8-K
National Vision Holdings, Inc. (EYE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
_______________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the securities Exchange Act of 1934
Date of Report (Date of Earliest Event reported):
February 26, 2020
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National Vision Holdings, Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Commission file number 001-38257
| Delaware | 46-4841717 | ||
|---|---|---|---|
| (State or other jurisdiction of<br><br>incorporation or organization) | (I.R.S. Employer<br><br>Identification No.) | ||
| 2435 Commerce Ave. | |||
| Building 2200 | 30096 | ||
| Duluth | , | Georgia | (Zip Code) |
| (Address of principal executive offices) |
(770) 822‑3600
(Registrant’s telephone number, including area code)
_______________________________________________________________________
Check the appropriate box below if the Form 8−K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.42 |
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| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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| Securities registered pursuant to Section 12(b) of the Act | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|---|
| Common stock, par value $0.01 per share | EYE | Nasdaq |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On February 26, 2020, National Vision Holdings, Inc. (“National Vision”) issued a press release announcing it's financial results for the quarter and full fiscal year ended December 28, 2019. As disclosed in the press release, beginning with the first quarter of 2020, National Vision intends to update certain components of its presentation of non-GAAP financial measures. First, the company will begin reporting the new measures, Adjusted Operating Income and Adjusted Operating Margin, as described further in the “Non-GAAP Financial Measures” section of the press release. In addition, consistent with its presentation of Adjusted Operating Income, beginning with the first quarter of fiscal 2020, the company will update its definitions (the “2020 Definitions”) of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS, so that such measures no longer exclude new store pre-opening expenses and non-cash rent. The fiscal 2020 outlook presented in the press release gives effect to the 2020 Definitions.
In connection with the updates to the presentation of non-GAAP financial measures, on February 26, 2020, National Vision also made available on the Investor page of its website (www.nationalvision.com) certain supplemental information, including a reconciliation of Non-GAAP to GAAP financial measures utilizing the 2019 definitions (where applicable) and 2020 Definitions for Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS for the three-month periods within and the fiscal years ended December 28, 2019 and December 29, 2018.
Copies of the press release and supplemental non-GAAP information are furnished herewith as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated by reference herein.
The information in this Current Report on Form 8-K, including exhibits, is being furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of National Vision’s filings with the SEC under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
See the Exhibit Index immediately preceding the signature page hereto, which is incorporated herein by reference.
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | National Vision Holdings, Inc. Press Release dated February 26, 2020. |
| 99.2 | National Vision Holdings, Inc. Non-GAAP Measures Supplemental Tables |
| 104 | The cover page of the Company’s Press Release on Form 8-K for the period ended December 28, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments) |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned hereunto duly authorized.
| National Vision Holdings, Inc. | ||
|---|---|---|
| Date: February 26, 2020 | By: | /s/ Jared Brandman |
| Name: | Jared Brandman | |
| Title: | Senior Vice President, General Counsel and Secretary |
Exhibit
National Vision Holdings, Inc. Reports Fourth Quarter and Fiscal 2019 Financial Results
Duluth, Ga. -- February 26, 2020 -- National Vision Holdings, Inc. (NASDAQ: EYE) (“National Vision” or the “Company”) today reported its financial results for the fourth quarter and fiscal year ended December 28, 2019 and is providing its outlook for fiscal 2020.
Fourth Quarter 2019 Summary:
| • | Net revenue increased 12.9% to $401.8 million |
|---|---|
| • | 72nd consecutive quarter of positive comparable store sales growth |
| --- | --- |
| • | Comparable store sales growth of 10.1%; Adjusted Comparable Store Sales Growth of 8.1% |
| --- | --- |
| • | Net income increased 121.3% to $3.9 million; Adjusted Net Income increased 735.5% to $8.7 million |
| --- | --- |
| • | Adjusted EBITDA increased 37.9% to $39.6 million |
| --- | --- |
| • | Diluted EPS increased 120.2% to $0.05; Adjusted Diluted EPS increased 692.0% to $0.11 |
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Fiscal 2019 Summary:
| • | Net revenue increased 12.2% to $1.72 billion |
|---|---|
| • | Comparable store sales growth of 6.5%; Adjusted Comparable Store Sales Growth of 6.2% |
| --- | --- |
| • | Net income increased 38.7% to $32.8 million; Adjusted Net Income increased 27.3% to $66.1 million |
| --- | --- |
| • | Adjusted EBITDA increased 15.1% to $200.7 million |
| --- | --- |
| • | Diluted EPS increased 34.2% to $0.40; Adjusted Diluted EPS increased 23.2% to $0.81 |
| --- | --- |
Reade Fahs, chief executive officer, stated, “The fourth quarter represented a strong finish to another record year of revenues and profitability for National Vision, with double-digit growth in net revenue and Adjusted EBITDA in 2019. The team delivered our 72nd consecutive quarter of positive comparable store sales growth, demonstrating the consistency of our differentiated business model. Our fourth quarter and 2019 results reinforce our belief that our strong value message continues to resonate with patients and customers. We opened eight stores this quarter and continue to gain share in the attractive optical retail market. Last month, we were pleased to announce that, as we embark on our 30th year of optical partnership with Walmart, we will be operating five new additional Vision Centers. Every day, our 13,000-plus associates, including over 2,000 optometrists practicing in or next to our over 1,100 stores, continue to work hard to make quality eye exams and eyewear more affordable to our patients and customers throughout the United States.”
Adjusted Comparable Store Sales Growth, Adjusted Diluted EPS, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and EBITDA are not measures recognized under generally accepted accounting principles (“GAAP”). Please see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below for more information.
