National Vision Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q2 2024 National Vision Holdings Earnings Conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tamara Gonzalez, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's second quarter 2024 earnings call. Joining me today are Reid Fahs, CEO, and Melissa Rasmussen, CFO. Our earnings relief issued this morning and the presentation accompanying our call are both available in the Investors section of our website, nationalvision.com. A replay of the audio webcast will be archived in the Investors section 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 includes certain non-GAAP measures. Reconciliation of these measures is included in our release and the supplemental presentation. We would like to draw your attention to slide two in today's presentation for additional information about forward-looking statements and non-GAAP measures. Further, please note that all financial measures in today's commentary are based on a continuing operations basis unless otherwise noted. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the Investors section of our website. I will now turn the call over to Reid.

Thank you, Tamara, and good morning, everyone. Thank you for joining us today. Over the past two years, we've been working to rapidly adapt to new market realities. This included the successful launch and expansion of remote exam capability, changes to how we approach doctor scheduling, various pricing actions, and increased digitization of key parts of our business. While these initiatives have brought valuable changes to the way we operate, we acknowledge that we are not yet delivering the financial results we anticipated at this point in the year. In addition to the transformation activities we've had underway, we are taking new actions to accelerate improvement and strengthen our foundation. We've initiated a comprehensive review of our store fleet, and we are welcoming new leadership to our team to bring fresh eyes and perspectives. Before we dive into that discussion, I will briefly review our second quarter highlights. Melissa will then discuss our financial results and outlook in more detail before we open the call for questions. Revenues in the second quarter were $452 million, up 4.6% over this time last year. Adjusted comparable store sales improved from the first quarter to 2.4% due to improved performance at America's Best, which increased 2.9%. Adjusted operating income increased 13.8% to $14.1 million. This resulted in adjusted diluted earnings per share of 15 cents. Our eyeglass world brand continues to make progress. We saw sequential improvement in comp store sales from the first to second quarter as efforts to energize the brand begin to have an impact. We continue to see quite healthy traffic from managed care customers. This is particularly evident at America's Best, where we saw high single-digit comps for managed care. I believe this performance reflects growing knowledge amongst managed care customers that their money goes further shopping with us. Comp sales from cash-paid customers was essentially flat to last year at America's Best, a notable improvement from the low single-digit negative levels we saw in the first quarter. That said, we saw heightened macro consumer pressure, and as a result, our second quarter sales results, while positive, needed to be higher to give us confidence that the back half would accelerate and deliver full-year comparable store sales growth in the mid-single digit range as our original guidance contemplated. As such, we have revised our guidance accordingly. This revision reflects results year-to-date and a change in our expectations in the back half, which now assumes current trends generally continue. Melissa will review this in more detail in her remarks. Now let me turn to discuss our strategic initiatives and the areas in which we're accelerating our transformation. Since establishing our key strategic initiatives two years ago, we've made significant progress to strengthen our foundation for growth, including rapidly expanding and evolving our remote exam capabilities, implementing more flexible schedule options for optometrists, executing various pricing actions and promotions, implementing EHR and digitized patient records, and right-sizing cost structure in connection with the exit of the low-margin Walmart partnership and AC Lens operations. But we need to do more to accelerate both the pace and rigor of our transformation to drive profitable growth. This brings us to our recent announcements with respect to leadership and store optimization. I'll start with recent leadership changes. First, Patrick Moore, our Chief Operating Officer and former Chief Financial Officer, announced his intention to retire at the end of this year. From our pre-IPO days dating back to 2014 through today, Patrick has been instrumental in leading our business, and we're deeply grateful for his partnership, counsel, and contributions over the last 10 years. Patrick will soon shift to an advisory role focused on supporting the leadership transition. Next, I would like to extend a warm welcome to Alex Wilkes, who's been named as National Vision's president and will be joining us on August 19th. Alex is an exceptional leader and brings a depth of experience across all areas of the optical industry. Alex joins us from Cooper Vision, where he served as president of the Americas. He was formerly general manager of Pearl Vision and previously held an optometric leadership position with LensCrafters. He's held executive positions at two of our largest suppliers, Cooper Vision, and SLR Luxottica. This, coupled with his proven track record of driving sales and profit growth, and an ability to develop market-shifting strategies, will be tremendously additive to our go-forward transformation efforts. And last month, we announced our new Chief Storage Officer, Mark Banner, Mark is deeply experienced in retail operations, in categories requiring consultative selling, like optical, and in leading sales and real estate teams, both of which are critical elements to our transformation plan. He shares our people-oriented belief in culture as a competitive advantage, and in the month or so since he joined us, he's really hit the ground running. Between Alex and Mark, there's a wealth of talent and fresh perspective that we're bringing to the National Vision team. Both will work very closely with myself and Patrick to make sure the transition is seamless. As we look to strengthen our foundation, we