# National Vision Holdings, Inc.: Form 10-Q for the period ended Jul 1, 2023

- Company: [National Vision Holdings, Inc.](/companies/eye.md) (CIK 1710155)
- Form: 10-Q
- Filed: 2023-08-10
- Accepted by EDGAR: Aug 10, 2023, 06:14 ET
- Period: 2023-07-01
- Accession: 0001710155-23-000044
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1710155/000171015523000044/eye-20230701.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1710155/000171015523000044/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-07-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-02 to 2023-07-01 | $525.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-07-01 | $1.09bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-04-02 to 2023-07-01 | $244.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-07-01 | $493.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-02 to 2023-07-01 | $7.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-07-01 | $41.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-02 to 2023-07-01 | $275.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-07-01 | $10.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-02 to 2023-07-01 | $5.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-07-01 | $23.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-02 to 2023-07-01 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-07-01 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-02 to 2023-07-01 | $0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-07-01 | $0.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-02 to 2023-07-01 | 78,343,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-07-01 | 78,784,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-07-01 | $112.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-07-01 | $54.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-07-01 | $27.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-07-01 | $254.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-07-01 | $494.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-07-01 | $2.33bn | us-gaap:Assets |
| Current liabilities | at 2023-07-01 | $363.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-07-01 | $539.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-07-01 | $7.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-07-01 | $908.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 64,053 characters.

*The following contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q (this “Form 10-Q”) and the audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2023 (the “2022 Annual Report on Form 10-K.”) This discussion contains forward-looking statements that reflect our plans, estimates and beliefs as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” sections of this Form 10-Q and the 2022 Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Form 10-Q.*

### Overview

We are one of the largest optical retailers in the United States and a leader in the attractive value segment of the U.S. optical retail industry. We believe that vision is central to quality of life and that people deserve to see their best to live their best, regardless of their budget. We achieve this by providing eye exams, eyeglasses and contact lenses to value seeking and lower income consumers with an opening price point that strives to be among the lowest in the industry, enabled by our low-cost operating platform. We reach our customers through a diverse portfolio of 1,381 retail stores across five brands and 13 consumer websites as of July 1, 2023.

### Brand and Segment Information

Refer to Part I. Item 1. Note 12. “Subsequent Events” for more information on the termination of our Walmart partnership.

Our operations consist of two reportable segments:

- Owned & Host - As of July 1, 2023, our owned brands consisted of 926 America’s Best Contacts and Eyeglasses retail stores and 143 Eyeglass World retail stores. Our Host brands consisted of 54 Vista Optical locations on select military bases and 29 Vista Optical locations within select Fred Meyer stores as of July 1, 2023. 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, 229 Vision Centers in Walmart retail locations as of July 1, 2023. During the six months ended July 1, 2023, sales associated with this arrangement represented 7.3% of consolidated net revenue. On July 20, 2023, we received a notice of non-renewal from Walmart on the Walmart MSA and, accordingly, the Walmart MSA will terminate on February 23, 2024.

Our consolidated results also include the following activity recorded in our Corporate/Other category:

- Our e-commerce platform of 9 dedicated websites managed by AC Lens. Our e-commerce business consists of five proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and four third-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers.
- Wholesale contact lenses distribution to Walmart and Sam’s Club by AC Lens, which represented 6.8% of consolidated net revenue for the six months ended July 1, 2023. In connection with the termination of the Walmart MSA, AC Lens has delivered notices of non-renewal of the agreements it has with Walmart and Sam’s Club and those agreements are expected to terminate on June 30, 2024.
- Managed care business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan under California law. In connection with the termination of the Walmart MSA, the agreement between FirstSight and Walmart, which arranges for the provision by FirstSight of optometric services at optometric offices next to certain Walmart stores throughout California, will also terminate on February 23, 2024.
- Unallocated corporate overhead expenses.

Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except reportable segment sales which are 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 our CODM regularly reviews. Reconciliations of segment results to consolidated results include financial information necessary to adjust reportable segment revenues to a consolidated basis in accordance with U.S. GAAP, specifically the change in unearned and deferred revenues during the period. There are no revenue transactions between reportable segments, and there are no other items in the reconciliations other than the effects of unearned and deferred revenue. See Note 10. “Segment Reporting” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

Deferred revenue represents the timing difference of when we collect the cash from the customer and when services related to product protection plans and eye care club memberships are performed. Increases or decreases in deferred revenue during the reporting period represent cash collections in excess of, or below the recognition of, previous deferrals. Unearned revenue represents the timing difference of when we collect cash from the customer and delivery/customer acceptance, and includes sales of prescription eyewear during approximately the last seven to 10 days of the reporting period.

### Trends and Other Factors Affecting Our Business

We have remained focused on our long-term growth initiatives despite the ongoing macroeconomic uncertainty. Our core growth initiatives include, but are not limited to, continuing with the expansion of our remote medicine capabilities; maintaining and improving our optometric retention levels; increasing our marketing efficiency and omnichannel capabilities; increasing our participation in vision insurance programs; the further digitization of our stores and corporate office; continuing to position ourselves to capture whitespace opportunity for our stores; and incorporating our corporate sustainability strategy into our operations.

We are focused on the following key drivers, challenges and risks.

#### Inflation

Rising inflation can result in increased costs and greater profitability pressure for us. We anticipate that pressures from increases to our raw materials prices could have an impact on our costs applicable to revenue in fiscal year 2023. Wage investments as a result of inflation and an increasingly competitive recruiting market for vision care professionals due to the pandemic and related effects have had, and may continue to have, an impact on our profitability. Targeted wage investments, including increases in compensation for optometrists and associates, as well as flexibility initiatives, impacted costs applicable to revenue and selling, general and administrative expenses in the first half of fiscal year 2023 and we anticipate that wage pressures in certain markets will continue in 2023. Wage investment pressure and increases in raw materials prices in fiscal year 2023 may not be able to be fully offset by leverage from revenue growth, productivity efficiency and, as appropriate, various pricing actions.