Fourth Quarter 2019 Highlights
| • | Net revenue increased 12.9% to $401.8 million from $355.9 million for the fourth quarter of 2018. Net revenue growth was positively impacted by 1.5% due to the timing of unearned revenue. |
|---|---|
| • | Comparable store sales growth was 10.1% and Adjusted Comparable Store Sales Growth was 8.1% for the fourth quarter of 2019. |
| --- | --- |
| • | The Company opened eight new stores, closed two stores and ended the quarter with 1,151 stores. |
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| • | Costs applicable to revenue increased 8.1% to $187.5 million from $173.5 million for the fourth quarter of 2018. As a percentage of net revenue, costs applicable to revenue decreased 200 basis points to 46.7% from 48.7% for the fourth quarter of 2018. This decrease, as a percentage of net revenue, was primarily driven by higher eyeglass margin, a higher mix of exam sales and lower growth in optometrist-related costs. |
| --- | --- |
| • | Selling, general and administrative expenses (“SG&A”) increased 7.2% to $178.0 million from $166.1 million for the fourth quarter of 2018. As a percentage of net revenue, SG&A decreased 240 basis points to 44.3% from 46.7% for the fourth quarter of 2018. This decrease, as a percentage of net revenue, was driven by lower stock compensation expense and store payroll leverage, partially offset by higher performance-based incentive compensation. |
|---|---|
| • | Net income increased 121.3% to $3.9 million compared to net loss of $18.4 million for the fourth quarter of 2018. Net margin increased to 1.0% compared to (5.2)% for the fourth quarter of 2018. Diluted EPS increased 120.2% to $0.05 compared to diluted loss per share of $0.24 for the fourth quarter of 2018. |
| --- | --- |
| • | Adjusted Net Income increased 735.5% to $8.7 million compared to $1.0 million for the fourth quarter of 2018. Adjusted Diluted EPS increased 692.0% to $0.11 compared to $0.01 for the fourth quarter of 2018. The net change in margin on unearned revenue positively impacted year-over-year Adjusted Net Income growth by 298.7%. |
| --- | --- |
| • | Adjusted EBITDA increased 37.9% to $39.6 million compared to $28.7 million for the fourth quarter of 2018. The net change in margin on unearned revenue benefited year-over-year Adjusted EBITDA growth by 14.6%. Adjusted EBITDA Margin increased 180 basis points to 9.9% from 8.1% for the fourth quarter of 2018, primarily due to higher eyeglass margin, store payroll leverage and the net change in margin on unearned revenue. |
| --- | --- |
Fiscal 2019 Highlights
| • | Net revenue increased 12.2% to $1.72 billion from $1.54 billion for fiscal year 2018. Net revenue growth was negatively impacted by 0.1% due to the timing of unearned revenue. |
|---|---|
| • | Comparable store sales growth was 6.5% and Adjusted Comparable Store Sales Growth was 6.2%. |
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| • | The Company opened 75 stores, closed six stores and ended the period with 1,151 stores. Overall, store count grew 6.4% from December 30, 2018 to December 28, 2019. |
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| • | Costs applicable to revenue increased 13.0% to $806.5 million from $713.6 million for fiscal year 2018. As a percentage of net revenue, costs applicable to revenue increased 40 basis points to 46.8% from 46.4% for fiscal year 2018. This increase as a percentage of net revenue was primarily driven by increased net revenue from AC Lens contact lens distribution business growth. Additionally, a higher mix of exam sales and higher eyeglass margin were partially offset by higher optometrist costs. |
| --- | --- |
| • | SG&A increased 8.3% to $744.5 million from $687.5 million for fiscal year 2018. As a percentage of net revenue, SG&A decreased 150 basis points to 43.2% from 44.7% for fiscal year 2018. This decrease as a percentage of net revenue was primarily driven by store payroll leverage, increased net revenue from AC Lens contact lens distribution business growth, and lower stock compensation expense. |
| --- | --- |
| • | Net income increased 38.7% to $32.8 million compared to net income of $23.7 million for 2018. Net margin increased 40 basis points to 1.9% from 1.5% for 2018. Diluted EPS increased 34.2% to $0.40 compared to $0.30 for 2018. |
| --- | --- |
| • | Adjusted Net Income increased 27.3% to $66.1 million from $51.9 million for 2018. Adjusted Diluted EPS increased 23.2% to $0.81 compared to $0.66 for 2018. The change in margin on unearned revenue negatively impacted year-over-year Adjusted Net Income growth by 1.3%. |
| --- | --- |
| • | Adjusted EBITDA increased 15.1% to $200.7 million compared to $174.4 million for 2018. The net change in margin on unearned revenue negatively impacted year-over-year Adjusted EBITDA growth by 0.5%. Adjusted EBITDA Margin increased 30 basis points to 11.6% from 11.3% for 2018. |
| --- | --- |
Balance Sheet and Cash Flow Highlights
| • | The Company’s cash balance was $39.3 million as of December 28, 2019. The Company had $148.0 million in borrowings under its $300.0 million first lien revolving credit facility, exclusive of letters of credit of $5.7 million. |
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| • | Total debt was $569.7 million as of December 28, 2019, consisting of outstanding first lien term loans, first lien revolving credit facility and finance lease obligations. |
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| • | On October 31, 2019, the Company used cash on hand to make a $25.0 million voluntary prepayment of outstanding principal under the Term Loan of its credit agreement. |
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| • | Cash flows from operating activities for 2019 increased to $165.1 million compared to $106.6 million for 2018. |
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| • | Capital expenditures for 2019 totaled $101.3 million compared to $104.5 million for 2018. |
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Fiscal 2020 Outlook
Beginning with the first quarter of 2020, the Company intends to update certain components of its presentation of non-GAAP financial measures. First, the Company will begin reporting the new measures, Adjusted Operating Income and Adjusted Operating Margin, as described below under “Non-GAAP Financial Measures.” In addition, consistent with its presentation of Adjusted Operating Income, beginning with the first quarter of fiscal 2020, the Company will update its definitions (the “2020 Definitions”) of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS so that such measures no longer exclude new store pre-opening expenses and non-cash rent. Finally, in the fiscal 2020 outlook below, the Company has included Adjusted Operating Income and Adjusted Diluted EPS in lieu of Adjusted Net Income. See “Non-GAAP Financial Measures” below in this press release for definitions and additional information regarding these measures. In connection with the updates to its presentation of non-GAAP financial measures, on February 26, 2020, the Company made available on the Investor page of its website (www.nationalvision.com) certain supplemental information, including a reconciliation of Non-GAAP to GAAP financial measures
utilizing the 2019 Definitions and 2020 Definitions for Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS for the three month periods within and the fiscal years ended December 28, 2019 and December 29, 2018.
The fiscal 2020 outlook information presented below gives effect to the 2020 Definitions and other updates noted above.
The Company is providing the following outlook for the 53 weeks ending January 2, 2021. The Company estimates the 53rd week of fiscal 2020 will contribute approximately $35 million to net revenue, with an approximately break-even impact to Adjusted Diluted EPS due to the net change in margin on unearned revenue.
| New Stores |
| Adjusted Comparable Store Sales Growth1 |
| Net Revenue |
| Adjusted EBITDA2 |
| Adjusted Operating Income |
| Adjusted Diluted EPS |
| Depreciation and Amortization3 |
| Interest |
| Tax Rate4 |
| Capital Expenditures |
| 1 - For the 52 weeks ending December 26, 20202 - As noted above, Adjusted EBITDA using the 2020 Definition is presented and no longer excludes new store pre-opening expense and non-cash rent. In fiscal 2019, new store pre-opening expense and non-cash rent were 3.3 million and 3.2 million, respectively, resulting in 2019 Adjusted EBITDA that would have been 194.1 million if modified to conform to the 2020 Definition of Adjusted EBITDA. Please refer to Exhibit 99.2 in the Company's Form 8-K filing today for supplemental tables providing reconciliations from Adjusted EBITDA to Net Income for the quarterly and fiscal year 2018 and 2019 periods to the 2020 Definition. 3 - Includes amortization of acquisition intangibles of approximately 7.4 million, which is excluded in the definition of Adjusted Operating Income4 - Excluding the impact of stock option exercises |
All values are in US Dollars.
The fiscal 2020 outlook information provided above includes Adjusted EBITDA, Adjusted Operating Income and Adjusted Diluted EPS guidance, which are non-GAAP financial measures management uses in measuring performance. The Company is not able to reconcile these forward-looking non-GAAP measures to GAAP without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of certain items and unanticipated events, including taxes and non-recurring items, which would be included in GAAP results. The impact of such items and unanticipated events could be potentially significant.
The fiscal 2020 outlook is forward-looking, subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and based upon assumptions with respect to future decisions, which are subject to change. Actual results may vary and those variations may be material. As such, the Company’s results may not fall within the ranges contained in its fiscal 2020 outlook. The Company uses these forward looking measures internally to assess and benchmark its results and strategic plans.
Conference Call Details
A conference call to discuss the fourth quarter 2019 financial results is scheduled for today, February 26, 2020, at 10:00 a.m. Eastern Time. The U.S. toll free dial-in for the conference call is 866-754-6931 and the international dial-in is 636-812-6625. The conference passcode is 2086485. A live audio webcast of the conference call will be available on the “Investor” section of the Company’s website www.nationalvision.com/investors, where presentation materials will be posted prior to the conference call.
A telephone replay will be available shortly after the broadcast through Wednesday, March 4, 2020, by dialing 855-859-2056 from the U.S. or 404-537-3406 from international locations, and entering conference passcode 2086485. A replay of the audio webcast will also be archived on the “Investors” section of the Company’s website.
About National Vision Holdings, Inc.
