(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
, | (Zip Code) | |||
(Address of principal executive offices) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company |
Class | Outstanding at October 31, 2019 | |
Common stock, $0.01 par value |
Page | |||
• | our ability to open and operate new stores in a timely and cost-effective manner, and to successfully enter new markets; |
• | our ability to recruit and retain vision care professionals for our stores; |
• | our ability to develop and maintain relationships with managed vision care companies, vision insurance providers and other third-party payors; |
• | our ability to maintain our current operating relationships with our host and legacy partners; |
• | our ability to adhere to extensive state, local and federal vision care and healthcare laws and regulations; |
• | our ability to maintain sufficient levels of cash flow from our operations to grow; |
• | the loss of, or disruption in the operations of, one or more of our distribution centers and/or optical laboratories; |
• | risks associated with vendors from whom our products are sourced; |
• | overall decline in the health of the economy and consumer spending affecting consumer purchases; |
• | our ability to successfully compete in the highly competitive optical retail industry; |
• | our dependence on a limited number of suppliers; |
• | our and our vendors’ ability to safeguard personal information and payment card data; |
• | any failure, inadequacy, interruption, security failure or breach of our information technology systems; |
• | our growth strategy straining our existing resources and causing the performance of our existing stores to suffer; |
• | our ability to retain our existing senior management team and attract qualified new personnel; |
• | the impact of wage rate increases, inflation, cost increases and increases in raw material prices and energy prices; |
• | our ability to successfully implement our marketing, advertising and promotional efforts; |
• | risks associated with leasing substantial amounts of space; |
• | the impact of certain technological advances, and the greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems; |
• | product liability, product recall or personal injury issues; |
• | our compliance with managed vision care laws and regulations; |
• | our reliance on third-party reimbursement for a portion of our revenues; |
• | our ability to manage our inventory balances and inventory shrinkage; |
• | risks associated with our e-commerce business; |
• | seasonal fluctuations in our operating results and inventory levels; |
• | risks of losses arising from our investments in technological innovators in the optical retail industry; |
• | our failure to comply with, or changes in, laws, regulations, enforcement activities and other requirements; |
• | the impact of any adverse litigation judgments or settlements resulting from legal proceedings relating to our business operations; |
• | our ability to adequately protect our intellectual property; |
• | our leverage; |
• | restrictions in our credit agreement that limits our flexibility in operating our business; |
• | our ability to generate sufficient cash flow to satisfy our significant debt service obligations; |
• | our dependence on subsidiaries to fund all of our operations and expenses; |
• | risks associated with maintaining the requirements of being a public company; |
• | our ability to comply with requirements to maintain effective internal controls; and |
• | risks related to owning our common stock. |
ASSETS | As of September 28, 2019 | As of December 29, 2018 | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net | |||||||
Inventories | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Other assets: | |||||||
Goodwill | |||||||
Trademarks and trade names | |||||||
Other intangible assets, net | |||||||
Right of use assets | |||||||
Other assets | |||||||
Total non-current 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 | |||||||
Total current liabilities | |||||||
Long-term debt and finance lease obligations, less current portion and debt discount | |||||||
Non-current operating lease obligations | |||||||
Other non-current liabilities: | |||||||
Deferred revenue | |||||||
Other liabilities | |||||||
Deferred income taxes, net | |||||||
Total other non-current liabilities | |||||||
Commitments and contingencies (See Note 9) | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value; 200,000 shares authorized; 79,920 and 78,246 shares issued as of September 28, 2019 and December 29, 2018, respectively; 79,022 and 78,167 shares outstanding as of September 28, 2019 and December 29, 2018, respectively | |||||||
Additional paid-in capital | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Retained earnings | |||||||
Treasury stock, at cost; 898 and 79 shares as of September 28, 2019 and December 29, 2018, respectively | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
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 | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Asset impairment | |||||||||||||||
Other expense, net | |||||||||||||||
Total operating expenses | |||||||||||||||
Income (loss) from operations | ( | ) | |||||||||||||
Interest expense, net | |||||||||||||||
Loss on extinguishment of debt | |||||||||||||||
Earnings (loss) before income taxes | ( | ) | ( | ) | |||||||||||
Income tax provision (benefit) | ( | ) | ( | ) | ( | ) | |||||||||
Net income | $ | $ | $ | $ | |||||||||||
Earnings per share: | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Diluted | $ | $ | $ | $ | |||||||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | |||||||||||||||
Diluted | |||||||||||||||
Comprehensive income: | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Unrealized gain (loss) on hedge instruments | ( | ) | |||||||||||||
Tax provision (benefit) of unrealized gain (loss) on hedge instruments | ( | ) | |||||||||||||
Comprehensive income | $ | $ | $ | $ |
Nine Months Ended September 28, 2019 | ||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Stockholders' Equity | |||||||||||||||
Shares | Amount | |||||||||||||||||||
Balances at December 29, 2018 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | ( | ) | — | ( | ) | |||||||||||
Balances at December 30, 2018 - as adjusted | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | ( | ) | — | — | ( | ) | |||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at March 30, 2019 | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | ( | ) | — | — | ( | ) | |||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at June 29, 2019 | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Purchase of treasury stock | ( | ) | — | — | — | — | ( | ) | ( | ) | ||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | — | — | |||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at September 28, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ |
Nine Months Ended September 29, 2018 | ||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Stockholders' Equity | |||||||||||||||
Shares | Amount | |||||||||||||||||||
Balances at December 30, 2017 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | — | |||||||||||||||
Balances at December 31, 2017 - as adjusted | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Purchase of treasury stock | ( | ) | — | — | — | — | ( | ) | ( | ) | ||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | — | — | |||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at March 31, 2018 | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Purchase of treasury stock | — | — | — | — | — | ( | ) | ( | ) | |||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | — | — | |||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at June 30, 2018 | ( | ) | ( | ) | ||||||||||||||||
Issuance of common stock | — | — | — | |||||||||||||||||
Stock based compensation | — | — | — | — | — | |||||||||||||||
Purchase of treasury stock | ( | ) | — | — | — | — | ( | ) | ( | ) | ||||||||||
Unrealized gain (loss) on hedge instruments, net of tax | — | — | — | — | — | |||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||
Balances at September 29, 2018 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ |
Nine Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Amortization of loan costs | |||||||
Asset impairment | |||||||
Deferred income tax (benefit) expense | ( | ) | |||||
Stock based compensation expense | |||||||
Inventory adjustments | |||||||
Bad debt expense | |||||||
Loss on extinguishment of debt | |||||||
Other | |||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( | ) | ( | ) | |||
Inventories | ( | ) | |||||
Other assets | |||||||
Accounts payable | ( | ) | |||||
Deferred 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: | |||||||
Proceeds from issuance of long-term debt, net of discounts | |||||||
Proceeds from exercise of stock options | |||||||
Principal payments on long-term debt | ( | ) | ( | ) | |||
Purchase of treasury stock | ( | ) | ( | ) | |||
Payments on finance lease obligations | ( | ) | ( | ) | |||
Payments of debt issuance costs | ( | ) | |||||
Net cash provided by (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 | $ | $ | |||||
Property and equipment accrued at the end of the period | $ | $ | |||||
Right of use assets acquired under finance leases | $ | $ | |||||
Right of use assets acquired under operating leases | $ | $ |
Nine Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash included in other assets | |||||||
Total cash, cash equivalents and restricted cash | $ | $ |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
Accounts receivable, net: | |||||||
Trade receivables | $ | $ | |||||
Credit card receivables | |||||||
Tenant improvement allowances receivable | |||||||
Other receivables | |||||||
Allowance for uncollectible accounts | ( | ) | ( | ) | |||
$ | $ |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
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. |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
Property and equipment, net: | |||||||
Land and building | $ | $ | |||||
Equipment | |||||||
Information systems hardware and software | |||||||
Furniture and fixtures | |||||||
Leasehold improvements | |||||||
Construction in progress | |||||||
Right of use assets under finance leases | |||||||
Less: Accumulated depreciation | |||||||
$ | $ |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
Other payables and accrued expenses: | |||||||
Employee compensation and benefits | $ | $ | |||||
Advertising | |||||||
Self-insurance reserves | |||||||
Reserves for customer returns and remakes | |||||||
Capital expenditures | |||||||
Legacy management and services agreement | |||||||
Fair value of derivative liabilities | |||||||
Supplies and other store support expenses | |||||||
Litigation settlements | |||||||
Other | |||||||
$ | $ |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
Other non-current liabilities: | |||||||
Fair value of derivative liabilities | $ | $ | |||||
Tenant improvements (1) | — | ||||||
Deferred rental expenses (1) | — | ||||||
Self-insurance reserves | |||||||
Other | |||||||
$ | $ | ||||||
(1) Tenant improvements and deferred rental expenses are used to measure ROU assets on the balance sheet under ASC 842, Leases as of September 28, 2019. See Note 8. “Leases” for further details. |
• | Level 1 - Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. |
• | Level 2 - Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in inactive markets, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the instruments. |
• | Level 3 - Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include discounted cash flow models and similar techniques. |
In thousands | Notional Amount | Maturity Date | Other Payables and Accrued Expenses | Other Liabilities | AOCL, Net of Tax (1) | ||||||||||||
As of September 28, 2019 | $ | March 2021 | $ | $ | $ | ||||||||||||