#### Vision care professional recruitment, coverage, and expanded offerings

Our ability to continue to attract and retain qualified vision care professionals may affect exam capacity. Our operations, like those of many of our competitors, depend on our ability to offer both eyewear and eye exams. We believe the impacts of the COVID-19 pandemic on vision care professional availability, including a competitive recruiting market and preferences for adjusted work schedules, and the demand for optometrists exceeding supply in certain areas during the first half of fiscal year 2023 have caused constraints in exam capacity which are continuing. Due to these factors the costs to employ or retain optometrists have increased and may increase further, potentially materially. We are continuing to strategically invest in recruitment and retention initiatives, including flexible adjusted work schedules, along with continuing our implementation of remote medicine technologies, which has expanded our offerings while also increasing costs. We anticipate continuing our investment in our remote medicine capabilities primarily in America’s Best stores in the near term, including enhancements in the efficiency of our remote medicine platform, which could lead to increased costs as we train our personnel to efficiently use these new technologies.

#### Comparable store sales growth

Our comparable store sales growth in the first half of fiscal year 2023 was aided by our participation in managed care programs. Such participation continues to represent an increasingly significant portion of our overall revenues as the challenging economic environment continues to impact our core non-managed care customer base business.

#### Interim results and seasonality

Historically, our business has realized a higher portion of net revenue, income from operations, and cash flows from operations in the first half of the fiscal year, and a lower portion of net revenue, income from operations, and cash flows from operations in the fourth fiscal quarter. The seasonally larger first half of the fiscal year is attributable primarily to the timing of our customers’ income tax refunds and annual health insurance program start/reset periods. Because our target market consists of value seeking and lower income consumers, a delay in the issuance of tax refunds or changes in the amount of tax refunds can have a negative impact on our financial results. Consumers could also alter how they utilize tax refund proceeds.

#### Pricing strategy

We are committed to providing our products to our customers at low prices. We generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions. Inflationary pressures, including wage investments, consumer confidence and preferences and increased raw material costs could impact our profitability and lead us to attempt to offset such increases through various pricing actions.

#### Walmart partnership termination

Our ability to successfully navigate the termination of our Walmart partnership, including the transition period, may significantly impact our business. The transition period, including Walmart’s solicitation period under the agreements to offer employment or similar arrangements to certain associates and optometrists from specified Vision Centers, presents numerous risks and may cause disruption to the business, including, without limitation, a reduction in sales, productivity and focus, and may make it harder to retain associates and optometrists, which in turn could adversely affect our financial condition and results of operations. Due to these factors, the costs to retain associates and optometrists during the transition period may increase, potentially materially. In addition, while we seek to reduce costs and replace lost business with new America’s Best or Eyeglass World stores and by other means, we may not be successful in our efforts, which could impact our revenues and profitability. Refer to Part II. Item 1A. “Risk Factors” in this Form 10-Q for more details.

### How We Assess the Performance of Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our consolidated business and operating segments are performing are net revenue, costs applicable to revenue, and selling, general, and administrative expenses. In addition, we also review store growth, Adjusted Comparable Store Sales Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.

#### Net Revenue

We report as net revenue amounts generated in transactions with retail customers who are the end users of our products, services and plans. Comparable store sales growth and new store openings are key drivers of net revenue and are discussed below. Also, the timing of unearned revenue can affect revenue recognized in a particular period.

#### Costs Applicable to Revenue

Customer tastes and preferences, product mix, changes in technology, significant increases or slowdowns in production, and other factors impact costs applicable to revenue. The components of our costs applicable to revenue may not be comparable to other retailers.

#### Selling, General and Administrative

SG&A generally fluctuates consistently with revenue due to the variable store, field office and corporate support costs; however, some fixed costs slightly improve as a percentage of net revenue as our net revenues grow over time.

#### New Store Openings

The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results. We expect to open 65 to 70 stores in the current year. We will continue to monitor and determine our plans for future new store openings based on health, safety and economic conditions.

#### Adjusted Comparable Store Sales Growth

We measure Adjusted Comparable Store Sales Growth as the increase or decrease in sales recorded by the comparable store base in any reporting period, compared to sales recorded by the comparable store base in the prior reporting period, which we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the order is placed and paid for or submitted to a managed care payor, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation during the 13th full fiscal month following the store’s opening; (iii) closed stores are removed from the calculation for time periods that are not comparable; (iv) sales from partial months of operation are excluded when stores do not open or close on the first day of the month; and (v) when applicable, we adjust for the effect of the 53rd week. Quarterly, year-to-date and annual adjusted comparable store sales are aggregated using only sales from all whole months of operation included in both the current reporting period and the prior reporting period. When a partial month is excluded from the calculation, the corresponding month in the subsequent period is also excluded from the calculation. There may be variations in the way in which some of our competitors and other retailers calculate comparable store sales. As a result, our adjusted comparable store sales may not be comparable to similar data made available by other retailers.

Adjusted Comparable Store Sales Growth is a non-GAAP financial measure, which we believe is useful because it provides timely and accurate information relating to the two core metrics of retail sales: number of transactions and value of transactions. We use Adjusted Comparable Store Sales Growth as the basis for key operating decisions, such as allocation of advertising to particular markets and implementation of special marketing programs. Accordingly, we believe that Adjusted Comparable Store Sales Growth provides timely and accurate information relating to the operational health and overall performance of each brand. We also believe that, for the same reasons, investors find our calculation of Adjusted Comparable Stores Sales Growth to be meaningful.

*Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)*

The Company Non-GAAP Measures are key measures used by management to assess our financial performance. The Company Non-GAAP Measures are also frequently used by analysts, investors and other interested parties. We use the Company Non-GAAP Measures to supplement U.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. See “Non-GAAP Financial Measures” for definitions of the Company Non-GAAP Measures and for additional information.

### Results of Operations

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net revenue.