National Vision Holdings, Inc. is one of the largest optical retail companies in the United States with over 1,100 retail stores in 44 states plus the District of Columbia and Puerto Rico. With a mission of helping people by making quality eye care and eyewear more affordable and accessible, the Company operates five retail brands: America’s Best Contacts & Eyeglasses, Eyeglass World, Vision Centers inside select Walmart stores, and Vista Opticals inside Fred Meyer stores and on select military bases, and several e-commerce websites, offering a variety of products and services for customers’ eye care needs.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements contained under “Fiscal 2020 Outlook” as well as other statements related to our current beliefs and expectations regarding the performance of our industry, the Company's strategic direction, market position, prospects and future results. You can identify these forward-looking statements by the use of words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Caution should be taken not to place undue reliance on any forward-looking statement as such statements speak only as of the date when made. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Forward-looking statements are not guarantees and are subject to various risks and uncertainties, which may cause actual results to differ materially from those implied in forward-looking statements. Such factors include, but are not limited to, 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 relationships with managed vision care companies, vision insurance providers and other third-party payors; our operating relationships with our host and legacy partners; state, local and federal vision care and healthcare laws and regulations; risks associated with managed vision care laws and regulations; our ability to maintain sufficient levels of cash flow from our operations to grow; the risk of loss or disruption in our distribution centers and optical laboratories; risks associated with vendors from whom our products are sourced; competition in the optical retail industry; risks associated with information technology systems and the security of personal information and payment card data collected by us and our vendors; our growth strategy’s impact on our existing resources and performance of our existing stores; our ability to manage costs; the success of our marketing, advertising and promotional efforts; risks associated with leasing substantial amounts of space; technological advances that may reduce demand for our products; our ability to retain senior management and attract new personnel; macroeconomic factors and other factors impacting consumer spending beyond the Company’s control; issues regarding inventory management; seasonal fluctuations in our business; our increasing reliance on third-party coverage and reimbursement; risks related to our e-commerce business; product liability, product recall or personal injury issues; legal regulatory risks, including adverse judgments or settlements from legal proceedings; we may incur losses arising from our investments in technological innovators in the optical retail industry; our ability to protect our intellectual property; risks related to our significant indebtedness and risks related to interest rates; risks related to our debt agreements, including restrictions that may limit our flexibility in operating our business; and risks related to our common stock, including our ability to comply with requirements to design and implement and maintain effective internal controls. Additional information about these and other factors that could cause National Vision’s results to differ materially from those described in the forward-looking statements can be found in filings by National Vision with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC.
Non-GAAP Financial Measures
To supplement the Company’s financial information presented in accordance with GAAP and aid understanding of the Company’s business performance, the Company uses certain non-GAAP financial measures, namely “EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Operating Income,” “Adjusted Operating Margin,” “Adjusted Net Income,” “Adjusted Diluted EPS,” “Adjusted SG&A,” and “Adjusted SG&A Percent of Net Revenue.” We believe EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted SG&A and Adjusted SG&A Percent of Net Revenue 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 these non-GAAP financial 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. Management uses these non-GAAP financial measures to supplement 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 GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
To supplement the Company’s comparable store sales growth presented in accordance with GAAP, the Company provides “Adjusted Comparable Store Sales Growth,” which is a non-GAAP financial measure 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. Management uses 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 Store Sales Growth to be meaningful.
Beginning with the first quarter of fiscal 2020, the Company is updating its definitions of Adjusted EBITDA, Adjusted SG&A, Adjusted Net Income and Adjusted Diluted EPS discussed below, so that they no longer exclude new store pre-opening expenses and non-cash rent.
EBITDA: We define EBITDA as net income, plus interest expense, income tax provision (benefit), and depreciation and amortization.
Adjusted EBITDA: We define Adjusted EBITDA as EBITDA, further adjusted to exclude stock compensation expense, debt issuance costs, loss on the extinguishment of debt, asset impairment, new store pre-opening expenses, non-cash rent, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses.
Adjusted EBITDA Margin: We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net revenue.
Adjusted Operating Income: We define Adjusted Operating Income as net income, plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, debt issuance costs, loss on extinguishment of debt, asset impairment, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses.
Adjusted Operating Margin: We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue.
Adjusted Net Income: We define Adjusted Net Income as net income, adjusted to exclude stock compensation expense, debt issuance costs, loss on extinguishment of debt, asset impairment, new store pre-opening expenses, non-cash rent, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, other expenses, amortization of acquisition intangibles and deferred financing costs, tax benefit of stock option exercises, less the tax effect of these adjustments.
Adjusted Diluted EPS: We define Adjusted Diluted EPS as Adjusted Net Income divided by weighted average diluted common shares outstanding.
Adjusted SG&A: We define Adjusted SG&A as SG&A adjusted to exclude stock compensation expense, new store pre-opening expenses, non-cash rent, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses except for the share of losses on equity method investments.
Adjusted SG&A Percent of Net Revenue: We define Adjusted SG&A Percent of Net Revenue as Adjusted SG&A as a percentage of net revenue.
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, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation in their 13th full 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.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted SG&A, Adjusted SG&A Percent of Net Revenue and Adjusted Comparable Store Sales Growth are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or the ratio of net income (loss) to net revenue as a measure of financial performance, SG&A, the ratio of SG&A to net revenue as a measure of financial performance, cash flows provided by operating activities as a measure of liquidity, comparable store sales growth as a measure of operating performance, or any other performance measure derived in accordance with 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. 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 GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