As of December 29, 2018 | $ | March 2021 | $ | $ | $ |
(1) | Includes stranded tax benefit of $ |
In thousands | As of September 28, 2019 | As of December 29, 2018 | |||||
First Lien - Term Loan B | $ | $ | |||||
First Lien - Term Loan A | |||||||
First Lien - Term Loan, due July 18, 2024 | |||||||
First Lien - Revolving credit facility, due July 18, 2024 | |||||||
Total term loans before unamortized discount | |||||||
Unamortized discount | ( | ) | ( | ) | |||
Total term loans | |||||||
Less current maturities | ( | ) | ( | ) | |||
Term loans - non-current portion | |||||||
Finance lease obligations | |||||||
Less current maturities | ( | ) | ( | ) | |||
Long-term debt, less current portion and unamortized debt discount | $ | $ |
Fiscal Period | In thousands | |||
2019 - fourth quarter | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
Thereafter | ||||
$ |
Service-based options (1) | Performance-based options | Total options | ||||||
Outstanding at December 29, 2018 | ||||||||
Granted | ||||||||
Exercised | ( | ) | ( | ) | ( | ) | ||
Forfeited | ( | ) | ( | ) | ( | ) | ||
Outstanding at September 28, 2019 | ||||||||
Vested and exercisable at September 28, 2019 | ||||||||
(1) Includes service-based options under the Vision Holding Corp. Amended and Restated 2013 Equity Incentive Plan, the 2014 Stock Incentive Plan, and the 2017 Omnibus Incentive Plan. |
Service-based restricted stock unit (RSU) awards | Performance-based restricted stock unit (PSU) awards | Restricted stock (RSA) awards | ||||||
Outstanding at December 29, 2018 | ||||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ( | ) | ( | ) | ||||
Outstanding at September 28, 2019 |
Three months ended | Nine months ended | ||||||||||||||
In thousands | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Stock options | $ | $ | $ | $ | |||||||||||
RSUs and PSUs | |||||||||||||||
RSAs | |||||||||||||||
Associate stock purchase plan | |||||||||||||||
Total stock based compensation expense | $ | $ | $ | $ |
Three Months Ended | Nine Months Ended | ||||||||||||||
In thousands | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Revenues recognized at a point in time | $ | $ | $ | $ | |||||||||||
Revenues recognized over time | |||||||||||||||
Total net revenue | $ | $ | $ | $ |
In thousands | As of September 28, 2019 | ||||
Type | Classification | ||||
ASSETS | |||||
Finance | Property and equipment, net | $ | |||
Operating | Right of use assets (a) | ||||
Total leased assets | $ | ||||
LIABILITIES | |||||
Current Liabilities: | |||||
Finance | Current maturities of long-term debt and finance lease obligations | $ | |||
Operating | Current operating lease obligations | ||||
Other non-current liabilities: | |||||
Finance | Long-term debt and finance lease obligations, less current portion and debt discount | ||||
Operating | Non-current operating lease obligations | ||||
Total lease liabilities | $ | ||||
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the net present value of minimum lease payments. We used the incremental borrowing rate on December 30, 2018, for operating leases that commenced prior to that date. | |||||
(a) TIA of $34.2 million and deferred rent of $14.2 million are treated as reductions of lease payments used to measure ROU assets as of September 28, 2019. |
In thousands | Three Months Ended September 28, 2019 | Nine Months Ended September 28, 2019 | |||||
Lease cost by classification | |||||||
Selling, general and administrative: | |||||||
Operating lease cost (a) | $ | $ | |||||
Variable lease cost (b) | |||||||
Sublease income(c) | ( | ) | ( | ) | |||
Depreciation and amortization: | |||||||
Amortization of lease assets | |||||||
Interest expense, net: | |||||||
Interest on 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 operating lease properties to ophthalmologists and optometrists who are independent contractors. |
Lease Term and Discount Rate | As of September 28, 2019 | ||
Weighted average remaining lease term (months) | |||
Operating leases | 82 | ||
Finance leases | 91 | ||
Weighted average discount rate (a) | |||
Operating leases | % | ||
Finance leases (b) | % | ||
(a) The discount rate used to determine the lease assets and lease liabilities was derived upon considering (i) incremental borrowing rates on our long-term debt; (ii) fixed rates we pay on our interest rate swaps; (iii) LIBOR margins for issuers of similar credit rating; (iv) borrowing rates on five-year and ten-year US Treasuries; and (v) effect of collateralization. As a majority of our leases are five-year and 10-year leases, we determined a lease discount rate for such tenors and determined this discount rate is reasonable for leases that were entered into during the period. | |||
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain leases entered into prior to adoption of ASC 842. The discount rate differential for those leases is not material to our results of operations. |
In thousands | Nine Months Ended September 28, 2019 | |||
Other Information | ||||
Cash paid for amounts included in the measurement of lease liabilities | ||||
Operating cash outflows - operating leases | $ |
In thousands | Operating Leases (a) | Finance Leases (b) | ||||||
Fiscal Year | ||||||||
2019 fourth quarter | $ | $ | ||||||
2020 | ||||||||
2021 | ||||||||
2022 | ||||||||
2023 | ||||||||
Thereafter | ||||||||
Total lease liabilities | ||||||||
Less: Interest | ||||||||
Present value of lease liabilities(c) | $ | $ | ||||||
(a) Operating lease payments include $75.9 million related to options to extend lease terms that are reasonably certain of being exercised. | ||||||||
(b) Finance lease payments include $1.1 million related to options to extend lease terms that are reasonably certain of being exercised. | ||||||||
(c) The present value of lease liabilities excludes $19.1 million of legally binding minimum lease payments for leases signed but not yet commenced. |
Fiscal Year | In thousands | |||
2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
Thereafter | ||||
$ |
Three Months Ended September 28, 2019 | |||||||||||||||||||
In thousands | Owned & Host | Legacy | Corporate/Other | Reconciliations | Total | ||||||||||||||
Segment product revenues | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Segment services and plans revenues | ( | ) | |||||||||||||||||
Total net revenue | ( | ) | |||||||||||||||||
Cost of products | ( | ) | |||||||||||||||||
Cost of services and plans | |||||||||||||||||||
Total costs applicable to revenue | ( | ) | |||||||||||||||||
SG&A | |||||||||||||||||||
Asset impairment | |||||||||||||||||||
Other expense, net | |||||||||||||||||||
Loss on extinguishment of debt | |||||||||||||||||||
EBITDA | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Depreciation and amortization | |||||||||||||||||||
Interest expense, net | |||||||||||||||||||
Loss before income taxes | $ | ( | ) |
Three Months Ended September 29, 2018 | |||||||||||||||||||
In thousands | Owned & Host | Legacy | Corporate/Other | Reconciliations | Total | ||||||||||||||
Segment product revenues | $ | $ | $ | $ | $ | ||||||||||||||
Segment services and plans revenues | ( | ) | |||||||||||||||||
Total net revenue | ( | ) | |||||||||||||||||
Cost of products | |||||||||||||||||||
Cost of services and plans | |||||||||||||||||||
Total costs applicable to revenue | |||||||||||||||||||
SG&A | |||||||||||||||||||
Asset impairment | |||||||||||||||||||
Other expense, net | |||||||||||||||||||
EBITDA | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Depreciation and amortization | |||||||||||||||||||
Interest expense, net | |||||||||||||||||||
Loss before income taxes | $ | ( | ) |
Nine Months Ended September 28, 2019 | |||||||||||||||||||
In thousands | Owned & Host | Legacy | Corporate/Other | Reconciliations | Total | ||||||||||||||
Segment product revenues | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
Segment services and plans revenues | ( | ) | |||||||||||||||||
Total net revenue | ( | ) | |||||||||||||||||
Costs of products | ( | ) | |||||||||||||||||
Costs of services and plans | |||||||||||||||||||
Total costs applicable to revenue | ( | ) | |||||||||||||||||
SG&A | |||||||||||||||||||
Asset impairment | |||||||||||||||||||
Other expense, net | |||||||||||||||||||
Loss on extinguishment of debt | |||||||||||||||||||
EBITDA | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Depreciation and amortization | |||||||||||||||||||
Interest expense, net | |||||||||||||||||||
Income before income taxes | $ |
Nine Months Ended September 29, 2018 | |||||||||||||||||||
In thousands | Owned & Host | Legacy | Corporate/Other | Reconciliations | Total | ||||||||||||||
Segment product revenues | $ | $ | $ | $ | $ | ||||||||||||||
Segment services and plans revenues | ( | ) | |||||||||||||||||
Total net revenue | ( | ) | |||||||||||||||||
Costs of products | |||||||||||||||||||
Costs of services and plans | |||||||||||||||||||
Total costs applicable to revenue | |||||||||||||||||||
SG&A | |||||||||||||||||||
Asset impairment | |||||||||||||||||||
Other expense, net | |||||||||||||||||||
EBITDA | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Depreciation and amortization | |||||||||||||||||||
Interest expense, net | |||||||||||||||||||
Income before income taxes | $ |
Three Months Ended | Nine Months Ended | ||||||||||||||
In thousands, except EPS | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Weighted average shares outstanding for basic EPS | |||||||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options | |||||||||||||||
Restricted stock | |||||||||||||||
Weighted average shares outstanding for diluted EPS | |||||||||||||||
Basic EPS | $ | $ | $ | $ | |||||||||||
Diluted EPS | $ | $ | $ | $ | |||||||||||
Anti-dilutive options, RSUs outstanding excluded from EPS |
Three Months Ended | Nine Months Ended | ||||||||||||||
In thousands | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Cash flow hedging activity: | |||||||||||||||
Balance at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income (loss) before reclassification | ( | ) | ( | ) | |||||||||||
Tax effect of other comprehensive income (loss) before reclassification | ( | ) | ( | ) | |||||||||||
Amount reclassified from AOCL into interest expense | |||||||||||||||
Tax effect of amount reclassified from AOCL into interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net current period other comprehensive income (loss), net of tax | ( | ) | |||||||||||||
Balance at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
• | Owned & Host - As of September 28, 2019, our owned brands consisted of 718 America’s Best Contacts and Eyeglasses (“America’s Best”) retail stores and 118 Eyeglass World retail stores. In America’s Best stores, vision care services are provided by optometrists employed by us or by independent professional corporations. America’s Best stores are primarily located in high-traffic strip centers next to nationally-known discount retailers. Eyeglass World locations primarily feature vision care services provided by independent optometrists and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site. Eyeglass World stores are primarily located in freestanding or in-suite locations near high-foot-traffic shopping centers. Our host brands consisted of 54 Vista Optical locations on military bases and 29 Vista Optical locations within Fred Meyer stores as of September 28, 2019. We have strong, long-standing relationships with our host partners and have maintained each partnership for over 19 years. These brands provide eye exams principally by independent optometrists. All brands utilize our centralized laboratories. This segment also includes sales from our America’s Best, Eyeglass World, and Military omni-channel websites. |