*In thousands, except earnings per share, percentage and store data*

| Revenue: | Three Months Ended July 1, 2023 | July 2, 2022 | Six Months Ended July 1, 2023 | July 2, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net product sales | $432,925 | $421,600 | $897,686 | $854,853 |
| Net sales of services and plans | 92,415 | 87,955 | 190,023 | 182,413 |
| Total net revenue | 525,340 | 509,555 | 1,087,709 | 1,037,266 |
| **Costs applicable to revenue (exclusive of depreciation and amortization):** |  |  |  |  |
| Products | 167,514 | 163,361 | 340,616 | 327,580 |
| Services and plans | 80,325 | 71,206 | 161,275 | 143,024 |
| Total costs applicable to revenue | 247,839 | 234,567 | 501,891 | 470,604 |
| **Operating expenses:** |  |  |  |  |
| Selling, general and administrative expenses | 243,971 | 227,829 | 493,893 | 456,383 |
| Depreciation and amortization | 24,929 | 25,245 | 49,742 | 50,396 |
| Asset impairment | 893 | 3,509 | 1,280 | 3,915 |
| Other expense (income), net | (17) | 34 | (134) | 265 |
| Total operating expenses | 269,776 | 256,617 | 544,781 | 510,959 |
| Income from operations | 7,725 | 18,371 | 41,037 | 55,703 |
| Interest expense (income), net | 1,836 | 3,963 | 6,703 | (181) |
| Earnings before income taxes | 5,889 | 14,408 | 34,334 | 55,884 |
| Income tax provision | 275 | 4,674 | 10,450 | 16,003 |
| Net income | $5,614 | $9,734 | $23,884 | $39,881 |
| **Supplemental operating data:** |  |  |  |  |
| Number of stores open at end of period | 1,381 | 1,314 | 1,381 | 1,314 |
| New stores opened during the period | 24 | 22 | 32 | 39 |
| Adjusted Operating Income | $16,448 | $27,780 | $56,321 | $73,084 |
| Diluted EPS | $0.07 | $0.12 | $0.30 | $0.47 |
| Adjusted Diluted EPS | $0.17 | $0.21 | $0.51 | $0.53 |
| Adjusted EBITDA | $39,505 | $51,153 | $102,319 | $119,736 |
| **Percentage of net revenue:** |  |  |  |  |
| Total costs applicable to revenue | 47.2% | 46.0% | 46.1% | 45.4% |
| Selling, general and administrative expenses | 46.4% | 44.7% | 45.4% | 44.0% |
| Total operating expenses | 51.4% | 50.4% | 50.1% | 49.3% |
| Income from operations | 1.5% | 3.6% | 3.8% | 5.4% |
| Net income | 1.1% | 1.9% | 2.2% | 3.8% |
| Adjusted Operating Income | 3.1% | 5.5% | 5.2% | 7.0% |
| Adjusted EBITDA | 7.5% | 10.0% | 9.4% | 11.5% |

26

### Three Months Ended July 1, 2023 compared to Three Months Ended July 2, 2022

#### Net revenue

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the three months ended July 1, 2023 compared to the three months ended July 2, 2022.

*In thousands, except percentage and store data*

| Owned & Host segment | Comparable store sales growth(1) Three Months Ended July 1, 2023 | Three Months Ended July 2, 2022 | Stores open at end of period July 1, 2023 | July 2, 2022 | Net revenue(2) Three Months Ended July 1, 2023 |  | Three Months Ended July 2, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| America’s Best | 1.8% | (13.0)% | 926 | 872 | $354,592 | 67.5% | $336,366 | 66.0% |
| Eyeglass World | (2.8)% | (9.1)% | 143 | 129 | 55,730 | 10.6% | 54,228 | 10.6% |
| Military | (0.1)% | (6.1)% | 54 | 54 | 5,632 | 1.1% | 5,640 | 1.1% |
| Fred Meyer | (4.2)% | (9.8)% | 29 | 29 | 2,800 | 0.5% | 2,924 | 0.6% |
| Owned & Host segment total |  |  | 1,152 | 1,084 | $418,754 | 79.7% | $399,158 | 78.3% |
| **Legacy segment** | 0.5% | (12.9)% | 229 | 230 | 38,465 | 7.3% | 37,837 | 7.4% |
| **Corporate/Other** | —% | —% | — | — | 63,314 | 12.1% | 61,885 | 12.1% |
| **Reconciliations** | —% | —% | — | — | 4,807 | 0.9% | 10,675 | 2.1% |
| Total | (0.1)% | (11.0)% | 1,381 | 1,314 | $525,340 | 100.0% | $509,555 | 100.0% |
| Adjusted Comparable Store Sales Growth(3) | 1.0% | (12.4)% |  |  |  |  |  |  |

(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 1.2% and a decrease of 1.2% from total comparable store sales growth based on consolidated net revenue for the three months ended July 1, 2023 and July 2, 2022, 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% and a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for the three months ended July 1, 2023 and July 2, 2022, respectively.

Total net revenue of $525.3 million for the three months ended July 1, 2023 increased $15.8 million, or 3.1%, from $509.6 million for the three months ended July 2, 2022. The increase was driven primarily by growth from new store sales and Adjusted Comparable Store Sales Growth, partially offset by effects of deferred and unearned revenue.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for the three months ended July 1, 2023 were (0.1)% and 1.0%, respectively, both reflecting higher average ticket and an increase in customer transactions. Comparable store sales growth was negatively impacted by effects of deferred and unearned revenue.

In the three months ended July 1, 2023, we opened 21 America’s Best stores and three Eyeglass World stores and closed one America’s Best store. Overall, store count grew 5.1% from July 2, 2022 to July 1, 2023 (53 and 14 net new America’s Best and Eyeglass World stores were added, respectively, and one Legacy store was closed).

Net product sales comprised 82.4% and 82.7% of total net revenue for the three months ended July 1, 2023 and July 2, 2022, respectively. Net product sales increased $11.3 million, or 2.7%, in the three months ended July 1, 2023 compared to the three months ended July 2, 2022, driven primarily by a $7.6 million, or 2.6% increase in eyeglass sales, a $2.8 million, or 2.9%, increase in contact lens sales and a $1.0 million, or 2.9%, increase in wholesale fulfillment.

Net sales of services and plans increased $4.5 million, or 5.1%, driven primarily by a $6.2 million, or 13.2% increase in eye exams, partially offset by a $1.1 million, or 12.0% decrease in management fees from our Legacy partner.

*Owned & Host segment net revenue.* Net revenue increased $19.6 million, or 4.9%, driven primarily by new store openings and comparable store sales growth.

*Legacy segment net revenue.* Net revenue increased $0.6 million, or 1.7%, driven by positive comparable store sales growth.

*Corporate/Other segment net revenue.* Net revenue increased $1.4 million, or 2.3%, driven primarily by increases in wholesale fulfillment.