are actively reviewing all stores to optimize our fleet to drive growth and profitability. We are approaching this review with heightened scrutiny in light of the current operating environment and in a disciplined, thoughtful manner. Following our review, we will act on stores that are not meeting our profitability objectives by either closing, converting, or implementing improvement plans among other measures. The initial screen of stores is less than 5% of our total fleet. Our comprehensive review will consider many factors beyond financial impacts, including market and long-term strategy to ensure all actions taken will be accretive to both short and long-term profitability and strategic goals. We will provide updates next quarter as this initiative progresses. Concurrently, we're planning for 2025 and considering new store openings at a level appropriate for incremental free cash flow generation and healthy growth. We'll have more to share on this in the coming quarters as well. Our most important near-term priority is to continue to strengthen our core business. We're committed to doing this in a disciplined manner, and this is particularly important as we move to capitalize on our white space opportunity longer term. The next aspect of our transformation involves new initiatives to continue to add to our exam capacity. This includes adding late-day exam appointments, remote exam expansion, recruitment and retention initiatives. In the second quarter, exam schedules at America's best locations were updated to increase the number of appointments at the end of the day. Results to date have been positive. We're seeing more patients when they want to be seen. Additionally, our remote technology solution continues to progress well in helping address capacity issues. We've officially enabled nearly 600 stores across 28 states. We hit a milestone when the 500,000th remote exam was conducted. And remote doctor productivity levels continue to improve. Remote exams now represent about 12% of exams in remote-enabled states. We expect this to continue to grow. And as we shared last quarter, we began implementing remote in Texas, and I'm pleased to report that early results are encouraging. With that said, we do expect some of the benefits from our Texas expansion to be offset by lower than expected results with this year's OD recruitment class, which we did not have a full picture on until early summer based on the timing of new grad recruiting and acceptance seasonality. We're being prudent in our assumptions for this impact and trends in OD retention into the back half of the year, which are reflected in our guidance. Aligning exam capacity to patient demand remains a top priority for our teams. We're actively investing in technology, tools, and initiatives to optimize and expand capacity. As I reflect on the past few years, I'm very pleased with the additional exam capacity that our remote care technology has added, and I believe it can play an ever larger role moving forward. During the quarter, we also rolled out and are investing in new sales driving initiatives that we mentioned on our last call. which is showing early signs of success as reflected in the increased traffic and slight improvement exam conversion that we saw in the quarter. With that said, let me share a bit more about our approach to marketing overall. We're a full funnel marketer with the majority of our spend in the upper funnel focused on awareness and the lower funnel primarily focused on exam appointment generation. So you should think of our spend as sort of an hourglass shape. At the top of the funnel, we spend on both traditional national network TV and on streaming and online video platforms like YouTube. In the middle of the funnel, we spend on social and display ads. At the bottom of the funnel, we spend on multiple platforms like Google, designed around getting people to book an exam appointment, primarily search-related spending. We feel good about our top of funnel as our awareness in the second quarter hit a record high level for us. We likewise are confident about our bottom of the funnel as our share of voice across the exam and optometric terms out cases are competitive set. We continue to balance our marketing investments in key channels that have driven the highest returns while stimulating demand by testing new promotional messaging and events such as the recent launch of our Wise Buy sales event. The event launched at the end of June and involves limited time sales promotions such as a first time ever offer on progressive glasses at two for $129.95 and a rollback to our historical base offer of two for $69.95 for single vision glasses. We believe events such as these can further attract new and existing customers and are pleased with the initial results they have contributed. As we think about the future possibilities, I often say that the eyes are a window into broader health and the role that vision care plays in a person's general health is vital. We continue to actively evaluate AI technologies and solutions in both the optical and healthcare industries and continue to be pleased with our investment in the AI startup Toku Inc. When it comes to applying AI to healthcare, National Vision has built a unique and valuable asset. We have one of the largest employee doctor networks in the country, including one of the largest networks of installed retinal cameras. We're moving to a common set of electronic health records and are playing a role in the innovative AI solutions to serve patients. While in the near term, we are navigating an uncertain macro environment, we are continuing to invest in our future and taking actions to ensure our foundation is strong. We are welcoming new leadership and taking a disciplined approach to our store fleet while also executing on strategic initiatives to drive demand and expand exam capacity. I remain confident in the opportunity that lies ahead. One final point before I turn it over to Melissa. Last week, we announced the appointment of Caitlin Zula to our board of directors. Caitlin is an outstanding executive, and I'm very pleased to have someone of her caliber on our board. She brings a unique perspective to our boardroom that combines a broad understanding of the healthcare continuum and financial expertise, all of which will be helpful to us as we move forward. In closing, I want to especially thank our store teams and doctors for the dedication to patient and customer care they exhibit every day. And with that, I'll turn the call over to Melissa. Melissa?