• | Legacy - We manage the operations of, and supply inventory and laboratory processing services to, 226 Vision Centers in Walmart retail locations as of September 28, 2019. Under our management & services agreement with Walmart, our responsibilities include ordering and maintaining merchandise inventory, arranging the provision of optometry services, providing managers and staff at each location, training personnel, providing sales receipts to customers, maintaining necessary insurance, obtaining and holding required licenses, permits and accreditations, owning and maintaining store furniture, fixtures and equipment, and developing annual operating budgets and reporting. We earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner’s customers on a net basis. Our management & services agreement also allows our legacy partner to collect penalties if the Vision Centers do not generate a requisite amount of revenues. No such penalties have been assessed under our current arrangement, which began in 2012. We also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement, and provide centralized laboratory services for the finished eyeglasses for our legacy partner’s customers in stores that we manage. We lease space from Walmart within or adjacent to each of the locations we manage and use this space for vision care services provided by independent doctors or doctors employed by us or by independent professional corporations. During the nine months ended September 28, 2019, sales associated with our legacy partner arrangement represented 9.3% of consolidated net revenue. This exposes us to concentration of customer risk. Our agreements with our legacy partner expire on August 23, 2020, and will automatically renew for a three-year period unless a party elects not to renew. |
• | Our e-commerce platform of 15 dedicated websites managed by our wholly-owned subsidiary, Arlington Contact Lens Service, Inc. (“AC Lens”). Our e-commerce business consists of six proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and nine third-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers. AC Lens handles site management, customer relationship management and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories. |
• | AC Lens also distributes contact lenses wholesale to Walmart and Sam’s Club. We incur costs at a higher percentage of sales than other product categories. |
• | Managed care business conducted by FirstSight Vision Services, Inc. (“FirstSight”), our wholly-owned subsidiary that is licensed as a single-service health plan under California law, which arranges for the provision of optometric services at the offices next to certain Walmart stores throughout California, and also issues individual vision care benefit plans in connection with our America’s Best operations in California. |
• | Unallocated corporate overhead expenses, which are a component of selling, general and administrative expenses and are comprised of various home office expenses such as payroll, occupancy costs, and consulting and professional fees. Corporate overhead expenses also include field services for our five retail brands. |
• | consumer preferences, buying trends and overall economic trends including amount and timing of tax refunds; |
• | advertising strategies; |
• | participation in managed care programs; |
• | the recurring nature of eye care purchases; |
• | our ability to identify and respond effectively to customer preferences and trends; |
• | our ability to provide an assortment of high quality/low cost product offerings that generate new and repeat visits to our stores; |
• | foot traffic in retail shopping centers where our stores are predominantly located; |
• | the customer experience we provide in our stores; |
• | the availability of vision care professionals; |
• | the availability of optometrist professionals; |
• | our ability to source and receive products accurately and timely; |
• | changes in product pricing, including promotional activities; |
• | the number of items purchased per store visit; |
• | the number of stores that have been in operation for more than 12 months; and |
• | impact and timing of weather related store closures. |
Three Months Ended | Nine Months Ended | ||||||||||||||
In thousands, except store data | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Revenue: | |||||||||||||||
Net product sales | $ | 355,789 | $ | 319,312 | $ | 1,096,482 | $ | 977,497 | |||||||
Net sales of services and plans | 76,113 | 68,113 | 226,086 | 203,435 | |||||||||||
Total net revenue | 431,902 | 387,425 | 1,322,568 | 1,180,932 | |||||||||||
Costs applicable to revenue (exclusive of depreciation and amortization): | |||||||||||||||
Products | 144,518 | 130,951 | 444,177 | 389,560 | |||||||||||
Services and plans | 59,984 | 51,637 | 174,801 | 150,541 | |||||||||||
Total costs applicable to revenue | 204,502 | 182,588 | 618,978 | 540,101 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 190,290 | 185,028 | 566,444 | 521,344 | |||||||||||
Depreciation and amortization | 22,336 | 19,344 | 63,570 | 54,783 | |||||||||||
Asset impairment | 3,516 | 2,137 | 7,387 | 2,137 | |||||||||||
Other expense, net | 146 | 411 | 975 | 829 | |||||||||||
Total operating expenses | 216,288 | 206,920 | 638,376 | 579,093 | |||||||||||
Income (loss) from operations | 11,112 | (2,083 | ) | 65,214 | 61,738 | ||||||||||
Interest expense, net | 7,873 | 9,407 | 25,902 | 28,144 | |||||||||||
Loss on extinguishment of debt | 9,786 | — | 9,786 | — | |||||||||||
Earnings (loss) before income taxes | (6,547 | ) | (11,490 | ) | 29,526 | 33,594 | |||||||||
Income tax provision (benefit) | (7,739 | ) | (16,661 | ) | 647 | (8,499 | ) | ||||||||
Net income | $ | 1,192 | $ | 5,171 | $ | 28,879 | $ | 42,093 | |||||||
Operating data: | |||||||||||||||
Number of stores open at end of period | 1,145 | 1,067 | 1,145 | 1,067 | |||||||||||
New stores opened | 17 | 18 | 67 | 58 | |||||||||||
Adjusted EBITDA | $ | 47,937 | $ | 38,440 | $ | 161,073 | $ | 145,648 |
Three Months Ended | Nine Months Ended | ||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||
Percentage of net revenue: | |||||||||||
Total costs applicable to revenue | 47.3 | % | 47.1 | % | 46.8 | % | 45.7 | % | |||
Selling, general and administrative | 44.1 | % | 47.8 | % | 42.8 | % | 44.1 | % | |||
Total operating expenses | 50.1 | % | 53.4 | % | 48.3 | % | 49.0 | % | |||
Income (loss) from operations | 2.6 | % | (0.5 | )% | 4.9 | % | 5.2 | % | |||
Net income | 0.3 | % | 1.3 | % | 2.2 | % | 3.6 | % | |||
Adjusted EBITDA | 11.1 | % | 9.9 | % | 12.2 | % | 12.3 | % |
Comparable store sales growth(1) | Stores open at end of period | Net revenue(2) | ||||||||||||||||||||||
In thousands, except percentage and store data | Three Months Ended September 28, 2019 | Three Months Ended September 29, 2018 | September 28, 2019 | September 29, 2018 | Three Months Ended September 28, 2019 | Three Months Ended September 29, 2018 | ||||||||||||||||||
Owned & Host segment | ||||||||||||||||||||||||
America’s Best | 6.7 | % | 8.4 | % | 718 | 643 | $ | 279,883 | 64.8 | % | $ | 246,414 | 63.6 | % | ||||||||||
Eyeglass World | 5.2 | % | 8.9 | % | 118 | 113 | 44,178 | 10.2 | % | 40,733 | 10.5 | % | ||||||||||||
Military | 2.5 | % | (2.4 | )% | 54 | 55 | 6,097 | 1.4 | % | 6,032 | 1.6 | % | ||||||||||||
Fred Meyer | (2.8 | )% | (5.7 | )% | 29 | 29 | 3,280 | 0.8 | % | 3,376 | 0.9 | % | ||||||||||||
Owned & Host segment total | 919 | 840 | $ | 333,438 | 77.2 | % | $ | 296,555 | 76.6 | % | ||||||||||||||
Legacy segment | 5.7 | % | 0.0 | % | 226 | 227 | 39,355 | 9.1 | % | 37,228 | 9.6 | % | ||||||||||||
Corporate/Other | — | % | — | % | — | — | 63,174 | 14.6 | % | 54,198 | 13.9 | % | ||||||||||||
Reconciliations | — | % | — | % | — | — | (4,065 | ) | (0.9 | )% | (556 | ) | (0.1 | )% | ||||||||||
Total | 5.7 | % | 7.0 | % | 1,145 | 1,067 | $ | 431,902 | 100.0 | % | $ | 387,425 | 100.0 | % | ||||||||||
Adjusted comparable store sales growth(3) | 6.2 | % | 6.8 | % |
(1) | We calculate total comparable store sales based on consolidated net revenue 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 10. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below. |
(2) | Percentages reflect line item as a percentage of net revenue, adjusted for rounding. |
(3) | There are two differences between total comparable store sales growth based on consolidated net revenue and adjusted comparable store sales growth: (i) adjusted comparable store sales growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.6% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for the three months ended September 28, 2019 and September 29, 2018, respectively, and (ii) adjusted comparable store sales growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for each of the three months ended September 28, 2019 and September 29, 2018. |
Comparable store sales growth(1) | Stores open at end of period | Net revenue(2) | ||||||||||||||||||||||
In thousands, except percentage and store data | Nine Months Ended September 28, 2019 | Nine Months Ended September 29, 2018 | September 28, 2019 | September 29, 2018 | Nine Months Ended September 28, 2019 | Nine Months Ended September 29, 2018 | ||||||||||||||||||
Owned & Host segment | ||||||||||||||||||||||||
America’s Best | 6.5 | % | 7.6 | % | 718 | 643 | $ | 851,759 | 64.4 | % | $ | 749,896 | 63.5 | % | ||||||||||
Eyeglass World | 5.7 | % | 8.2 | % | 118 | 113 | 138,451 | 10.5 | % | 126,620 | 10.7 | % | ||||||||||||
Military | (0.7 | )% | (1.5 | )% | 54 | 55 | 18,540 | 1.4 | % | 19,057 | 1.6 | % | ||||||||||||
Fred Meyer | (6.1 | )% | 1.9 | % | 29 | 29 | 10,324 | 0.8 | % | 10,992 | 0.9 | % | ||||||||||||
Owned & Host segment total | 919 | 840 | $ | 1,019,074 | 77.1 | % | $ | 906,565 | 76.7 | % | ||||||||||||||
Legacy segment | 2.5 | % | 2.5 | % | 226 | 227 | 123,197 | 9.3 | % | 119,092 | 10.1 | % | ||||||||||||
Corporate/Other | — | — | — | — | 189,401 | 14.3 | % | 156,795 | 13.3 | % | ||||||||||||||
Reconciliations | — | — | — | — | (9,104 | ) | (0.7 | )% | (1,520 | ) | (0.1 | )% | ||||||||||||
Total | 5.5 | % | 7.4 | % | 1,145 | 1,067 | $ | 1,322,568 | 100.0 | % | $ | 1,180,932 | 100.0 | % | ||||||||||
Adjusted comparable store sales growth(3) | 5.6 | % | 6.6 | % |
(1) | We calculate total comparable store sales based on consolidated net revenue 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 10. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below. |
(2) | Percentages reflect line item as a percentage of net revenue, adjusted for rounding. |
(3) | There are two differences between total comparable store sales growth based on consolidated net revenue and adjusted comparable store sales growth: (i) adjusted comparable store sales growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.3% and a decrease of 0.7% from total comparable store sales growth based on consolidated net revenue for the nine months ended September 28, 2019 and September 29, 2018, respectively, and (ii) adjusted comparable store sales growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.2% and 0.1% from total comparable store sales growth based on consolidated net revenue for the nine months ended September 28, 2019 and September 29, 2018, respectively. |
• | 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 and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
• | EBITDA and Adjusted EBITDA do not reflect period to period changes in taxes, income tax expense 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, including costs related to new store openings, which are incurred on a non-recurring basis with respect to any particular store when opened; |
• | 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. |
Three Months Ended | Nine Months Ended | ||||||||||||||||||
In thousands | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||||||
Net income | $ | 1,192 | 0.3% | $ | 5,171 | 1.3% | $ | 28,879 | 2.2% | $ | 42,093 | 3.6% | |||||||
Interest expense | 7,873 | 1.8% | 9,407 | 2.4% | 25,902 | 2.0% | 28,144 | 2.4% | |||||||||||
Income tax provision (benefit) | (7,739 | ) | (1.8)% | (16,661 | ) | (4.3)% | 647 | —% | (8,499 | ) | (0.7)% | ||||||||