*Net revenue reconciliations.* The impact of reconciliations negatively impacted net revenue by $5.9 million in the three months ended July 1, 2023. Net revenue was negatively impacted by $4.8 million due to the timing of unearned revenue during the three months ended July 1, 2023. Net revenue was negatively impacted by $1.1 million, primarily due to lower recognition of product protection plan revenue and higher sales of club memberships in the three months ended July 1, 2023 compared to the three months ended July 2, 2022.

#### Costs applicable to revenue

Costs applicable to revenue of $247.8 million for the three months ended July 1, 2023 increased $13.3 million, or 5.7%, from $234.6 million for the three months ended July 2, 2022. As a percentage of net revenue, costs applicable to revenue increased from 46.0% for the three months ended July 2, 2022 to 47.2% for the three months ended July 1, 2023. This increase as a percentage of net revenue was primarily driven by growth in optometrist-related costs of 140 basis points, partially offset by a 90 basis point effect from higher exam revenue. Costs applicable to revenue as a percentage of net revenue increased by 50 basis points due to reduction in other components of service revenues, including product protection plan revenue, as well as other product mix and margin effects.

Costs of products as a percentage of net product sales was 38.7% for the three months ended July 1, 2023 and 38.7% for the three months ended July 2, 2022.

*Owned & Host segment costs of products.* Costs of products as a percentage of net product sales increased from 29.2% for the three months ended July 2, 2022 to 29.3% for the three months ended July 1, 2023.

*Legacy segment costs of products.* Costs of products as a percentage of net product sales decreased from 47.3% for the three months ended July 2, 2022 to 47.2% for the three months ended July 1, 2023.

Costs of services and plans as a percentage of net sales of services and plans increased from 81.0% for the three months ended July 2, 2022 to 86.9% for the three months ended July 1, 2023. The increase was primarily driven by higher growth in optometrist-related costs, lower product protection plan revenues and lower management fees from our Legacy partner, partially offset by higher exam revenue.

*Owned & Host segment costs of services and plans.* Costs of services and plans as a percentage of net sales of services and plans increased from 89.3% for the three months ended July 2, 2022 to 93.1% for the three months ended July 1, 2023. The increase was primarily driven by growth in optometrist-related costs that was partially offset by higher exam revenue.

*Legacy segment costs of services and plans.* Costs of services and plans as a percentage of net sales of services and plans increased from 43.5% for the three months ended July 2, 2022 to 49.6% for the three months ended July 1, 2023. The increase was primarily driven by growth in optometrist-related costs and lower management fees from our Legacy partner.

#### Selling, general and administrative

SG&A of $244.0 million for the three months ended July 1, 2023 increased $16.1 million, or 7.1%, from the three months ended July 2, 2022. As a percentage of net revenue, SG&A increased from 44.7% for the three months ended July 2, 2022 to 46.4% for the three months ended July 1, 2023. The increase in SG&A as a percentage of net revenue was primarily driven by higher payroll of 70 basis points, performance-based incentive compensation of 60 basis points, occupancy expense of 40 basis points, and stock-based compensation of 30 basis points, partially offset by a 30-basis point decrease in other expenses.

*Owned & Host SG&A.* SG&A as a percentage of net revenue increased from 39.1% for the three months ended July 2, 2022 to 39.6% for the three months ended July 1, 2023, driven primarily by higher payroll and occupancy expense, partially offset by lower advertising expense.

*Legacy segment SG&A.* SG&A as a percentage of net revenue decreased from 39.0% for the three months ended July 2, 2022 to 37.7% for the three months ended July 1, 2023, driven primarily by lower payroll.

#### Depreciation and amortization

Depreciation and amortization expense of $24.9 million for the three months ended July 1, 2023 decreased $0.3 million, or 1.3%, from $25.2 million for the three months ended July 2, 2022 primarily driven by a shift to cloud-based software investments that are amortized in SG&A, partially offset by investments in remote medicine technology and new store openings.

#### Asset Impairment

We recognized $0.9 million primarily for impairment of tangible long-lived assets and ROU assets associated with our retail stores during the three months ended July 1, 2023, compared to $3.5 million impairment recognized during the three months ended July 2, 2022. The store asset impairment charge is primarily related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores, and other entity-specific assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; and the remaining useful lives of the assets. Asset impairment expenses were recognized in Corporate/Other.

#### Interest expense (income), net

Interest expense (income), net, was $1.8 million for the three months ended July 1, 2023, compared to $4.0 million for the three months ended July 2, 2022. The change was primarily a result of income on cash balances of $2.0 million and higher derivative income of $1.9 million that were partially offset by higher Term A Loans expense of $1.6 million.

#### Income tax provision

Our effective tax rates for the three months ended July 1, 2023 and July 2, 2022 were 4.7% and 32.4%, respectively. The change in effective tax rates reflects our statutory federal and state rates of 25.4% and 25.5%, respectively, tax impacts of employee-related federal tax credits and tax impacts of non-deductible compensation expenses and other permanent items.

### Six Months Ended July 1, 2023 compared to Six Months Ended July 2, 2022

#### Net revenue

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the six months ended July 1, 2023 compared to the six months ended July 2, 2022.

*In thousands, except percentage and store data*

| Owned & Host segment | Comparable store sales growth(1) Six Months Ended July 1, 2023 | Six Months Ended July 2, 2022 | Stores open at end of period July 1, 2023 | July 2, 2022 | Net revenue(2) Six Months Ended July 1, 2023 |  | Six Months Ended July 2, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| America’s Best | 1.8% | (10.1)% | 926 | 872 | $746,390 | 68.6% | $706,404 | 68.1% |
| Eyeglass World | (2.0)% | (7.6)% | 143 | 129 | 116,846 | 10.7% | 113,002 | 10.9% |
| Military | 1.6% | (5.1)% | 54 | 54 | 11,803 | 1.1% | 11,625 | 1.1% |
| Fred Meyer | (6.9)% | (4.3)% | 29 | 29 | 5,621 | 0.5% | 6,046 | 0.6% |
| Owned & Host segment total |  |  | 1,152 | 1,084 | $880,660 | 81.0% | $837,077 | 80.7% |
| **Legacy segment** | (1.5)% | (8.6)% | 229 | 230 | 79,740 | 7.3% | 79,995 | 7.7% |
| **Corporate/Other** | — | — | — | — | 128,179 | 11.8% | 123,582 | 11.9% |
| **Reconciliations** | — | — | — | — | (870) | (0.1)% | (3,388) | (0.3)% |
| Total | 1.5% | (8.0)% | 1,381 | 1,314 | $1,087,709 | 100.0% | $1,037,266 | 100.0% |
| Adjusted Comparable Store Sales Growth(3) | 0.9% | (9.6)% |  |  |  |  |  |  |

(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 a decrease of 0.4% and a decrease of 1.4% from total comparable store sales growth based on consolidated net revenue for the six months ended July 1, 2023 and July 2, 2022, 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 a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for the six months ended July 1, 2023 and July 2, 2022, respectively.