Please see “Reconciliation of GAAP and Non-GAAP Financial Measures” below for reconciliations of non-GAAP financial measures used in this release to their most directly comparable GAAP financial measures.
National Vision Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 28, 2019 and December 29, 2018
In Thousands, Except Par Value
| ASSETS | As of<br>December 28, 2019 | As of<br>December 29, 2018 | ||||
|---|---|---|---|---|---|---|
| Current assets: | ||||||
| Cash and cash equivalents | $ | 39,342 | $ | 17,132 | ||
| Accounts receivable, net | 44,475 | 50,735 | ||||
| Inventories | 127,556 | 116,022 | ||||
| Prepaid expenses and other current assets | 23,266 | 30,815 | ||||
| Total current assets | 234,639 | 214,704 | ||||
| Property and equipment, net | 366,767 | 355,117 | ||||
| Other assets: | ||||||
| Goodwill | 777,613 | 777,613 | ||||
| Trademarks and trade names | 240,547 | 240,547 | ||||
| Other intangible assets, net | 56,940 | 64,532 | ||||
| Right of use assets | 348,090 | — | ||||
| Other assets | 8,129 | 8,876 | ||||
| Total non-current assets | 1,798,086 | 1,446,685 | ||||
| Total assets | $ | 2,032,725 | $ | 1,661,389 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 40,782 | $ | 43,642 | ||
| Other payables and accrued expenses | 82,829 | 81,004 | ||||
| Unearned revenue | 28,002 | 27,295 | ||||
| Deferred revenue | 55,870 | 52,144 | ||||
| Current maturities of long-term debt and finance lease obligations | 13,759 | 7,567 | ||||
| Current operating lease obligations | 51,937 | — | ||||
| Total current liabilities | 273,179 | 211,652 | ||||
| Long-term debt and finance lease obligations, less current portion and debt discount | 555,933 | 570,545 | ||||
| Non-current operating lease obligations | 331,769 | — | ||||
| Other non-current liabilities: | ||||||
| Deferred revenue | 21,530 | 20,134 | ||||
| Other liabilities | 13,731 | 53,964 | ||||
| Deferred income taxes, net | 60,146 | 61,940 | ||||
| Total other non-current liabilities | 95,407 | 136,038 | ||||
| Commitments and contingencies (See Note 13) | ||||||
| Stockholders’ equity: | ||||||
| Common stock, $0.01 par value; 200,000 shares authorized; 80,603 and 78,246 shares issued as of December 28, 2019 and December 29, 2018, respectively; 79,678 and 78,167 shares outstanding as of December 28, 2019 and December 29, 2018, respectively | 805 | 782 | ||||
| Additional paid-in capital | 700,121 | 672,503 | ||||
| Accumulated other comprehensive loss | (3,814 | ) | (2,810 | ) | ||
| Retained earnings | 107,132 | 74,840 | ||||
| Treasury stock, at cost; 925 and 79 shares as of December 28, 2019 and December 29, 2018, respectively | (27,807 | ) | (2,161 | ) | ||
| Total stockholders’ equity | 776,437 | 743,154 | ||||
| Total liabilities and stockholders’ equity | $ | 2,032,725 | $ | 1,661,389 |
National Vision Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months and Fiscal Years Ended December 28, 2019 and December 29, 2018
In Thousands, Except Earnings Per Share
| Three Months Ended<br>December 28, 2019<br>(Unaudited) | Three Months Ended<br>December 29, 2018<br>(Unaudited) | Fiscal Year<br>2019 | Fiscal Year<br>2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue: | ||||||||||||
| Net product sales | $ | 329,654 | $ | 292,115 | $ | 1,426,136 | $ | 1,269,612 | ||||
| Net sales of services and plans | 72,109 | 63,807 | 298,195 | 267,242 | ||||||||
| Total net revenue | 401,763 | 355,922 | 1,724,331 | 1,536,854 | ||||||||
| Costs applicable to revenue (exclusive of depreciation and amortization): | ||||||||||||
| Products | 130,175 | 121,846 | 574,351 | 511,406 | ||||||||
| Services and plans | 57,367 | 51,624 | 232,168 | 202,165 | ||||||||
| Total costs applicable to revenue | 187,542 | 173,470 | 806,519 | 713,571 | ||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative expenses | 178,044 | 166,132 | 744,488 | 687,476 | ||||||||
| Depreciation and amortization | 23,674 | 19,556 | 87,244 | 74,339 | ||||||||
| Asset impairment | 1,506 | 15,493 | 8,894 | 17,630 | ||||||||
| Other expense, net | 2,636 | 658 | 3,611 | 1,487 | ||||||||
| Total operating expenses | 205,860 | 201,839 | 844,237 | 780,932 | ||||||||
| Income (loss) from operations | 8,361 | (19,387 | ) | 73,575 | 42,351 | |||||||
| Interest expense, net | 7,397 | 9,139 | 33,300 | 37,283 | ||||||||
| Debt issuance costs | — | 200 | — | 200 | ||||||||
| Loss on extinguishment of debt | — | — | 9,786 | — | ||||||||
| Earnings (loss) before income taxes | 964 | (28,726 | ) | 30,489 | 4,868 | |||||||
| Income tax provision (benefit) | (2,956 | ) | (10,286 | ) | (2,309 | ) | (18,785 | ) | ||||
| Net income (loss) | $ | 3,920 | $ | (18,440 | ) | $ | 32,798 | $ | 23,653 | |||
| Earnings (loss) per share: | ||||||||||||
| Basic | $ | 0.05 | $ | (0.24 | ) | $ | 0.42 | $ | 0.31 | |||
| Diluted | $ | 0.05 | $ | (0.24 | ) | $ | 0.40 | $ | 0.30 | |||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 79,271 | 77,526 | 78,608 | 75,899 | ||||||||
| Diluted | 81,785 | 77,526 | 81,683 | 79,041 | ||||||||
| Comprehensive income (loss): | ||||||||||||
| Net income (loss) | $ | 3,920 | $ | (18,440 | ) | $ | 32,798 | $ | 23,653 | |||
| Unrealized gain (loss) on hedge instruments | 1,489 | (2,354 | ) | (1,350 | ) | 9,488 | ||||||
| Tax provision (benefit) of unrealized gain (loss) on hedge instruments | 382 | (603 | ) | (346 | ) | 2,430 | ||||||
| Comprehensive income (loss) | $ | 5,027 | $ | (20,191 | ) | $ | 31,794 | $ | 30,711 |
National Vision Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Fiscal Years Ended December 28, 2019 and December 29, 2018
In Thousands
| Fiscal Year<br>2019 | Fiscal Year<br>2018 | |||||
|---|---|---|---|---|---|---|
| Cash flows from operating activities: | ||||||
| Net income | $ | 32,798 | $ | 23,653 | ||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||
| Depreciation and amortization | 87,244 | 74,339 | ||||
| Amortization of loan costs | 1,289 | 1,848 | ||||
| Asset impairment | 8,894 | 17,630 | ||||
| Deferred income tax expense (benefit) | (2,378 | ) | (19,340 | ) | ||
| Stock based compensation expense | 12,670 | 20,939 | ||||
| Inventory adjustments | 4,352 | 3,868 | ||||
| Bad debt expense | 8,210 | 7,107 | ||||
| Debt issuance costs | — | 200 | ||||
| Loss on extinguishment of debt | 9,786 | — | ||||
| Other | 5,309 | 2,413 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable, net | (6,925 | ) | (14,649 | ) | ||
| Inventories | (15,886 | ) | (28,739 | ) | ||
| Other assets | 10,103 | (7,011 | ) | |||
| Accounts payable | (2,860 | ) | 7,934 | |||
| Deferred revenue | 5,122 | 3,839 | ||||
| Other liabilities | 7,353 | 12,597 | ||||
| Net cash provided by operating activities | 165,081 | 106,628 | ||||
| Cash flows from investing activities: | ||||||
| Purchase of property and equipment | (101,325 | ) | (104,493 | ) | ||
| Other | 694 | 272 | ||||
| Net cash used for investing activities | (100,631 | ) | (104,221 | ) | ||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of long-term debt, net of discounts | 566,550 | 200,000 | ||||
| Proceeds from issuance of common stock | 14,767 | 19,802 | ||||
| Principal payments on long-term debt | (591,925 | ) | (204,275 | ) | ||
| Purchase of treasury stock | (25,646 | ) | (1,928 | ) | ||
| Payments on finance lease obligations | (2,957 | ) | (1,802 | ) | ||
| Payments of debt issuance costs | (2,930 | ) | (1,400 | ) | ||
| Net cash provided by (used for) financing activities | (42,141 | ) | 10,397 | |||