Depreciation and amortization | 22,336 | 5.2% | 19,344 | 5.0% | 63,570 | 4.8% | 54,783 | 4.6% | |||||||||||
EBITDA | 23,662 | 5.5% | 17,261 | 4.5% | 118,998 | 9.0% | 116,521 | 9.9% | |||||||||||
Stock compensation expense (a) | 6,123 | 1.4% | 10,629 | 2.7% | 10,840 | 0.8% | 13,749 | 1.2% | |||||||||||
Loss on extinguishment of debt (b) | 9,786 | 2.3% | — | —% | 9,786 | 0.7% | — | —% | |||||||||||
Asset impairment (c) | 3,516 | 0.8% | 2,137 | 0.6% | 7,387 | 0.6% | 2,137 | 0.2% | |||||||||||
New store pre-opening expenses (d) | 848 | 0.2% | 512 | 0.1% | 2,862 | 0.2% | 1,742 | 0.1% | |||||||||||
Non-cash rent (e) | 537 | 0.1% | 661 | 0.2% | 2,386 | 0.2% | 1,934 | 0.2% | |||||||||||
Secondary offering expenses (f) | 401 | 0.1% | 702 | 0.2% | 406 | —% | 1,842 | 0.2% | |||||||||||
Management realignment expenses (g) | — | —% | — | —% | 2,155 | 0.2% | — | —% | |||||||||||
Long-term incentive plan expense (h) | 1,108 | 0.3% | 4,611 | 1.2% | 1,830 | 0.1% | 4,611 | 0.4% | |||||||||||
Other (i) | 1,956 | 0.5% | 1,927 | 0.5% | 4,423 | 0.3% | 3,112 | 0.3% | |||||||||||
Adjusted EBITDA/ Adjusted EBITDA Margin | $ | 47,937 | 11.1% | $ | 38,440 | 9.9% | $ | 161,073 | 12.2% | $ | 145,648 | 12.3% | |||||||
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 | Nine Months Ended | ||||||||||||||
In thousands | September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||
Net income | $ | 1,192 | $ | 5,171 | $ | 28,879 | $ | 42,093 | |||||||
Stock compensation expense (a) | 6,123 | 10,629 | 10,840 | 13,749 | |||||||||||
Loss on extinguishment of debt (b) | 9,786 | — | 9,786 | — | |||||||||||
Asset impairment (c) | 3,516 | 2,137 | 7,387 | 2,137 | |||||||||||
New store pre-opening expenses (d) | 848 | 512 | 2,862 | 1,742 | |||||||||||
Non-cash rent (e) | 537 | 661 | 2,386 | 1,934 | |||||||||||
Secondary offering expenses (f) | 401 | 702 | 406 | 1,842 | |||||||||||
Management realignment expenses (g) | — | — | 2,155 | — | |||||||||||
Long-term incentive plan expense (h) | 1,108 | 4,611 | 1,830 | 4,611 | |||||||||||
Other (i) | 1,956 | 1,927 | 4,423 | 3,112 | |||||||||||
Amortization of acquisition intangibles and deferred financing costs (j) | 2,031 | 2,279 | 6,625 | 6,840 | |||||||||||
Tax benefit of stock option exercises (k) | (6,303 | ) | (13,900 | ) | (7,683 | ) | (17,966 | ) | |||||||
Tax effect of total adjustments (l) | (6,734 | ) | (6,005 | ) | (12,467 | ) | (9,207 | ) | |||||||
Adjusted Net Income | $ | 14,461 | $ | 8,724 | $ | 57,429 | $ | 50,887 |
(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 of deferred financing fees related to the extinguishment of debt. |
(c) | Reflects write-off of property and equipment on closed or underperforming stores for the three and nine months ended September 28, 2019. |
(d) | Pre-opening expenses, which include marketing and advertising, labor and occupancy expenses incurred prior to opening a new store, are generally higher than comparable expenses incurred once such store is open and generating revenue. We believe that such higher pre-opening expenses are specific in nature and are not indicative of ongoing core operating performance. We adjust for these costs to facilitate comparisons of store operating performance from period to period. |
(e) | Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under GAAP exceeds or is less than our cash rent payments. |
(f) | Expenses related to our secondary public offerings for the three and nine months ended September 28, 2019 and September 29, 2018, respectively. |
(g) | Expenses related to a non-recurring management realignment described in the current report on Form 8-K filed with the SEC on January 10, 2019. |
(h) | Expenses pursuant to a long-term incentive plan for non-executive employees who were not participants in the management equity plan. This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co. Inc. (the "KKR Acquisition"). |
(i) | Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted EBITDA and Adjusted Net Income), including our share of losses on equity method investments of $0.2 million and $0.4 million for the three months ended September 28, 2019 and September 29, 2018 and $1.2 million and $1.0 million for the nine months ended September 28, 2019 and September 29, 2018, respectively; the amortization impact of the KKR Acquisition-related adjustments (e.g., fair value of leasehold interests) of $0.1 million and $0.2 million for the three months ended September 28, 2019 and September 29, 2018 and $0.3 million for each of the nine months ended September 28, 2019 and September 29, 2018; differences between the timing of expense versus cash payments related to contributions to charitable organizations of $(0.3) million and $(0.8) million for the three and nine months ended September 29, 2018, respectively; costs of severance and relocation of $1.0 million and $0.3 million for the three months ended September 28, 2019 and September 29, 2018, respectively and $1.8 million and $0.9 million for the nine months ended September 28, 2019 and September 29, 2018, respectively; excess payroll taxes related to stock option exercises of $0.5 million and $0.9 million for the three months ended September 28, 2019 and September 29, 2018, respectively and $0.6 million and $1.2 million for the nine months ended September 28, 2019 and September 29, 2018, respectively; and other expenses and adjustments totaling $0.2 million and $0.4 million for the three months ended September 28, 2019 and September 29, 2018, respectively and $0.5 million for each of the nine months ended September 28, 2019 and September 29, 2018. |
(j) | Amortization of the increase in carrying values of definite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition of $1.9 million for each of the three months ended September 28, 2019 and September 29, 2018, and $5.6 million for each of the nine months ended September 28, 2019 and September 29, 2018. Amortization of deferred financing costs is primarily associated with the March 2014 term loan borrowings in connection with the KKR Acquisition and, to a lesser extent, amortization of debt discounts associated with the May 2015 and February 2017 incremental First Lien - Term Loan B and the November 2017 First Lien - Term Loan B refinancing, aggregating to $0.2 million and $0.4 million for the three months ended September 28, 2019 and September 29, 2018 and $1.1 million and $1.3 million for the nine months ended September 28, 2019 and September 29, 2018, respectively. |
(k) | Tax benefit associated with accounting guidance adopted at the beginning of fiscal year 2017 (Accounting Standards Update 2016-09, Compensation - Stock Compensation), requiring excess tax benefits related to stock option exercises to be recorded in earnings as discrete items in the reporting period in which they occur. |
(l) | Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates. |
Nine Months Ended | |||||||
In thousands | September 28, 2019 | September 29, 2018 | |||||
Cash flows provided by (used for): | |||||||
Operating activities | $ | 170,938 | $ | 115,952 | |||
Investing activities | (75,908 | ) | (78,677 | ) | |||
Financing activities | (17,742 | ) | 7,601 | ||||
Net increase in cash, cash equivalents and restricted cash | $ | 77,288 | $ | 44,876 |
• | Established a periodic meeting of senior leaders from key business groups, including operations and finance, for purposes of identifying and assessing changes in our business environment that could significantly impact the system of internal control over financial reporting. |
• | Designed and implemented a control to incorporate those changes into our risk assessment and control activities. |
• | Established a disclosure committee, consisting of certain key members of management, to assist in formalizing our disclosure, risk assessment, internal controls and procedures. |
• | Added additional technical resources to enhance our overall control environment. |
• | An internal control deficiency remediation project plan, overseen by the Chief Financial Officer and internal audit, and reviewed with the Audit Committee at least quarterly. |
• | An enhanced risk assessment that incorporates cross-functional input, data analysis, and detailed reviews of accounting policies and operating procedures to identify and differentiate risks of material misstatement. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |||||
June 30 - August 3, 2019 | — | — | — | — | |||||
August 4 - August 31, 2019 | 819,134 | $ | 30.52 | 819,134 | — | ||||
September 1 - September 28, 2019 | — | — | — | — | |||||
Total | 819,134 | $ | 30.52 | 819,134 |
Exhibit No. | Exhibit Description | |
Second 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 October 31, 2017. | ||
Second Amended and Restated Bylaws of National Vision Holdings, Inc. -incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 31, 2017. | ||
Joinder and Amendment and Restatement Agreement, including as Exhibit A thereto, the Amended and Restated Credit Agreement, dated as of July 18, 2019, by and among Nautilus Acquisition Holdings, Inc., National Vision, Inc., certain subsidiaries of National Vision, Inc., as guarantors, Goldman Sachs Bank USA, as former administrative agent and collateral agent, Bank of America, N.A., as new administrative agent and collateral agent, and the lenders from time to time party thereto - incorporated herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 6, 2019. | ||
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 September 28, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments) |
National Vision Holdings, Inc. | ||
Dated: November 7, 2019 | By: | /s/ L. Reade Fahs |
Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
Dated: November 7, 2019 | By: | /s/ Patrick R. Moore |
Senior Vice President, Chief Financial Officer | ||
(Principal Financial Officer) |
1. | I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 28, 2019 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. |
1. | I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 28, 2019 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. |
• | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
• | 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. |
• | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
• | 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. |
Earnings Per Share - Reconciliation of Basic and Diluted EPS Calculations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
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Sep. 28, 2019 |
Jun. 29, 2019 |
Mar. 30, 2019 |
Sep. 29, 2018 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
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Earnings Per Share [Abstract] | ||||||||
Net income | $ 1,192 | $ 10,257 | $ 17,429 | $ 5,171 | $ 12,467 | $ 24,455 | $ 28,879 | $ 42,093 |
Weighted average shares outstanding for basic EPS (shares) | 78,474 | 76,118 | 78,387 | 75,361 | ||||
Effect of dilutive securities: | ||||||||
Stock options (shares) | 3,024 | 3,485 | 3,074 | 3,119 | ||||
Restricted stock (shares) | 63 | 107 | 49 | 91 | ||||
Weighted average shares outstanding for diluted EPS | 81,561 | 79,710 | 81,510 | 78,571 | ||||
Basic EPS (in usd per share) | $ 0.02 | $ 0.07 | $ 0.37 | $ 0.56 | ||||
Diluted EPS (in usd per share) | $ 0.01 | $ 0.06 | $ 0.35 | $ 0.54 | ||||
Options and RSUs | ||||||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||||||
Anti-dilutive options, RSUs outstanding excluded from EPS (shares) | 315 | 0 | 289 | 0 |
Leases - Aggregate Future Rental Payments Under Operating Leases at Prior Year End (Details) $ in Thousands |
Dec. 29, 2018
USD ($)
|
---|---|
Leases [Abstract] | |
2019 | $ 69,372 |
2020 | 63,218 |
2021 | 56,219 |
2022 | 49,303 |
2023 | 42,545 |
Thereafter | 126,388 |
Total future minimum rental payments | $ 407,045 |
Long-term Debt - Maturities of Debt (Details) $ in Thousands |
Sep. 28, 2019
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
2019 - fourth quarter | $ 2,625 |