Total net revenue of $1,087.7 million for the six months ended July 1, 2023 increased $50.4 million, or 4.9%, from $1,037.3 million for the six months ended July 2, 2022. The increase was driven by approximately 70% growth from new store sales, 15% by Adjusted Comparable Store Sales Growth, 10% by our AC Lens business and 5% by effects of deferred and unearned revenue.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for the six months ended July 1, 2023 were 1.5% and 0.9%, respectively, primarily due to higher average ticket and an increase in customer transactions.

In the six months ended July 1, 2023, we opened 25 new America’s Best stores and seven Eyeglass World stores, and closed five America’s Best stores and one Legacy store as a result of our Legacy partner’s decision to cease its overall operations at the location. Overall, store count grew 5.1% from July 2, 2022 to July 1, 2023 (53 and 14 net new America’s Best and Eyeglass World stores were added, respectively, and one Legacy store was closed).

Net product sales comprised 82.5% and 82.4% of total net revenue for the six months ended July 1, 2023 and July 2, 2022, respectively. Net product sales increased $42.8 million, or 5.0%, in the six months ended July 1, 2023 compared to the six months ended July 2, 2022, primarily due to a $32.7 million, or 5.6%, increase in eyeglass sales and a $7.0 million, or 3.6%, increase in contact lens sales and a $3.1 million, or 4.3%, increase in wholesale fulfillment.

Net sales of services and plans for the six months ended July 1, 2023 increased $7.6 million, or 4.2%, compared to the six months ended July 2, 2022, driven primarily by higher exam revenues of $12.5 million, or 12.7% increase, which was partially offset by a $3.0 million, or 7.6% decrease in product protection plan revenues and a $2.7 million, or 14.2%, decrease in management fees from our Legacy partner.

*Owned & Host segment net revenue.* Net revenue increased $43.6 million, or 5.2%, driven primarily by new store openings and comparable store sales growth.

*Legacy segment net revenue.* Net revenue decreased $0.3 million, or 0.3%, driven by negative comparable store sales growth.

*Corporate/Other segment net revenue.* Net revenue increased $4.6 million, or 3.7%, driven primarily by increases in wholesale fulfillment.

*Net revenue reconciliations.* The impact of reconciliations positively impacted net revenue by $2.5 million in the six months ended July 1, 2023 compared to the six months ended July 2, 2022. Net revenue was positively impacted by $5.9 million due to the timing of unearned revenue. Net revenue was negatively impacted by $3.4 million primarily due to lower recognition of product protection plan revenue and higher sales of club memberships and product protection plans in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.

#### Costs applicable to revenue

Costs applicable to revenue of $501.9 million for the six months ended July 1, 2023 increased $31.3 million, or 6.6%, from $470.6 million for the six months ended July 2, 2022. As a percentage of net revenue, costs applicable to revenue increased from 45.4% for the six months ended July 2, 2022 to 46.1% for the six months ended July 1, 2023. This increase as a percentage of net revenue was primarily driven by higher growth in optometrist-related costs of 110 basis points, partially offset by a 70 basis point effect from higher exam revenue and a 40 basis point effect from increased eyeglass mix and higher eyeglass margin. Costs applicable to revenue as a percentage of net revenue increased by 70 basis points due to reduction in other components of service revenue, including product protection plan revenue.

Costs of products as a percentage of net product sales decreased from 38.3% for the six months ended July 2, 2022 to 37.9% for the six months ended July 1, 2023, primarily driven by increased eyeglass mix and higher eyeglass margin.

*Owned & Host segment costs of products.* Costs of products as a percentage of net product sales was 28.7% for the six months ended July 1, 2023 and 28.7% for the six months ended July 2, 2022.

*Legacy segment costs of products.* Costs of products as a percentage of net product sales decreased from 47.0% for the six months ended July 2, 2022 to 45.9% for the six months ended July 1, 2023. The decrease was primarily driven by a higher mix of managed care customer transactions versus non-managed care customer transactions. Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. Increases in managed care mix decrease costs of products as a percentage of net product sales and have a corresponding negative impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.

Costs of services and plans as a percentage of net sales of services and plans increased from 78.4% for the six months ended July 2, 2022 to 84.9% for the six months ended July 1, 2023. The increase was primarily driven by growth in optometrist-related costs, lower product protection plan revenues and lower management fees from our Legacy partner, partially offset by higher exam revenue.

*Owned & Host segment costs of services and plans.* Costs of services and plans as a percentage of net sales of services and plans increased from 85.5% for the six months ended July 2, 2022 to 89.5% for the six months ended July 1, 2023. The increase was primarily driven by growth in optometrist-related costs, partially offset by higher exam revenue.

*Legacy segment costs of services and plans.* Costs of services and plans as a percentage of net sales of services and plans increased from 43.1% for the six months ended July 2, 2022 to 47.5% for the six months ended July 1, 2023. The increase was primarily driven by lower management fees from our Legacy partner.

#### Selling, general and administrative

SG&A of $493.9 million for the six months ended July 1, 2023 increased $37.5 million, or 8.2%, from the six months ended July 2, 2022. As a percentage of net revenue, SG&A increased from 44.0% for the six months ended July 2, 2022 to 45.4% for the six months ended July 1, 2023. The increase in SG&A as a percentage of net revenue was primarily driven by higher performance-based incentive compensation of 90 basis points, payroll of 70 basis points, and stock-based compensation of 20 basis points, partially offset by lower advertising expense of 30 basis points.