| Net change in cash, cash equivalents and restricted cash | 22,309 | 12,804 | ||||
| Cash and cash equivalents and restricted cash, beginning of year | 17,998 | 5,194 | ||||
| Cash and cash equivalents and restricted cash, end of year | $ | 40,307 | $ | 17,998 | ||
| Supplemental cash flow information: | ||||||
| Cash paid for interest | 33,935 | 33,469 | ||||
| Cash paid for taxes | 684 | 1,447 | ||||
| Capital expenditures accrued at the end of the period | 9,059 | 14,078 | ||||
| Right of use assets acquired under finance leases | 9,713 | 14,303 | ||||
| Right of use assets acquired under operating leases | 108,712 | — | ||||
| Non-cash issuance of common shares | — | 446 | ||||
| Non-cash purchase of treasury stock | — | (446 | ) |
The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of cash, cash equivalents and restricted cash shown above:
| Fiscal Year<br>2019 | Fiscal Year<br>2018 | |||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 39,342 | $ | 17,132 |
| Restricted cash included in other assets | 965 | 866 | ||
| Total cash, cash equivalents and restricted cash | $ | 40,307 | $ | 17,998 |
National Vision Holdings, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Financial Measures
For the Three Months and Fiscal Years Ended December 28, 2019 and December 29, 2018
In Thousands, Except Earnings Per Share
(Unaudited)
Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to Net Income
| In thousands | Three Months Ended December 28, 2019 | Three Months Ended December 29, 2018 | Fiscal Year<br>2019 | Fiscal Year<br>2018 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 3,920 | 1.0% | $ | (18,440 | ) | (5.2)% | $ | 32,798 | 1.9% | $ | 23,653 | 1.5% | |||
| Interest expense | 7,397 | 1.8% | 9,139 | 2.6% | 33,300 | 1.9% | 37,283 | 2.4% | ||||||||
| Income tax provision (benefit) | (2,956 | ) | (0.7)% | (10,286 | ) | (2.9)% | (2,309 | ) | (0.1)% | (18,785 | ) | (1.2)% | ||||
| Depreciation and amortization | 23,674 | 5.9% | 19,556 | 5.5% | 87,244 | 5.1% | 74,339 | 4.8% | ||||||||
| EBITDA | 32,035 | 8.0% | (31 | ) | 0.0% | 151,033 | 8.8% | 116,490 | 7.6% | |||||||
| Stock compensation expense ^(a)^ | 1,830 | 0.5% | 7,190 | 2.0% | 12,670 | 0.7% | 20,939 | 1.4% | ||||||||
| Debt issuance costs ^(b)^ | — | —% | 200 | 0.1% | — | —% | 200 | —% | ||||||||
| Loss on extinguishment of debt ^(c)^ | — | —% | — | —% | 9,786 | 0.6% | — | —% | ||||||||
| Asset impairment ^(d)^ | 1,506 | 0.4% | 15,493 | 4.4% | 8,894 | 0.5% | 17,630 | 1.1% | ||||||||
| New store pre-opening expenses ^(e)^ | 473 | 0.1% | 487 | 0.1% | 3,334 | 0.2% | 2,229 | 0.1% | ||||||||
| Non-cash rent ^(f)^ | 823 | 0.2% | 867 | 0.2% | 3,208 | 0.2% | 2,801 | 0.2% | ||||||||
| Secondary offering expenses ^(g)^ | — | —% | 609 | 0.2% | 401 | 0.0% | 2,451 | 0.2% | ||||||||
| Management realignment expenses ^(h)^ | — | —% | — | —% | 2,155 | 0.1% | — | —% | ||||||||
| Long-term incentive plan^(i)^ | 941 | 0.2% | 2,429 | 0.7% | 2,830 | 0.2% | 7,040 | 0.5% | ||||||||
| Other ^(j)^ | 1,999 | 0.5% | 1,473 | 0.4% | 6,370 | 0.4% | 4,585 | 0.3% | ||||||||
| Adjusted EBITDA/ Adjusted EBITDA Margin | $ | 39,607 | 9.9% | $ | 28,717 | 8.1% | $ | 200,681 | 11.6% | $ | 174,365 | 11.3% |
Note: Percentages reflect line item as a percentage of net revenue
Reconciliation of Adjusted Net Income to Net Income
| In thousands | Three Months Ended December 28, 2019 | Three Months Ended December 29, 2018 | Fiscal Year<br>2019 | Fiscal Year<br>2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 3,920 | $ | (18,440 | ) | $ | 32,798 | $ | 23,653 | |||
| Stock compensation expense ^(a)^ | 1,830 | 7,190 | 12,670 | 20,939 | ||||||||
| Debt issuance costs ^(b)^ | — | 200 | — | 200 | ||||||||
| Loss on extinguishment of debt^(c)^ | — | — | 9,786 | — | ||||||||
| Asset impairment ^(d)^ | 1,506 | 15,493 | 8,894 | 17,630 | ||||||||
| New store pre-opening expenses ^(e)^ | 473 | 487 | 3,334 | 2,229 | ||||||||
| Non-cash rent ^(f)^ | 823 | 867 | 3,208 | 2,801 | ||||||||
| Secondary offering expenses ^(g)^ | — | 609 | 401 | 2,451 | ||||||||
| Management realignment expenses ^(h)^ | — | — | 2,155 | — | ||||||||
| Long-term incentive plan^(i)^ | 941 | 2,429 | 2,830 | 7,040 | ||||||||
| Other ^(j)^ | 1,999 | 1,473 | 6,370 | 4,585 | ||||||||
| Amortization of acquisition intangibles and deferred financing costs ^(k)^ | 2,069 | 2,412 | 8,694 | 9,253 | ||||||||
| Tax benefit of stock option exercises^(l)^ | (2,406 | ) | (7,578 | ) | (10,089 | ) | (25,544 | ) | ||||
| Tax effect of total adjustments ^(m)^ | (2,466 | ) | (4,102 | ) | (14,933 | ) | (13,309 | ) | ||||
| Adjusted Net Income | $ | 8,689 | $ | 1,040 | $ | 66,118 | $ | 51,928 |
Reconciliation of Adjusted Diluted EPS to Diluted EPS
| In thousands | Three Months Ended December 28, 2019 | Three Months Ended December 29, 2018 | Fiscal Year<br>2019 | Fiscal Year<br>2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Diluted EPS | $ | 0.05 | $ | (0.24 | ) | $ | 0.40 | $ | 0.30 | |||
| Stock compensation expense ^(a)^ | 0.02 | 0.09 | 0.16 | 0.26 | ||||||||
| Debt issuance costs ^(b)^ | 0.00 | — | 0.00 | — | ||||||||
| Loss on extinguishment of debt^(c)^ | 0.00 | 0.00 | 0.12 | 0.00 | ||||||||
| Asset impairment ^(d)^ | 0.02 | 0.20 | 0.11 | 0.22 | ||||||||
| New store pre-opening expenses ^(e)^ | 0.01 | 0.01 | 0.04 | 0.03 | ||||||||
| Non-cash rent ^(f)^ | 0.01 | 0.01 | 0.04 | 0.04 | ||||||||
| Secondary offering expenses ^(g)^ | — | 0.01 | — | 0.03 | ||||||||
| Management realignment expenses ^(h)^ | — | — | 0.03 | — | ||||||||
| Long-term incentive plan^(i)^ | 0.01 | 0.03 | 0.03 | 0.09 | ||||||||
| Other ^(j)^ | 0.02 | 0.02 | 0.08 | 0.06 | ||||||||
| Amortization of acquisition intangibles and deferred financing costs ^(k)^ | 0.03 | 0.03 | 0.11 | 0.12 | ||||||||
| Tax benefit of stock option exercises^(l)^ | (0.03 | ) | (0.10 | ) | (0.12 | ) | (0.32 | ) | ||||
| Tax effect of total adjustments ^(m)^ | (0.03 | ) | (0.05 | ) | (0.18 | ) | (0.17 | ) | ||||
| Adjusted Diluted EPS | $ | 0.11 | $ | 0.01 | $ | 0.81 | $ | 0.66 | ||||
| Weighted average diluted shares outstanding | 81,785 | 77,526 | 81,683 | 79,041 | ||||||||
| Note: Some of the totals in the table above do not foot due to rounding differences |
Reconciliation of Adjusted SG&A and Adjusted SG&A Percent of Revenue to SG&A
| In thousands | Three Months Ended December 28, 2019 | Three Months Ended December 29, 2018 | Fiscal Year<br>2019 | Fiscal Year<br>2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SG&A | $ | 178,044 | 44.3% | $ | 166,132 | 46.7% | $ | 744,488 | 43.2% | $ | 687,476 | 44.7 | % |
| Stock compensation expense^(a)^ | 1,830 | 0.5% | 7,190 | 2.0% | 12,670 | 0.7% | 20,939 | 1.4 | % | ||||
| New store pre-opening expenses ^(e)^ | 473 | 0.1% | 487 | 0.1% | 3,334 | 0.2% | 2,229 | 0.1 | % | ||||
| Non-cash rent ^(f)^ | 823 | 0.2% | 867 | 0.2% | 3,208 | 0.2% | 2,801 | 0.2 | % | ||||
| Secondary offering expenses^(g)^ | — | —% | 609 | 0.2% | 401 | —% | 2,451 | 0.2 | % | ||||
| Management realignment expenses ^(h)^ | — | —% | — | —% | 2,155 | 0.1% | — | — | % | ||||
| Long-term incentive plan ^(i)^ | 941 | 0.2% | 2,429 | 0.7% | 2,830 | 0.2% | 7,040 | 0.5 | % | ||||
| Other ^(n)^ | 1,432 | 0.4% | 784 | 0.2% | 4,565 | 0.3% | 2,591 | 0.2 | % | ||||
| Adjusted SG&A/ Adjusted SG&A Percent of Net Revenue | $ | 172,545 | 42.9% | $ | 153,766 | 43.2% | $ | 715,325 | 41.5% | $ | 649,425 | 42.3 | % |
| (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) | For the three months ended December 29, 2018 and fiscal year 2018, fees associated with the issuance of new term loans. | ||||||||||||
| --- | --- | ||||||||||||
| (c) | For fiscal year 2019, reflects write-off of deferred financing fees related to the extinguishment of debt. | ||||||||||||
| --- | --- | ||||||||||||
