have in place will position us well for long-term success and a return to the consistent financial performance we have demonstrated historically as seen on slide nine. I'll now turn the call over to Melissa for a more detailed discussion of our financial results in the 2023 outlook.