2020 | 10,500 |
2021 | 10,500 |
2022 | 13,125 |
2023 | 21,000 |
Thereafter | 510,250 |
Long-term debt, gross | $ 568,000 |
Segment Reporting (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financial Data by Segment | The following is a summary of certain financial data for each of our segments. Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except for net revenue and associated costs applicable to revenue, which is 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 the reportable segments. Our reportable segment profit measure is earnings before interest, tax, depreciation and amortization (“EBITDA”), or net revenue, less costs applicable to revenue, less selling, general and administrative costs. Depreciation and amortization, asset impairment, litigation settlement and other corporate costs that are not allocated to the reportable segments, including interest expense and debt issuance costs are excluded from segment EBITDA. There are no transactions between our reportable segments. We measure assets in our reportable segments on the same basis as 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. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation view best depicts how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors.
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Long-term Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | Long-term debt consists of the following:
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Schedule of Maturities of Long-term Debt | Scheduled maturities of the Term Loan and revolving credit facility are as follows:
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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 28, 2019 |
Dec. 29, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (in usd per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (shares) | 200,000,000 | 200,000,000 |
Common stock, issued (shares) | 79,920,000 | 78,246,000 |
Common stock, outstanding (shares) | 79,022,000 | 78,167,000 |
Treasury stock (shares) | 898,000 | 79,000 |
Description of Business and Basis of Presentation |
9 Months Ended |
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Sep. 28, 2019 | |
Accounting Policies [Abstract] | |
Description of Business and Basis of Presentation | 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 direct wholly owned subsidiaries. We are a leading value retailer of eyeglasses and contact lenses in the United States and its territories. We operated 1,145 and 1,082 retail optical locations as of September 28, 2019 and December 29, 2018, respectively, through our five store brands, including America’s Best Contacts and Eyeglasses (“America’s Best”), Eyeglass World, Vista Optical locations on U.S. Army/Air Force military bases (“Military”) and within Fred Meyer stores, and our management and services arrangement with Walmart (“Legacy”). Basis of Presentation We prepared the accompanying 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 29, 2018 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 financial position as of September 28, 2019, the consolidated results of operations and comprehensive income, the statements of changes in stockholders’ equity for the three and nine months ended September 28, 2019 and September 29, 2018, and its statements of cash flows for the nine months ended September 28, 2019 and September 29, 2018. 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 29, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2019. 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 nine months ended September 28, 2019, except for the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases. See “Adoption of New Accounting Pronouncements” below for further discussion. The condensed consolidated financial statements include our accounts and those of our subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation. Fiscal Year Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31. Fiscal year 2019 contains 52 weeks and will end on December 28, 2019. All three and nine month periods presented herein contain 13 and 39 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 nine months ended September 28, 2019 and September 29, 2018 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 end markets. Historically, our business has realized a higher portion of net revenue, income from operations, and cash flows from operations in the first fiscal quarter, and a lower portion of net revenue, income from operations, and cash flows from operations in the fourth fiscal quarter. The seasonally larger first quarter is attributable primarily to the timing of our customers’ personal income tax refunds and annual health insurance program start or reset periods. Seasonality related to fourth quarter holiday spending by retail customers generally does not impact our business. Our quarterly consolidated results 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 We evaluate impairment of long-lived tangible and right of use (“ROU”) store assets at the store level, which is the lowest level at which independent cash flows can be identified, when events or conditions indicate the carrying value of such assets may not be recoverable. In making this evaluation, we may consider multiple factors including financial performance of the stores, regional and local business climates, future plans for the store operations and other qualitative factors. If the store's projected undiscounted net cash flows expected to be generated by the related assets over the shorter of the remaining useful life or the remaining term of the lease are less than the carrying value of the subject assets, we then measure impairment based on a discounted cash flow model and market-based indications of value of the ROU asset and record an impairment charge as the excess of carrying value over estimated fair value. As directed in the accounting guidance for long-lived assets held and used, we use entity-specific assumptions related to our anticipated use of the assets when developing the projected undiscounted cash flows. We identified indicators of impairment of certain stores and recorded $3.5 million and $7.4 million of related asset impairment charges during the three and nine months ended September 28, 2019, respectively, in Corporate/Other. These impairment charges were primarily driven by lower than projected customer sales volume in certain stores. The estimated fair value of the impaired assets was $14.6 million as of September 28, 2019; this value includes fair value estimates related to impairments recorded in the first and second quarters of 2019. The cash flows used in the estimation were discounted to fair value using a rate of 8%. A significant decrease in the estimated cash flows would lead to a lower fair value measurement, as would a significant increase in the discount rate. The market-based indications of value of ROU assets were based on third-party information without adjustment. These measurements were classified as Level 3 measurements in the fair value hierarchy. Income Taxes Our income tax rate for the three months ended September 28, 2019 reflected our statutory federal and state rate of 25.6%, offset by a discrete benefit of $6.3 million associated primarily with stock option exercises. Our income tax benefit for the nine months ended September 28, 2019 reflected income tax expense at our statutory federal and state rate of 25.6%, offset by a discrete benefit of $7.7 million associated primarily with stock option exercises. In comparison, the income tax rate associated with the three and nine months ended September 29, 2018 was reduced by $13.9 million and $18.0 million respective income tax benefit resulting from stock option exercises. Secondary Offering and Common Stock Repurchase On August 7, 2019, the Company entered into an Underwriting Agreement by and among the Company, KKR Vision Aggregator L.P. (the “Selling Stockholder”), and Goldman Sachs & Co. LLC, as underwriter (the “Underwriter”), relating to an underwritten offering of 9,149,908 shares of the Company’s common stock, par value $0.01 per share. The offering was completed on August 12, 2019. In connection with the offering, our Board of Directors authorized, and the Company completed, a repurchase of 819,134 shares out of the 9,149,908 shares of common stock subject to the offering from the Underwriter at $30.52 per share, which was the price the Underwriter purchased the shares from the Selling Stockholder in the offering. The Company did not receive any proceeds from the offering. As a result of this underwritten offering and concurrent share repurchase, the Selling Stockholder no longer owns any shares of our common stock as of September 28, 2019. The secondary offering constituted a vesting event whereby a final portion of the performance-based options vested and the remaining portion of unvested performance options awarded under the 2014 Stock Incentive Plan was forfeited. Refer to Note 5. “Stock Incentive Plans.” for further information on stock based compensation activity for the nine months ended September 28, 2019. As a result of the offering, we incurred $4.2 million of non-cash stock-based compensation expense during the three months ended September 28, 2019. We additionally recorded $1.1 million in long-term cash incentive compensation expense and $0.4 million in offering related expenses in selling, general and administrative (“SG&A”) during the three months ended September 28, 2019. Adoption of New Accounting Pronouncements Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases. This new guidance establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with such classification affecting the pattern of expense recognition in the statement of operations. Disclosure of key information about leasing arrangements is also required. We adopted ASU No. 2016-02, as amended, as of December 30, 2018 (the first day of fiscal year 2019), using the modified retrospective transition approach without adjusting the comparative periods presented. We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward historical lease classification for leases in existence as of the adoption date, to not assess whether any expired or existing contracts are leases or contain leases and to not assess whether unamortized initial direct costs for existing leases meet the definition of initial direct costs. In addition, we elected the practical expedients to not separate lease components from non-lease components and to not apply this new guidance to leases with terms of less than 12 months. Upon adoption, we recorded operating lease liabilities of approximately $349.7 million as of December 30, 2018. The Company treated tenant improvement allowances (“TIAs”) and deferred rent of $28.6 million and $11.9 million, respectively, as of December 30, 2018 as reductions of lease payments used to measure ROU assets and recorded $308.5 million of lease ROU assets upon adoption. The difference between the additional lease assets and lease liabilities net of the deferred tax impact was $0.5 million, which was recorded as an adjustment to fiscal year 2019 opening retained earnings. Adoption of this new guidance did not result in significant changes to our results of operations or cash flows. See Note 8. “Leases” for additional information. Future Adoption of Accounting Pronouncements Cloud Computing. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years and may be adopted on a prospective or retrospective basis. The Company is in the process of assessing the new guidance. Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This new guidance requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Initial adoption of ASU 2016-13 is required to be reported on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2019, and for interim reporting periods within those fiscal years. The Company is in the process of assessing the new guidance.