| (d) | Reflects write-off of property and equipment and lease-related assets on closed or underperforming stores for the three months ended December 28, 2019 and fiscal year 2019; additionally reflects non-cash charges related to impairment of long-lived assets, primarily goodwill in our Military and Fred Meyer brands for the three months ended December 29, 2018 and fiscal year 2018. | ||||||||||||
| --- | --- | ||||||||||||
| (e) | 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, are not indicative of ongoing core operating performance. We adjust for these costs to facilitate comparisons of store operating performance from period to period. | ||||||||||||
| --- | --- | ||||||||||||
| (f) | 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. | ||||||||||||
| --- | --- | ||||||||||||
| (g) | Expenses related to our secondary public offerings during fiscal years 2018 and 2019. | ||||||||||||
| --- | --- | ||||||||||||
| (h) | 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. | ||||||||||||
| --- | --- | ||||||||||||
| (i) | Expenses pursuant to a long-term incentive plan for non-executive employees who were not participants in the management equity plan for fiscal year 2019. This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co. Inc. (the "KKR Acquisition"). During the third quarter of fiscal year 2018, $4.6 million cash payout was triggered as a result of the second secondary offering of common stock by KKR Sponsor and other selling shareholders. The remaining $2.4 million relates to the third secondary offering and is accrued but not paid as of fiscal year end 2018. | ||||||||||||
| --- | --- | ||||||||||||
| (j) | Other adjustments include the following 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 $0.6 million and $0.3 million for the three months ended December 28, 2019 and December 29, 2018, and $1.8 million and $1.3 million for fiscal years 2019 and 2018, respectively; the amortization impact of the KKR Acquisition-related adjustments (e.g., fair value of leasehold interests) of $0.2 million, $0.1 million, $0.5 million and $0.4 million for the three months ended December 28, 2019 and December 29, 2018; differences between the timing of expense versus cash payments related to contributions to charitable organizations of $(0.2) million for three months ended December 29, 2018 and $(1.0) million for the fiscal year 2018; costs of severance and relocation of $0.6 million, $0.1 million, $2.3 million and $1.0 million for the three months ended December 28, 2019 and December 29, 2018 and fiscal years 2019 and 2018, respectively; excess payroll taxes related to stock option exercises of $0.2 million and $0.6 million for the three months ended December 28, 2019 and December 29, 2018, respectively and $0.8 million and $1.8 million for fiscal year 2019 and 2018, respectively; and other expenses and adjustments totaling $0.4 million and $0.6 million for the three months ended December 28, 2019 and December 29, 2018, respectively and $1.0 million and $1.1 million for fiscal years 2019 and 2018, respectively. | ||||||||||||
| --- | --- | ||||||||||||
| (k) | 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 December 28, 2019 and December 29, 2018 and $7.4 million for each of the fiscal years 2019 and 2018; and Amortization of debt discounts 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 $0.5 million of additional expense for the three months ended December 28, 2019 and December 29, 2018, respectively and $1.3 million and $1.9 million of additional expense for fiscal years 2019 and 2018, respectively. | ||||||||||||
| --- | --- | ||||||||||||
| (l) | 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. | ||||||||||||
| --- | --- | ||||||||||||
| (m) | Represents the income tax effect of the total adjustments, at our combined statutory federal and state income tax rates. | ||||||||||||
| --- | --- | ||||||||||||
| (n) | Reflects other expenses in (j) above, except for our share of losses on equity method investments of $0.6 million and $0.3 million for the three months ended December 28, 2019 and December 29, 2018 and $1.8 million and $1.3 million for fiscal year 2019 and 2018, respectively; and facility opening expenses of $0.4 million for the three months ended December 29, 2018 and $0.7 million for fiscal year 2018, respectively; which are non-SG&A expenses. | ||||||||||||
| --- | --- |
Reconciliation of Adjusted Comparable Store Sales Growth to Total Comparable Store Sales Growth
| Comparable store sales growth ^(a)^ | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended<br>December 28, 2019 | Three Months Ended<br>December 29, 2018 | Fiscal Year<br>2019 | Fiscal Year<br>2018 | 2020 Outlook | |||||
| Owned & host segment | |||||||||
| America’s Best | 9.0 | % | 5.9 | % | 7.1 | % | 7.2 | % | |
| Eyeglass World | 6.4 | % | 2.3 | % | 5.8 | % | 6.8 | % | |
| Military | 9.9 | % | (19.4 | )% | 1.4 | % | (5.7 | )% | |
| Fred Meyer | 1.1 | % | (13.5 | )% | (4.4 | )% | (2.2 | )% | |
| Legacy segment ^(b)^ | 5.1 | % | (5.6 | )% | 3.1 | % | 0.6 | % | |
| Total comparable store sales growth | 10.1 | % | 4.3 | % | 6.5 | % | 6.7 | % | 3.5 - 5.5% |
| Adjusted Comparable Store Sales Growth^(c)^ | 8.1 | % | 2.9 | % | 6.2 | % | 5.7 | % | 3 - 5% |
| (a) | Total comparable store sales is calculated 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 Chief Operating Decision Maker reviews, and consistent with reportable segment revenues presented in Note 16. "Segment Reporting" in our consolidated financial statements, with the exception of the Legacy segment, which is adjusted as noted in (c) (ii) below. | ||||||||
| --- | --- | ||||||||
| (b) | As a result of changes in applicable California law, certain optometrists employed by FirstSight Vision Services Inc. (“FirstSight”) were transferred to a professional corporation that contracts directly with our legacy segment in the fourth quarter of 2018, similar to optometrist transfers that occurred in the third quarter of 2017. Incremental eye exam revenue as a result of these changes in operations at FirstSight drove a favorable impact to comparable store sales growth in the Legacy segment of approximately 140 basis points for the three months ended December 28, 2019, and favorable impact of 180 basis points and 120 basis points for fiscal year 2019 and fiscal year 2018, respectively. | ||||||||
| --- | --- | ||||||||
| (c) | The differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth are: (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 1.9% and 1.1% from total comparable store sales growth based on consolidated net revenue for the three months ended December 28, 2019 and December 29, 2018, respectively, and a decrease of 0.1% and 0.8% from total comparable store sales growth based on consolidated net revenue for fiscal year 2019 and fiscal year 2018, respectively, (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), resulting in a decrease of 0.1% and 0.3% from total comparable store sales growth based on consolidated net revenue for the three months ended December 28, 2019 and December 29, 2018, respectively, and a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for each of the fiscal years 2019 and 2018, and (iii) with respect to the Company's 2020 Outlook, Adjusted Comparable Store Sales Growth includes an estimated 0.5% impact for the effect of deferred and unearned income as if such revenues were earned at the point of sale and retail sales to the Legacy partner's customers (rather than the revenues recognized consistent with the management & services agreement). | ||||||||
| --- | --- |
Investors:
National Vision Holdings, Inc.
David Mann, CFA, Vice President of Investor Relations
(470) 448-2448
investor.relations@nationalvision.com
Media:
National Vision Holdings, Inc.