*Owned & Host SG&A.* SG&A as a percentage of net revenue increased from 37.5% for the six months ended July 2, 2022 to 37.9% for the six months ended July 1, 2023, driven primarily by higher payroll and occupancy expense, partially offset by lower advertising expense.

*Legacy segment SG&A.* SG&A as a percentage of net revenue was 37.3% for the six months ended July 2, 2022 as compared to 36.7% for the six months ended July 1, 2023, driven primarily by lower payroll.

#### Depreciation and amortization

Depreciation and amortization expense of $49.7 million for the six months ended July 1, 2023 decreased $0.7 million, or 1.3%, from $50.4 million for the six months ended July 2, 2022 primarily driven by a shift to cloud-based software investments that are amortized in SG&A, partially offset by investments in remote medicine technology and new store openings.

#### Asset impairment

We recognized $1.3 million primarily for impairment of tangible long-lived assets and ROU assets associated with our retail stores during the six months ended July 1, 2023 compared to $3.9 million recognized during the six months ended July 2, 2022. The store asset impairment charge is primarily related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores, and other entity-specific assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; and the remaining useful lives of the assets. Asset impairment expenses were recognized in Corporate/Other.

#### Interest expense (income), net

Interest expense (income), net was $6.7 million for the six months ended July 1, 2023, compared to $(0.2) million for the six months ended July 2, 2022. The change was primarily a result of lower derivative income of $7.6 million and higher Term A Loans expense of $3.3 million, partially offset by income on cash balances of $4.1 million.

#### Income tax provision

Our effective tax rates for the six months ended July 1, 2023 and July 2, 2022 were 30.4% and 28.6%, respectively. The change in effective tax rates reflects our statutory federal and state rates of 25.4% and 25.5%, respectively, tax impacts of employee-related federal tax credits and tax impacts of non-deductible compensation expenses and other permanent items.

### Non-GAAP Financial Measures

*Adjusted Operating Income, Adjusted Operating Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.*

We define Adjusted Operating Income as net income, plus interest expense (income), net and income tax provision (benefit), further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles and certain other expenses. We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue. We define EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization. We define Adjusted EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and certain other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue. We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, amortization of debt discounts and deferred financing costs of our term loan borrowings, amortization of the conversion feature and deferred financing costs related to our 2025 Notes when not required under U.S. GAAP to be added back for diluted earnings per share, losses (gains) on change in fair value of derivatives, certain other expenses, and tax expense (benefit) from stock-based compensation, less the tax effect of these adjustments.

EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below.

EBITDA and the Company Non-GAAP Measures have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with U.S. GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes EBITDA, and the Company Non-GAAP Measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We also use EBITDA and the Company Non-GAAP Measures to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements U.S. GAAP results with Non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than U.S. GAAP results alone. We continue to evaluate our use of the Company Non-GAAP Measures in the context of the development of our business, and may introduce or discontinue certain measures in the future as we deem appropriate.

EBITDA and the Company Non-GAAP Measures are not recognized terms under U.S. GAAP and should not be considered as an alternative to net income or income from operations as a measure of financial performance or cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with U.S. GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In evaluating EBITDA and the Company Non-GAAP Measures, we may incur expenses in the future that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and the Company Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on our U.S. GAAP results in addition to using EBITDA and the Company Non-GAAP Measures.

The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

- 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, Adjusted EBITDA and Adjusted Operating Income do not reflect the interest expense (income), net, or the cash requirements necessary to service interest or principal payments, on our debt;
- EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect period to period changes in taxes, income tax provision 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;
- 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.

Because of these limitations, EBITDA and the Company Non-GAAP Measures should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table reconciles our Adjusted Operating Income, Adjusted Operating Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin to net income; and Adjusted Diluted EPS to diluted EPS for the periods presented:

*In thousands*

|  | Three Months Ended July 1, 2023 |  | July 2, 2022 |  | Six Months Ended July 1, 2023 |  | July 2, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net income** | $5,614 | 1.1% | $9,734 | 1.9% | $23,884 | 2.2% | $39,881 | 3.8% |
| Interest expense (income), net | 1,836 | 0.3% | 3,963 | 0.8% | 6,703 | 0.6% | (181) | 0.0% |
| Income tax provision | 275 | 0.1% | 4,674 | 0.9% | 10,450 | 1.0% | 16,003 | 1.5% |
| Stock-based compensation expense (a) | 5,473 | 1.0% | 3,638 | 0.7% | 9,788 | 0.9% | 7,372 | 0.7% |
| Asset impairment (b) | 893 | 0.2% | 3,509 | 0.7% | 1,280 | 0.1% | 3,915 | 0.4% |
| Amortization of acquisition intangibles (c) | 1,872 | 0.4% | 1,872 | 0.4% | 3,744 | 0.3% | 3,744 | 0.4% |
| Other (f) | 485 | 0.1% | 390 | 0.1% | 472 | 0.0% | 2,350 | 0.2% |
| **Adjusted Operating Income / Adjusted Operating Margin** | $16,448 | 3.1% | $27,780 | 5.5% | $56,321 | 5.2% | $73,084 | 7.0% |
| 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. |  |  |  |  |  |  |  |  |

*In thousands*

|  | Three Months Ended July 1, 2023 |  | July 2, 2022 |  | Six Months Ended July 1, 2023 |  | July 2, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net income** | $5,614 | 1.1% | $9,734 | 1.9% | $23,884 | 2.2% | $39,881 | 3.8% |
| Interest expense (income), net | 1,836 | 0.3% | 3,963 | 0.8% | 6,703 | 0.6% | (181) | 0.0% |
| Income tax provision | 275 | 0.1% | 4,674 | 0.9% | 10,450 | 1.0% | 16,003 | 1.5% |
| Depreciation and amortization | 24,929 | 4.7% | 25,245 | 5.0% | 49,742 | 4.6% | 50,396 | 4.9% |
| EBITDA | 32,654 | 6.2% | 43,616 | 8.6% | 90,779 | 8.3% | 106,099 | 10.2% |
| Stock-based compensation expense (a) | 5,473 | 1.0% | 3,638 | 0.7% | 9,788 | 0.9% | 7,372 | 0.7% |
| Asset impairment (b) | 893 | 0.2% | 3,509 | 0.7% | 1,280 | 0.1% | 3,915 | 0.4% |
| Other (f) | 485 | 0.1% | 390 | 0.1% | 472 | 0.0% | 2,350 | 0.2% |
| **Adjusted EBITDA / Adjusted EBITDA Margin** | $39,505 | 7.5% | $51,153 | 10.0% | $102,319 | 9.4% | $119,736 | 11.5% |
| 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. |  |  |  |  |  |  |  |  |