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Details of Certain Balance Sheet Accounts - Other Payables and Accrued Expenses (Details) - USD ($) $ in Thousands |
Sep. 28, 2019 |
Dec. 29, 2018 |
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Other payables and accrued expenses: | ||
Employee compensation and benefits | $ 40,347 | $ 20,529 |
Advertising | 2,565 | 2,076 |
Self-insurance reserves | 8,464 | 8,117 |
Reserves for customer returns and remakes | 7,606 | 4,645 |
Capital expenditures | 11,532 | 14,078 |
Legacy management and services agreement | 6,642 | 5,383 |
Fair value of derivative liabilities | 6,260 | 3,130 |
Supplies and other store support expenses | 3,038 | 4,929 |
Litigation settlements | 3,894 | 3,938 |
Other | 11,208 | 14,179 |
Total other payables and accrued expenses | $ 101,556 | $ 81,004 |
Accumulated Other Comprehensive Loss |
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Accumulated Other Comprehensive Loss | Changes in the fair value of the Company’s cash flow hedge derivative instruments since inception are recorded in AOCL. The following table presents the changes in AOCL during the three and nine months ended September 28, 2019 and September 29, 2018, respectively:
See Note 3. “Fair Value Measurements of Financial Assets and Liabilities” for a description of the Company’s use of cash flow hedging derivatives.
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Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Leases We lease our stores, laboratories, distribution centers, and corporate offices. These leases generally have noncancellable lease terms of between five and 10 years, with an option to renew for additional terms of one to 10 years or more. The lease term includes renewal option periods when the renewal is deemed reasonably certain after considering the value of the leasehold improvements at the end of the noncancellable lease period. Most leases for our stores provide for a minimum rent and typically include escalating rent over time with the exception of Military for which lease payments are variable and based on a percentage of sales. For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved. The Company’s leases generally require us to pay insurance, real estate taxes and common area maintenance expenses, substantially all of which are variable and not included in the measurement of the lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not consider its management and services agreement with its legacy partner to contain a lease arrangement. Our lease arrangements include TIAs, which are contractual amounts received from a lessor for improvements made to leased properties by the Company. For operating leases, TIAs are treated as a reduction of the lease payments used to measure the ROU assets in the accompanying consolidated balance sheet as of September 28, 2019 (non-current liabilities as of December 29, 2018), and are amortized as a reduction in rental expense over the life of the respective leases. For finance leases, a lease ROU asset is recorded as property and equipment and corresponding amounts are recorded as finance lease debt obligations at an amount equal to the lesser of the net present value of minimum lease payments to be made over the lease term or the fair value of the property for leases in existence as of fiscal year end 2018 and at the net present value of the minimum lease payments to be made over the lease term for new finance leases entered into subsequent to fiscal year end 2018. We rent or sublease certain parts of our stores to third parties. Our sublease portfolio consists mainly of operating leases with our ophthalmologists and optometrists within our stores.
Finance lease assets are recorded net of accumulated amortization of $7.1 million and $4.1 million as of September 28, 2019 and December 30, 2018, respectively.
The following table summarizes the maturity of our lease liabilities as of September 28, 2019:
As of fiscal year end 2018, aggregate future minimum rental payments under our operating leases were as follows:
The future minimum rental payments above do not include amounts for variable executory costs such as insurance, real estate taxes and the common area maintenance. These costs were approximately $18.0 million, $14.9 million and $13.9 million during the fiscal years ended 2018, 2017 and 2016, respectively.
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Leases | Leases We lease our stores, laboratories, distribution centers, and corporate offices. These leases generally have noncancellable lease terms of between five and 10 years, with an option to renew for additional terms of one to 10 years or more. The lease term includes renewal option periods when the renewal is deemed reasonably certain after considering the value of the leasehold improvements at the end of the noncancellable lease period. Most leases for our stores provide for a minimum rent and typically include escalating rent over time with the exception of Military for which lease payments are variable and based on a percentage of sales. For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved. The Company’s leases generally require us to pay insurance, real estate taxes and common area maintenance expenses, substantially all of which are variable and not included in the measurement of the lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not consider its management and services agreement with its legacy partner to contain a lease arrangement. Our lease arrangements include TIAs, which are contractual amounts received from a lessor for improvements made to leased properties by the Company. For operating leases, TIAs are treated as a reduction of the lease payments used to measure the ROU assets in the accompanying consolidated balance sheet as of September 28, 2019 (non-current liabilities as of December 29, 2018), and are amortized as a reduction in rental expense over the life of the respective leases. For finance leases, a lease ROU asset is recorded as property and equipment and corresponding amounts are recorded as finance lease debt obligations at an amount equal to the lesser of the net present value of minimum lease payments to be made over the lease term or the fair value of the property for leases in existence as of fiscal year end 2018 and at the net present value of the minimum lease payments to be made over the lease term for new finance leases entered into subsequent to fiscal year end 2018. We rent or sublease certain parts of our stores to third parties. Our sublease portfolio consists mainly of operating leases with our ophthalmologists and optometrists within our stores.
Finance lease assets are recorded net of accumulated amortization of $7.1 million and $4.1 million as of September 28, 2019 and December 30, 2018, respectively.
The following table summarizes the maturity of our lease liabilities as of September 28, 2019:
As of fiscal year end 2018, aggregate future minimum rental payments under our operating leases were as follows:
The future minimum rental payments above do not include amounts for variable executory costs such as insurance, real estate taxes and the common area maintenance. These costs were approximately $18.0 million, $14.9 million and $13.9 million during the fiscal years ended 2018, 2017 and 2016, respectively.
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Long-term Debt |
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Debt Disclosure | Long-term Debt Long-term debt consists of the following:
Scheduled maturities of the Term Loan and revolving credit facility are as follows:
Term Loan - Joinder and Amendment and Restatement Agreement On July 18, 2019 (the “Closing Date”), the credit agreement, dated as of October 9, 2018 (the “Existing Credit Agreement”), by and among Nautilus Acquisition Holdings, Inc. (“Holdings”), a Delaware corporation and a wholly-owned subsidiary of the Company, NVI, Goldman Sachs Bank USA, as administrative agent and collateral agent, and the lenders from time to time party thereto and the other parties thereto, was amended and restated pursuant to that certain Joinder and Amendment and Restatement Agreement, dated as of July 18, 2019 (the “Restatement Agreement”) by and among Holdings, NVI, as borrower, certain subsidiaries of NVI, as guarantors, Goldman Sachs Bank USA, as former administrative agent and collateral agent, Bank of America, N.A., as new administrative agent and collateral agent, and the lenders from time to time party thereto (the Existing Credit Agreement, as amended and restated by the Restatement Agreement, the “Credit Agreement”). The Existing Credit Agreement was amended and restated to, among other things, (i) establish new first lien term loans in an aggregate principal amount of $420.0 million (“Term Loan”) to repay all principal, interest fees and other amounts outstanding under the Existing Credit Agreement immediately prior to the Closing Date, (ii) establish a new revolving credit facility in an aggregate principal amount of $300.0 million, of which $148.0 million was drawn as of closing and (iii) replace Goldman Sachs Bank USA with Bank of America, N.A. as administrative agent and collateral agent under the Credit Agreement and related documentation. In connection with the principal repayments of our existing debt, the Company wrote off associated deferred debt issuance costs of $6.0 million and associated unamortized debt discount of $3.8 million, in the third quarter of 2019. Pursuant to the Restatement Agreement, the initial new Applicable Margins, as defined in the Credit Agreement, are (i) 1.50% for the new first lien term loans that are London Inter-bank Offered Rate (“LIBOR”) Loans and (ii) 0.50% for the new first lien term loans that are Alternative Base Rate (“ABR”) Loans. The Restatement Agreement further provides that following the Closing Date, the above Applicable Margins for the new first lien term loans will be based on NVI’s consolidated first lien leverage ratio as follows: (a) if NVI’s consolidated first lien leverage ratio is greater than 3.75 to 1.00, the Applicable Margin will be 2.00% for LIBOR Loans and 1.00% for ABR Loans, (b) if NVI’s consolidated first lien leverage ratio is less than or equal to 3.75 to 1.00, but greater than 2.75 to 1.00, the Applicable Margin will be 1.75% for LIBOR Loans and 0.75% for ABR Loans, (c) if NVI’s consolidated first lien leverage ratio is less than or equal to 2.75 to 1.00 but greater than 1.75 to 1.00, the Applicable Margin will be 1.50% for LIBOR Loans and 0.50% for ABR Loans, (d) if NVI’s consolidated first lien leverage ratio is less than or equal to 1.75 to 1.00 but greater than 0.75 to 1.00, the Applicable Margin will be 1.25% for LIBOR Loans and 0.25% for ABR Loans and (e) if NVI’s consolidated first lien leverage ratio is less than or equal to 0.75 to 1.00, the Applicable Margin will be 1.00% for LIBOR Loans and 0.00% for ABR Loans. The new first lien term loans will amortize in quarterly installments equal to 2.50% per annum in the first three years of the loan and 5.00% per annum thereafter. In addition, pursuant to the Restatement Agreement, solely with respect to the Term Loan, commencing on the fiscal quarter ending on December 28, 2019, Holdings will not permit (i) the Consolidated Total Debt to Consolidated EBITDA Ratio, as defined in the Credit Agreement, as of the last day of any fiscal quarter of Holdings to be greater than 4.75 to 1.00 for the first two years, and 4.50 to 1.00 thereafter, subject to certain step-ups after the consummation of a Material Acquisition, as defined in the Credit Agreement, or (ii) the Consolidated Interest Coverage Ratio of Holdings, as defined in the Credit Agreement, as of the last day of any fiscal quarter of Holdings to be less than 3.00 to 1.00.