Kristina Gross, Vice President of Communications
(470) 448-2355
media@nationalvision.com
Exhibit
National Vision Holdings, Inc. and Subsidiaries
Reconciliation of GAAP and Non-GAAP Financial Measures
Reconciliation of Adjusted Operating Income to Operating Income (new non-GAAP measure)
For the Three Months and Fiscal Years Ended December 28, 2019 and December 29, 2018
In Thousands, Except Earnings Per Share
(Unaudited)
| Dollars in thousands | Three Months Ended <br>Mar 31, 2018 | Three Months Ended <br>Jun 30, 2018 | Three Months Ended <br>Sep 29, 2018 | Three Months Ended <br>Dec 29, 2018 | Fiscal Year 2018 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating income (loss) | $ | 38,848 | 9.5% | $ | 24,973 | 6.5% | $ | (2,083 | ) | (0.5)% | $ | (19,387 | ) | (5.4)% | $ | 42,351 | 2.8 | % |
| Stock compensation expense ^(a)^ | 1,596 | 0.4% | 1,524 | 0.4% | 10,629 | 2.7% | 7,190 | 2.0% | 20,939 | 1.4 | % | |||||||
| Asset impairment ^(d)^ | — | —% | — | —% | 2,137 | 0.6% | 15,493 | 4.4% | 17,630 | 1.1 | % | |||||||
| Secondary offering expenses ^(g)^ | 963 | 0.2% | 177 | —% | 702 | 0.2% | 609 | 0.2% | 2,451 | 0.2 | % | |||||||
| Management realignment expenses ^(h)^ | — | —% | — | —% | — | —% | — | —% | — | — | % | |||||||
| Long-term incentive plan ^(i)^ | — | —% | — | —% | 4,611 | 1.2% | 2,429 | 0.7% | 7,040 | 0.5 | % | |||||||
| Other ^(j)^ | 459 | 0.1% | 726 | 0.2% | 1,927 | 0.5% | 1,473 | 0.4% | 4,585 | 0.3 | % | |||||||
| Amortization of acquisition intangibles ^(o)^ | 1,851 | 0.5% | 1,851 | 0.5% | 1,851 | 0.5% | 1,852 | 0.5% | 7,405 | 0.5 | % | |||||||
| Adjusted Operating Income / Adjusted Operating Margin | $ | 43,717 | 10.7% | $ | 29,251 | 7.6% | $ | 19,774 | 5.1% | $ | 9,659 | 2.7% | $ | 102,401 | 6.7 | % | ||
| Dollars in thousands | Three Months Ended <br>Mar 30, 2019 | Three Months Ended <br>Jun 29, 2019 | Three Months Ended <br>Sep 28, 2019 | Three Months Ended <br>Dec 28, 2019 | Fiscal Year 2019 | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||
| Operating income (loss) | $ | 32,400 | 7.0% | $ | 21,702 | 5.1% | $ | 11,112 | 2.6% | $ | 8,361 | 2.1% | $ | 73,575 | 4.3 | % | ||
| Stock compensation expense ^(a)^ | 2,976 | 0.6% | 1,741 | 0.4% | 6,123 | 1.4% | 1,830 | 0.5% | 12,670 | 0.7 | % | |||||||
| Asset impairment ^(d)^ | 2,082 | 0.5% | 1,790 | 0.4% | 3,516 | 0.8% | 1,506 | 0.4% | 8,894 | 0.5 | % | |||||||
| Secondary offering expenses ^(g)^ | — | —% | — | —% | 401 | 0.1% | — | —% | 401 | — | % | |||||||
| Management realignment expenses ^(h)^ | 2,155 | 0.5% | — | —% | — | —% | — | —% | 2,155 | 0.1 | % | |||||||
| Long-term incentive plan ^(i)^ | — | —% | 781 | 0.2% | 1,108 | 0.3% | 941 | 0.2% | 2,830 | 0.2 | % | |||||||
| Other ^(j)^ | 1,192 | 0.3% | 1,223 | 0.3% | 1,956 | 0.5% | 1,999 | 0.5% | 6,370 | 0.4 | % | |||||||
| Amortization of acquisition intangibles ^(o)^ | 1,851 | 0.4% | 1,851 | 0.4% | 1,851 | 0.4% | 1,852 | 0.5% | 7,405 | 0.4 | % | |||||||
| Adjusted Operating Income / Adjusted Operating Margin | $ | 42,656 | 9.2% | $ | 29,088 | 6.8% | $ | 26,067 | 6.0% | $ | 16,489 | 4.1% | $ | 114,300 | 6.6 | % |
Reconciliation of Adjusted EBITDA to Net Income (2019 Definition and 2020 Definition) (Unaudited)
| Dollars in thousands | Three Months Ended <br>Mar 31, 2018 | Three Months Ended <br>Jun 30, 2018 | Three Months Ended <br>Sep 29, 2018 | Three Months Ended <br>Dec 29, 2018 | Fiscal Year 2018 | Three Months Ended <br>Mar 30, 2019 | Three Months Ended <br>Jun 29, 2019 | Three Months Ended <br>Sep 28, 2019 | Three Months Ended <br>Dec 28, 2019 | Fiscal Year 2019 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 24,455 | $ | 12,467 | $ | 5,171 | $ | (18,440 | ) | $ | 23,653 | $ | 17,429 | $ | 10,257 | $ | 1,192 | $ | 3,920 | $ | 32,798 | |||||||||
| Interest expense | 9,313 | 9,424 | 9,407 | 9,139 | 37,283 | 9,061 | 8,968 | 7,873 | 7,397 | 33,300 | ||||||||||||||||||||
| Income tax benefit | 5,080 | 3,082 | (16,661 | ) | (10,286 | ) | (18,785 | ) | 5,910 | 2,477 | (7,739 | ) | (2,956 | ) | (2,309 | ) | ||||||||||||||
| Depreciation and amortization | 17,862 | 17,577 | 19,344 | 19,556 | 74,339 | 20,415 | 20,819 | 22,336 | 23,674 | 87,244 | ||||||||||||||||||||
| EBITDA | 56,710 | 42,550 | 17,261 | (31 | ) | 116,490 | 52,815 | 42,521 | 23,662 | 32,035 | 151,033 | |||||||||||||||||||
| Stock compensation expense ^(a)^ | 1,596 | 1,524 | 10,629 | 7,190 | 20,939 | 2,976 | 1,741 | 6,123 | 1,830 | 12,670 | ||||||||||||||||||||
| Debt issuance costs ^(b)^ | — | — | — | 200 | 200 | — | — | — | — | — | ||||||||||||||||||||
| Loss on extinguishment of debt ^(c)^ | — | — | — | — | — | — | — | 9,786 | — | 9,786 | ||||||||||||||||||||
| Asset impairment ^(d)^ | — | — | 2,137 | 15,493 | 17,630 | 2,082 | 1,790 | 3,516 | 1,506 | 8,894 | ||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | 474 | 756 | 512 | 487 | 2,229 | 885 | 1,128 | 848 | 473 | 3,334 | ||||||||||||||||||||
| Non-cash rent ^(f)^ | 528 | 745 | 661 | 867 | 2,801 | 1,198 | 650 | 537 | 823 | 3,208 | ||||||||||||||||||||
| Secondary offering expenses ^(g)^ | 963 | 177 | 702 | 609 | 2,451 | — | — | 401 | — | 401 | ||||||||||||||||||||
| Management realignment expenses^(h)^ | — | — | — | — | — | 2,155 | — | — | — | 2,155 | ||||||||||||||||||||
| Long-term incentive plan^(i)^ | — | — | 4,611 | 2,429 | 7,040 | — | 781 | 1,108 | 941 | 2,830 | ||||||||||||||||||||
| Other^(j)^ | 459 | 726 | 1,927 | 1,473 | 4,585 | 1,192 | 1,223 | 1,956 | 1,999 | 6,370 | ||||||||||||||||||||