33

*In thousands, except per share amounts*

|  | Three Months Ended July 1, 2023 | July 2, 2022 | Six Months Ended July 1, 2023 | July 2, 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Diluted EPS** | $0.07 | $0.12 | $0.30 | $0.47 |
| Stock-based compensation expense (a) | 0.07 | 0.05 | 0.12 | 0.08 |
| Asset impairment (b) | 0.01 | 0.04 | 0.02 | 0.04 |
| Amortization of acquisition intangibles (c) | 0.02 | 0.02 | 0.05 | 0.04 |
| Amortization of debt discount and deferred financing costs (d) | 0.01 | 0.01 | 0.02 | 0.01 |
| Losses (gains) on change in fair value of derivatives (e) | 0.00 | (0.01) | 0.04 | (0.11) |
| Other (i) | 0.01 | 0.00 | 0.01 | 0.02 |
| Tax expense (benefit) from stock-based compensation (g) | 0.00 | 0.00 | 0.01 | 0.00 |
| Tax effect of total adjustments (h) | (0.03) | (0.03) | (0.07) | (0.02) |
| **Adjusted Diluted EPS** | $0.17 | $0.21 | $0.51 | $0.53 |
| **Weighted average diluted shares outstanding** | 78,343 | 80,403 | 78,784 | 94,109 |
| Note: Some of the totals in the table above do not foot due to rounding differences. |  |  |  |  |

(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 primarily property, equipment and lease-related assets on closed or underperforming stores.

(c) Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting following the acquisition of the Company by affiliates of KKR & Co. Inc.

(d) Amortization of deferred financing costs and other non-cash charges related to our long-term debt. We adjust for amortization of deferred financing costs related to the 2025 Notes only when adjustment for these costs is not required in the calculation of diluted earnings per share under U.S. GAAP.

(e) Reflects losses (gains) recognized in interest expense (income), net on change in fair value of de-designated hedges.

(f) Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), which are primarily related to excess payroll taxes on vesting of restricted stock units and exercises of stock options, executive severance and relocation and other expenses and adjustments, including losses on other investments of $0.3 million for the six months ended July 2, 2022.

(g) Tax expense (benefit) associated with accounting guidance requiring excess tax expense (benefit) related to vesting of restricted stock units and exercises of stock options to be recorded in earnings as discrete items in the reporting period in which they occur.

(h) Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates.

(i) Reflects other expenses in (f) above, including debt issuance costs of $0.2 million for the three and six months ended July 1, 2023.

### Liquidity and Capital Resources

Our primary cash needs are for inventory, payroll, store rent, advertising, capital expenditures associated with new stores and updating existing stores, as well as information and remote medicine technology and infrastructure, including our corporate office, distribution centers, and laboratories. When appropriate, the Company may utilize excess liquidity towards debt service requirements, including voluntary debt prepayments, or required interest and principal payments, if any, as well as repurchases of common stock, based on excess cash flows. The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred and unearned revenue and other payables and accrued expenses. We exercise prudence in our use of cash and closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding. We continue to be focused on these items in addition to other key measures we use to determine how our consolidated business and operating segments are performing. We believe that cash on hand, cash expected to be generated from operations and the availability of borrowings under our Revolving Loans will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures, and payments due under our existing debt for the next 12 months and thereafter for the foreseeable future. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional liquidity for our operations, as well as modifications to our Term A Loans where possible. We recently refinanced our Term A Loans and Revolving Loans, extending their maturity to 2028. Refer to Part I. Item 1. Note 4. “Long-term Debt” for more information. Our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. We primarily fund our working capital needs using cash provided by operations. Our working capital requirements for inventory will increase as we continue to open additional stores.

As of July 1, 2023, we had $254.6 million in cash and cash equivalents and $293.6 million of availability under our Revolving Loans, which includes $6.4 million in outstanding letters of credit.

As of July 1, 2023, we had $150.0 million of Term A Loans outstanding under our credit agreement. We were in compliance with all covenants related to our long-term debt as of July 1, 2023.

The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:

*In thousands*

| Cash flows provided by (used for): | Six Months Ended July 1, 2023 | July 2, 2022 |
| --- | ---: | ---: |
| Operating activities | $112,216 | $88,031 |
| Investing activities | (54,785) | (55,694) |
| Financing activities | (32,071) | (83,608) |
| Net change in cash, cash equivalents and restricted cash | $25,360 | $(51,271) |

#### Net Cash Provided by Operating Activities

Cash flows provided by operating activities increased $24.2 million from $88.0 million during the six months ended July 2, 2022 to $112.2 million for the six months ended July 1, 2023. Changes in net working capital and other assets and liabilities contributed $34.5 million of cash and were partially offset by lower net income of $16.0 million and an increase in non-cash adjustments of $5.7 million compared to the six months ended July 2, 2022.

Increases in other liabilities during the six months ended July 1, 2023 contributed $25.8 million in year-over-year cash primarily due to increases in compensation-related accruals. Decreases in accounts receivable contributed $9.2 million in year-over-year cash primarily due to an increase in the CARES Act receivable during the six months ended July 2, 2022 that did not recur during the six months ended July 1, 2023. Decreases of inventory contributed $7.5 million in year-over-year cash primarily due to timing of purchases. These were partially offset by decreases in accounts payable that used $6.8 million in year-over-year cash, primarily as a result of timing of payments.

#### Net Cash Used for Investing Activities

Net cash used for investing activities decreased by $0.9 million, to $54.8 million, during the six months ended July 1, 2023 from $55.7 million during the six months ended July 2, 2022. The year-over-year decrease was primarily due to lower information technology infrastructure and remote medicine investments, partially offset by investments in labs and distribution centers. Refer to Part I. Item 1. Note 1. “Description of Business and Basis of Presentation” for more information on the investment.