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Leases - Lease Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
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Sep. 28, 2019 |
Sep. 28, 2019 |
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Lease Cost | ||
Operating lease cost | $ 18,542 | $ 54,955 |
Variable lease cost | 6,745 | 19,803 |
Sublease income | (965) | (2,881) |
Amortization of lease assets | 1,176 | 3,231 |
Interest on lease liabilities | 903 | 2,689 |
Net lease cost | $ 26,401 | $ 77,797 |
Revenue From Contracts with Customers - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
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Disaggregation of Revenue [Line Items] | ||||
Time frame for majority of payments on health care plans and programs accounts (in days) | 90 days | |||
Bad debt expense | $ 2,400 | $ 1,700 | $ 6,265 | $ 4,981 |
Deferred revenue | 79,300 | 79,300 | ||
Previously deferred revenue recognized | $ 27,900 | $ 26,500 | $ 83,200 | $ 78,500 |
Minimum | ||||
Disaggregation of Revenue [Line Items] | ||||
General payment terms for accounts on health care plans and programs (in days) | 14 days | |||
Unearned revenue, estimated delivery time for period end calculation (in days) | 4 days | |||
Maximum | ||||
Disaggregation of Revenue [Line Items] | ||||
General payment terms for accounts on health care plans and programs (in days) | 120 days | |||
Unearned revenue, estimated delivery time for period end calculation (in days) | 10 days |
Description of Business and Basis of Presentation - Secondary Offering and Common Share Repurchase (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |||
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Aug. 12, 2019 |
Sep. 28, 2019 |
Sep. 28, 2019 |
Sep. 29, 2018 |
Dec. 29, 2018 |
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Sale of Stock [Line Items] | |||||
Common stock, par value (in usd per share) | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | |
Shares repurchased (shares) | 819,134 | ||||
Shares repurchased price per share (in usd per share) | $ 30.52 | ||||
Non-cash stock-based compensation expense | $ 10,840 | $ 13,749 | |||
Secondary Offering | |||||
Sale of Stock [Line Items] | |||||
Number of shares issued (shares) | 9,149,908 | ||||
SG&A | |||||
Sale of Stock [Line Items] | |||||
Long-term incentive compensation expense | $ 1,100 | ||||
Offering-related expenses | 400 | ||||
Secondary offering vesting event | |||||
Sale of Stock [Line Items] | |||||
Non-cash stock-based compensation expense | $ 4,200 |
Commitments and Contingencies |
9 Months Ended |
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Sep. 28, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Other Agreements In the fourth quarter of 2018, the Company renewed an eyeglass lenses supply agreement with a trade vendor effective June 2019. The Company also renewed certain other agreements with the vendor, including a cloud computing service arrangement. As a result, as previously disclosed, this arrangement includes minimum purchase commitments of approximately $30.0 million over the four year term. Additionally, during the nine months ended September 28, 2019, we entered into minimum purchase commitments with our trade vendors of approximately $17.0 million annually through 2021. 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 both 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. On January 29, 2016, FirstSight, our wholly-owned specialized health maintenance organization, was named as a defendant in a proposed class action filed on behalf of all persons who paid for an eye examination from an optometrist at a Walmart location in California from November 5, 2009 through the date of the resolution of the litigation. The complaint alleges in particular that FirstSight participated in arrangements that caused the illegal delivery of eye examinations to the plaintiffs, and that FirstSight thereby violated, among other statutes, the Unfair Competition and False Advertising laws of California. In March 2017, the Court granted a motion to dismiss previously filed by FirstSight. The plaintiffs filed an appeal to the U.S. Court of Appeals for the Ninth Circuit in April 2017. In July 2018, the U.S. Court of Appeals for the Ninth Circuit vacated in part, and reversed in part, the district court’s dismissal and remanded for further proceedings. In October 2018, the plaintiffs filed a second amended complaint with the district court seeking, among other claims, unspecified damages and attorneys’ fees, and in November 2018, FirstSight filed a motion to dismiss. The Company believes that the claims are without merit and intends to continue to vigorously defend the litigation. In May 2017, a complaint (the “1-800 Contacts Matter”) was filed against the Company and other defendants alleging, on behalf of a proposed class of consumers who purchased contact lenses online, that 1-800 Contacts, Inc. entered into a series of agreements with the other defendants, including AC Lens, the Company’s subsidiary, to suppress certain online advertising and that each defendant thereby engaged in anticompetitive conduct in violation of the Sherman Antitrust Act. The Company has settled the 1-800 Contacts Matter for $7.0 million, without admitting liability. Accordingly, the Company recorded a charge for this amount during the second quarter of fiscal year 2017. On November 8, 2017, the court in the 1-800 Contacts Matter entered an order preliminarily approving the settlement agreement, subject to a settlement hearing. Pursuant to this order, the Company deposited 50% of the settlement amount, or $3.5 million, into an escrow account, to be distributed subject to and in accordance with the terms of the settlement agreement and any further order of the court. In February 2019, we were served with a lawsuit by a former employee who alleges, on behalf of himself and a proposed class, several violations of California wage and hour laws and seeks unspecified alleged unpaid wages, monetary damages, injunctive relief and attorneys’ fees. On March 21, 2019, we removed the lawsuit from state court to the United States District Court for the Northern District of California. The plaintiff moved to remand the action to state court on April 18, 2019, and the Court denied this motion on July 8, 2019. On July 22, 2019, the plaintiff filed an amended complaint. On July 26, 2019, the parties filed a joint stipulation wherein the Company denied all claims in the amended complaint but joined the plaintiff in seeking a stay of further proceedings in the lawsuit based on the parties’ agreement to attend early mediation in an effort to avoid further costs and expenses of protracted litigation. Mediation has been scheduled in the first quarter of 2020. The Company continues to believe that the plaintiff’s amended complaint lacks merit and will vigorously defend the litigation.
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Stock Incentive Plans |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Incentive Plans | The following tables summarize stock based compensation activity for the nine months ended September 28, 2019:
During the nine months ended September 28, 2019, the Company made grants of stock options, performance-based restricted stock units (“PSUs”) and/or restricted stock units (“RSUs”) to eligible employees under the National Vision Holdings, Inc. 2017 Omnibus Incentive Plan (the “2017 Omnibus Incentive Plan”). The service-based options granted in fiscal 2019 vest in three equal annual installments, with one-third of the total options vesting on each of the first, second, and third anniversaries of the grant date, subject to continued employment through the applicable vesting date. The PSUs granted in fiscal 2019 are settled after the end of the performance period (i.e., cliff vesting), which begins on the first day of our 2019 fiscal year and ends on the last day of our 2021 fiscal year, and are based on the Company’s achievement of certain performance targets. The RSUs granted in fiscal 2019 vest in three equal installments. The weighted average grant date fair values per share of RSUs and PSUs granted during the nine months ended September 28, 2019 were $34.82 and $34.54, respectively. During the nine months ended September 28, 2019, we granted an aggregate of 13,712 restricted stock awards (“RSAs”) to eligible members of the Company’s Board of Directors under the 2017 Omnibus Incentive Plan. The awards vest one year from the grant date. The weighted average grant date fair value per share of each of the awards, based on the stock price on the date of grant, was $29.18. The weighted average price of stock options exercised during the nine months ended September 28, 2019 was $5.77. The weighted average grant date fair value of the stock options granted during the nine months ended September 28, 2019 was $13.68. The following table summarizes stock compensation expense under the Company’s plans, which is included in SG&A in the accompanying statements of operations:
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Description of Business and Basis of Presentation (Policies) |
9 Months Ended |
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Sep. 28, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation We prepared the accompanying 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 29, 2018 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 financial position as of September 28, 2019, the consolidated results of operations and comprehensive income, the statements of changes in stockholders’ equity for the three and nine months ended September 28, 2019 and September 29, 2018, and its statements of cash flows for the nine months ended September 28, 2019 and September 29, 2018. 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 29, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2019. 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 nine months ended September 28, 2019, except for the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases. See “Adoption of New Accounting Pronouncements” below for further discussion. The condensed consolidated financial statements include our accounts and those of our subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.
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Fiscal Year | Fiscal Year Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31. Fiscal year 2019 contains 52 weeks and will end on December 28, 2019. All three and nine month periods presented herein contain 13 and 39 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.