#### Net Cash Used For Financing Activities

Net cash used for financing activities was $32.1 million during the six months ended July 1, 2023 as compared to $83.6 million during the six months ended July 2, 2022. The $51.5 million year-over-year decrease in cash used for financing activities was primarily due to decreased purchases of treasury stock of $56.0 million offset by payments of debt issuance costs of $2.9 million during the six months ended July 1, 2023.

#### Share Repurchase Authority

During the six months ended July 1, 2023 and July 2, 2022, the Company repurchased 1.1 million shares of its common stock for $25.0 million, and 2.7 million shares of its common stock for $80.0 million, respectively, under the share repurchase program. As of July 1, 2023, $25.0 million remains available under the share repurchase authorization.

### Material Cash Requirements

There were no material changes outside the ordinary course of business in our material cash requirements and commercial commitments from those reported in the 2022 Annual Report on Form 10-K. The refinancing of our Term A Loans and Revolving Loans changed the timing of the repayment of our Term A Loans from what was presented in the 2022 Annual Report on Form 10-K. Refer to Part I. Item 1. Note 4. “Long-term Debt” on this Form 10-Q for the new payment schedule.

We follow U.S. GAAP in making the determination as to whether or not to record an asset or liability related to our arrangements with third parties. Consistent with current accounting guidance, we do not record an asset or liability associated with long-term purchase, marketing and promotional commitments, or commitments to philanthropic endeavors. We have disclosed the amount of future commitments associated with these items in the 2022 Annual Report on Form 10-K. We are not a party to any other material off-balance sheet arrangements.

### Critical Accounting Policies and Estimates

Management has evaluated the accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the 2022 Annual Report on Form 10-K, in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the 2022 Annual Report on Form 10-K.

In connection with the termination of the Walmart MSA, the Company expects to record noncash goodwill and intangible asset impairment charges of approximately $60 million and $10 million, respectively, in the third quarter of fiscal 2023.

### Adoption of New Accounting Pronouncements

There have been no material changes due to recently issued or adopted accounting standards since those disclosed in our 2022 Annual Report on Form 10-K.

## Market risk

As filed, 1,500 characters.

We have market risk exposure from changes in interest rates. When appropriate, we use derivative financial instruments to mitigate the risk from such exposure. A discussion of our accounting policies for derivative financial instruments is included in Note 3. “Fair Value Measurement” and Note 5. “Interest Rate Derivatives” to our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

A portion of our debt bears interest at variable rates. If market interest rates increase, the interest rate on our variable rate debt will increase and will create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations. Our interest rate collar is intended to mitigate some of the effects of increases in interest rates.

As of July 1, 2023, $150.0 million of Term A Loans borrowings were subject to variable interest rates, with a weighted average borrowing rate of 3.6%. An increase to market rates of 1.0% as of July 1, 2023 would not result in a material increase to interest expense. Assuming a decrease to market rates of 1.0% as of July 1, 2023, the resulting increase to interest expense related to the interest rate derivative would be approximately $3 million. For more information about quantitative and qualitative disclosures about market risk, please see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in Part II. of the 2022 Annual Report on Form 10-K.

## Controls and procedures

As filed, 1,858 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In accordance with Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of July 1, 2023. Based on that evaluation, the CEO and the CFO have concluded that the Company’s current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company’s periodic filings with the SEC is made known to them in a timely manner.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the second quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 3,897 characters.

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed in Part I. Item 1A. “Risk Factors” in our 2022 Annual Report on Form 10-K. Except as described below, there have been no material changes to the risk factors described in our 2022 Annual Report on Form 10-K.

***The termination of our partnership with Walmart, including the transition period, will have a significant impact on our business, revenues, profitability and cash flows, which impact could be material.***

Following receipt of notice of non-renewal by Walmart on July 20, 2023, our partnership with Walmart, which includes supplying and operating Vision Centers in select Walmart stores and arranging for the provision of optometric services at certain Walmart locations in California, is ending effective February 23, 2024 unless an alternate date is agreed by the parties. Additionally, the agreements governing our provision of contact lens distribution and related services to Walmart and Sam’s Club are terminating effective June 30, 2024 unless an earlier date is agreed by the parties. The termination of the Walmart partnership will result in a reduction of our revenues, profitability and cash flows, and therefore will adversely affect our business, financial condition and results of operations, which could be material. In addition, in connection with the termination of these agreements, we expect to record noncash goodwill and intangible asset impairment charges of approximately $60 million and $10 million, respectively, in the third quarter of fiscal 2023, which would adversely impact our profitability during this period.

Certain of the agreements include pre-termination transition and post-termination obligations of the parties, including a solicitation period for Walmart to offer employment or similar arrangements to certain associates and optometrists from specified Vision Centers. The transition period presents numerous risks and may cause disruption to these businesses, including, without limitation, a potential reduction in sales, productivity and focus, and may make it harder to retain associates and optometrists, which in turn could adversely affect our financial condition and results of operations. The termination of the Walmart partnership could negatively impact other parts of our business, including, without limitation, impairing our ability to attract and retain management, associates and optometrists, to compete for managed vision care contracts, to obtain favorable terms from vendors and to generate cash to fund our business. While we may seek to reduce costs and replace any lost business with new America’s Best or Eyeglass World stores and by other means, we may not be successful in our efforts. In addition, the termination of the Walmart partnership has adversely affected, and may continue to adversely affect, the market price of our common stock, regardless of our actual operating performance during the transition period and thereafter.

For additional risks associated with the termination of the Walmart partnership, see the following risk factors included in our 2022 Form 10-K: “*If we fail to retain our existing senior management team or attract qualified new personnel, such failure could have a material adverse effect on our business, financial condition and results of operations,” “The optical retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted,” “Failure to recruit and retain vision care professionals could adversely affect our business, financial condition and results of operations,” and “If we fail to open and operate new stores in a timely and cost-effective manner or fail to successfully enter new markets, our financial performance could be materially and adversely affected.”*

Filed Aug 10, 2023.
Source: SEC EDGAR, the filing index for accession 0001710155-23-000044. Last ingested by Listed: Nov 6, 2026, 12:42 ET. No prices; not investment advice.