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Use of Estimates | 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.
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Asset Impairment | Asset Impairment We evaluate impairment of long-lived tangible and right of use (“ROU”) store assets at the store level, which is the lowest level at which independent cash flows can be identified, when events or conditions indicate the carrying value of such assets may not be recoverable. In making this evaluation, we may consider multiple factors including financial performance of the stores, regional and local business climates, future plans for the store operations and other qualitative factors. If the store's projected undiscounted net cash flows expected to be generated by the related assets over the shorter of the remaining useful life or the remaining term of the lease are less than the carrying value of the subject assets, we then measure impairment based on a discounted cash flow model and market-based indications of value of the ROU asset and record an impairment charge as the excess of carrying value over estimated fair value. As directed in the accounting guidance for long-lived assets held and used, we use entity-specific assumptions related to our anticipated use of the assets when developing the projected undiscounted cash flows.
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Income Taxes | Income Taxes Our income tax rate for the three months ended September 28, 2019 reflected our statutory federal and state rate of 25.6%, offset by a discrete benefit of $6.3 million associated primarily with stock option exercises. Our income tax benefit for the nine months ended September 28, 2019 reflected income tax expense at our statutory federal and state rate of 25.6%, offset by a discrete benefit of $7.7 million associated primarily with stock option exercises. In comparison, the income tax rate associated with the three and nine months ended September 29, 2018 was reduced by $13.9 million and $18.0 million respective income tax benefit resulting from stock option exercises.
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Adoption of New Accounting Pronouncements | Adoption of New Accounting Pronouncements Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases. This new guidance establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with such classification affecting the pattern of expense recognition in the statement of operations. Disclosure of key information about leasing arrangements is also required. We adopted ASU No. 2016-02, as amended, as of December 30, 2018 (the first day of fiscal year 2019), using the modified retrospective transition approach without adjusting the comparative periods presented. We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward historical lease classification for leases in existence as of the adoption date, to not assess whether any expired or existing contracts are leases or contain leases and to not assess whether unamortized initial direct costs for existing leases meet the definition of initial direct costs. In addition, we elected the practical expedients to not separate lease components from non-lease components and to not apply this new guidance to leases with terms of less than 12 months. Upon adoption, we recorded operating lease liabilities of approximately $349.7 million as of December 30, 2018. The Company treated tenant improvement allowances (“TIAs”) and deferred rent of $28.6 million and $11.9 million, respectively, as of December 30, 2018 as reductions of lease payments used to measure ROU assets and recorded $308.5 million of lease ROU assets upon adoption. The difference between the additional lease assets and lease liabilities net of the deferred tax impact was $0.5 million, which was recorded as an adjustment to fiscal year 2019 opening retained earnings. Adoption of this new guidance did not result in significant changes to our results of operations or cash flows. See Note 8. “Leases” for additional information. Future Adoption of Accounting Pronouncements Cloud Computing. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years and may be adopted on a prospective or retrospective basis. The Company is in the process of assessing the new guidance. Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This new guidance requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Initial adoption of ASU 2016-13 is required to be reported on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2019, and for interim reporting periods within those fiscal years. The Company is in the process of assessing the new guidance.
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Leases - Lease Term and Discount Rate (Details) |
Sep. 28, 2019 |
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Leases [Abstract] | |
Operating leases, weighted average remaining lease term (months) | 82 months |
Finance leases, weighted average remaining lease term (months) | 91 months |
Operating leases, weighted average discount rate (percent) | 4.60% |
Finance leases, weighted average discount rate (percent) | 13.10% |
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
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Accumulated Other Comprehensive Loss, Net of Tax [Roll Forward] | ||||
Beginning balance | $ 774,434 | $ 723,400 | $ 743,154 | $ 654,600 |
Ending balance | 765,471 | 751,338 | 765,471 | 751,338 |
Cash Flow Hedges | ||||
Accumulated Other Comprehensive Loss, Net of Tax [Roll Forward] | ||||
Beginning balance | (5,427) | (2,746) | (2,810) | (9,868) |
Other comprehensive income (loss) before reclassification | (439) | 854 | (5,760) | 6,696 |
Tax effect of other comprehensive income (loss) before reclassification | 112 | (218) | 1,476 | (1,715) |
Amount reclassified from AOCL into interest expense | 1,120 | 1,413 | 2,922 | 5,146 |
Tax effect of amount reclassified from AOCL into interest expense | (287) | (362) | (749) | (1,318) |
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent | 506 | 1,687 | (2,111) | 8,809 |
Ending balance | $ (4,921) | $ (1,059) | $ (4,921) | $ (1,059) |
Commitments and Contingencies - Narrative (Details) - USD ($) $ in Millions |
1 Months Ended | 3 Months Ended | 6 Months Ended | |
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Nov. 08, 2017 |
May 31, 2017 |
Jul. 01, 2017 |
Jun. 29, 2019 |
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1-800 Contacts Matter | ||||
Loss Contingencies [Line Items] | ||||
Amount of litigation settlement | $ 7.0 | |||
Litigation settlement | $ 7.0 | |||
Percent of settlement award deposited in escrow account (percent) | 50.00% | |||
Amount of settlement deposited in escrow account | $ 3.5 | |||
Trade vendor supply and software agreement | ||||
Loss Contingencies [Line Items] | ||||
Minimum purchase commitment | $ 30.0 | |||
Purchase commitment term (in years) | 4 years | |||
Trade vendor purchase agreement | ||||
Loss Contingencies [Line Items] | ||||
Minimum annual purchase commitment through 2021 | $ 17.0 |
Stock Incentive Plans - Restricted Stock Unit and Award Activity (Details) |
9 Months Ended |
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Sep. 28, 2019
shares
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Service-based restricted stock unit (RSU) awards | |
Outstanding Restricted Stock Units and Awards | |
Outstanding, beginning balance (shares) | 98,076 |
Granted (shares) | 108,256 |
Vested (shares) | 0 |
Forfeited (shares) | (9,833) |
Outstanding, ending balance (shares) | 196,499 |
Performance-based restricted stock unit (PSU) awards | |
Outstanding Restricted Stock Units and Awards | |
Outstanding, beginning balance (shares) | 0 |
Granted (shares) | 115,665 |
Vested (shares) | 0 |
Forfeited (shares) | (2,274) |
Outstanding, ending balance (shares) | 113,391 |
Restricted stock (RSA) awards | |
Outstanding Restricted Stock Units and Awards | |
Outstanding, beginning balance (shares) | 11,431 |
Granted (shares) | 13,712 |
Vested (shares) | (4,515) |
Forfeited (shares) | 0 |
Outstanding, ending balance (shares) | 20,628 |
Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reconciliation of Basic and Diluted EPS Calculations | A reconciliation of the numerators and denominators of the basic and diluted EPS calculations is as follows:
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Stock Incentive Plans (Tables) |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Option Activity | The following tables summarize stock based compensation activity for the nine months ended September 28, 2019:
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Schedule of Restricted Stock and Restricted Stock Units Activity |
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Schedule of Stock Compensation Expense | The following table summarizes stock compensation expense under the Company’s plans, which is included in SG&A in the accompanying statements of operations:
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding for the period and includes the dilutive impact of potential new common shares issuable upon vesting and exercise of stock options and vesting of restricted stock units. Potential shares of common stock are excluded from the computation of diluted EPS if their effect is anti-dilutive. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations is as follows:
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Revenue From Contracts with Customers |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue From Contracts with Customers | Revenue from Contracts with Customers The Company’s 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. 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), 2) eye exams and 3) wholesale sales of inventory in which our customer is another retail entity. Revenues recognized over time primarily include product protection plans, eye care club memberships and management fees earned from our legacy partner. The following disaggregation of revenues is based on the timing of revenue recognition:
Refer to Note 10. “Segment Reporting” for the Company’s disaggregation of net revenue by reportable segment. As the reportable segments are 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. Contract Assets and Liabilities The Company’s contract assets and contract liabilities primarily result from timing differences between the performance of our obligations and the customer’s payment. Accounts Receivable Accounts receivable associated with revenues consist primarily of trade receivables and credit card receivables. Trade receivables consist primarily of receivables from managed care payors and receivables from major retailers. While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk. Trade receivables and credit card receivables are included in accounts receivable, net, on our condensed consolidated balance sheets, and are presented separately in Note 2. “Details of Certain Balance Sheet Accounts.” Accounts receivable are reduced by allowances for amounts that may become uncollectible. Estimates of our allowance for uncollectible accounts are based on our historical and current operating, billing, and collection trends. Impairment losses (i.e., bad debt expense) recognized on our receivables were approximately $2.4 million and $6.3 million for the three and nine months ended September 28, 2019, respectively, and $1.7 million and $5.0 million for the three and nine months ended September 29, 2018, respectively. Unsatisfied Performance Obligations (Contract Liabilities) Our retail customers generally make payments for prescription eyewear products at the time they place an order. Amounts we collect in advance for undelivered merchandise are reported as unearned revenue in the accompanying condensed consolidated balance sheets. Unearned revenue at the end of a reporting period is estimated based on delivery times throughout the current month and generally ranges from four to 10 days. All unearned revenue at the end of a reporting period is recognized in the next fiscal period. Our contract liabilities also consist of deferred revenue on services and plans obligations, primarily product protection plans and eye care club memberships. The unamortized portion of amounts we collect in advance for these services and plans is reported as deferred revenue in the accompanying condensed consolidated balance sheets (current and non-current portions). Our deferred revenue balance as of September 28, 2019 was $79.3 million. We expect future revenue recognition of this balance of $20.3 million, $42.2 million, $13.4 million, $3.2 million, and $0.2 million in fiscal years 2019, 2020, 2021, 2022, and thereafter, respectively. We recognized $27.9 million and $83.2 million of previously deferred revenues during the three and nine months ended September 28, 2019, respectively and $26.5 million and $78.5 million during the three and nine months ended September 29, 2018, respectively.
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