| Adjusted EBITDA - 2019 Definition | $ | 60,730 | $ | 46,478 | $ | 38,440 | $ | 28,717 | $ | 174,365 | $ | 63,303 | $ | 49,834 | $ | 47,937 | $ | 39,607 | $ | 200,681 | ||||||||||
| No longer adjusting for: | ||||||||||||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | (474 | ) | (756 | ) | (512 | ) | (487 | ) | (2,229 | ) | (885 | ) | (1,128 | ) | (848 | ) | (473 | ) | (3,334 | ) | ||||||||||
| Non-cash rent ^(f)^ | (528 | ) | (745 | ) | (661 | ) | (867 | ) | (2,801 | ) | (1,198 | ) | (650 | ) | (537 | ) | (823 | ) | (3,208 | ) | ||||||||||
| Adjusted EBITDA - 2020 Definition | $ | 59,728 | $ | 44,977 | $ | 37,267 | $ | 27,363 | $ | 169,335 | $ | 61,220 | $ | 48,056 | $ | 46,552 | $ | 38,311 | $ | 194,139 |
Reconciliation of Adjusted Net Income to Net Income (2019 Definition and 2020 Definition) (Unaudited)
| in thousands (except for Diluted EPS) | Three Months Ended <br>Mar 31, 2018 | Three Months Ended <br>Jun 30, 2018 | Three Months Ended <br>Sep 29, 2018 | Three Months Ended <br>Dec 29, 2018 | Fiscal Year 2018 | Three Months Ended <br>Mar 30, 2019 | Three Months Ended <br>Jun 29, 2019 | Three Months Ended <br>Sep 28, 2019 | Three Months Ended <br>Dec 28, 2019 | Fiscal Year 2019 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 24,455 | $ | 12,467 | $ | 5,171 | $ | (18,440 | ) | $ | 23,653 | $ | 17,429 | $ | 10,257 | $ | 1,192 | $ | 3,920 | $ | 32,798 | |||||||||
| Stock compensation expense ^(a)^ | 1,596 | 1,524 | 10,629 | 7,190 | 20,939 | 2,976 | 1,741 | 6,123 | 1,830 | 12,670 | ||||||||||||||||||||
| Debt issuance costs ^(b)^ | — | — | — | 200 | 200 | — | — | — | — | — | ||||||||||||||||||||
| Loss on extinguishment of debt^(c)^ | — | — | — | — | — | — | — | 9,786 | — | 9,786 | ||||||||||||||||||||
| Asset impairment ^(d)^ | — | — | 2,137 | 15,493 | 17,630 | 2,082 | 1,790 | 3,516 | 1,506 | 8,894 | ||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | 474 | 756 | 512 | 487 | 2,229 | 885 | 1,128 | 848 | 473 | 3,334 | ||||||||||||||||||||
| Non-cash rent ^(f)^ | 528 | 745 | 661 | 867 | 2,801 | 1,198 | 650 | 537 | 823 | 3,208 | ||||||||||||||||||||
| Secondary offering expenses ^(g)^ | 963 | 177 | 702 | 609 | 2,451 | — | — | 401 | — | 401 | ||||||||||||||||||||
| Management realignment expenses ^(h)^ | — | — | — | — | — | 2,155 | — | — | — | 2,155 | ||||||||||||||||||||
| Long-term incentive plan ^(i)^ | — | — | 4,611 | 2,429 | 7,040 | — | 781 | 1,108 | 941 | 2,830 | ||||||||||||||||||||
| Other ^(j)^ | 459 | 726 | 1,927 | 1,473 | 4,585 | 1,192 | 1,223 | 1,956 | 1,999 | 6,370 | ||||||||||||||||||||
| Amortization of acquisition intangibles and deferred financing costs ^(k)^ | 2,281 | 2,281 | 2,279 | 2,412 | 9,253 | 2,258 | 2,336 | 2,031 | 2,069 | 8,694 | ||||||||||||||||||||
| Tax benefit of stock option exercises ^(l)^ | (2,695 | ) | (1,371 | ) | (13,900 | ) | (7,578 | ) | (25,544 | ) | (230 | ) | (1,150 | ) | (6,303 | ) | (2,406 | ) | (10,089 | ) | ||||||||||
| Tax effect of total adjustments ^(m)^ | (1,613 | ) | (1,589 | ) | (6,005 | ) | (4,102 | ) | (13,309 | ) | (3,263 | ) | (2,470 | ) | (6,734 | ) | (2,466 | ) | (14,933 | ) | ||||||||||
| Adjusted Net Income - 2019 Definition | $ | 26,448 | $ | 15,716 | $ | 8,724 | $ | 1,040 | $ | 51,928 | $ | 26,682 | $ | 16,286 | $ | 14,461 | $ | 8,689 | $ | 66,118 | ||||||||||
| No longer adjusting for: | ||||||||||||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | (474 | ) | (756 | ) | (512 | ) | (487 | ) | (2,229 | ) | (885 | ) | (1,128 | ) | (848 | ) | (473 | ) | (3,334 | ) | ||||||||||
| Non-cash rent ^(f)^ | (528 | ) | (745 | ) | (661 | ) | (867 | ) | (2,801 | ) | (1,198 | ) | (650 | ) | (537 | ) | (823 | ) | (3,208 | ) | ||||||||||
| Associated tax effect | 257 | 384 | 300 | 347 | 1,288 | 533 | 455 | 355 | 332 | 1,675 | ||||||||||||||||||||
| Adjusted Net Income - 2020 Definition | $ | 25,703 | $ | 14,599 | $ | 7,851 | $ | 33 | $ | 48,186 | $ | 25,132 | $ | 14,963 | $ | 13,431 | $ | 7,725 | $ | 61,251 |
Reconciliation of Adjusted Diluted EPS to Diluted EPS (2019 Definition and 2020 Definition) (Unaudited)
| Three Months Ended <br>Mar 31, 2018 | Three Months Ended <br>Jun 30, 2018 | Three Months Ended <br>Sep 29, 2018 | Three Months Ended <br>Dec 29, 2018 | Fiscal Year 2018 | Three Months Ended <br>Mar 30, 2019 | Three Months Ended <br>Jun 29, 2019 | Three Months Ended <br>Sep 28, 2019 | Three Months Ended <br>Dec 28, 2019 | Fiscal Year 2019 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Diluted EPS | $ | 0.31 | $ | 0.16 | $ | 0.06 | $ | (0.24 | ) | $ | 0.30 | $ | 0.21 | $ | 0.13 | $ | 0.01 | $ | 0.05 | $ | 0.40 | |||||||||
| Stock compensation expense ^(a)^ | 0.02 | 0.02 | 0.13 | 0.09 | 0.26 | 0.04 | 0.02 | 0.08 | 0.02 | 0.16 | ||||||||||||||||||||
| Debt issuance costs ^(b)^ | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Loss on extinguishment of debt^(c)^ | — | — | — | — | — | — | — | 0.12 | — | 0.12 | ||||||||||||||||||||
| Asset impairment ^(d)^ | — | — | 0.03 | 0.20 | 0.22 | 0.03 | 0.02 | 0.04 | 0.02 | 0.11 | ||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | 0.01 | 0.01 | 0.01 | 0.01 | 0.03 | 0.01 | 0.01 | 0.01 | 0.01 | 0.04 | ||||||||||||||||||||
| Non-cash rent ^(f)^ | 0.01 | 0.01 | 0.01 | 0.01 | 0.04 | 0.01 | 0.01 | 0.01 | 0.01 | 0.04 | ||||||||||||||||||||
| Secondary offering expenses^(g)^ | 0.01 | — | 0.01 | 0.01 | 0.03 | — | — | — | — | — | ||||||||||||||||||||
| Management realignment expenses ^(h)^ | — | — | — | — | — | 0.03 | — | — | — | 0.03 | ||||||||||||||||||||
| Long-term incentive plan ^(i)^ | — | — | 0.06 | 0.03 | 0.09 | — | 0.01 | 0.01 | 0.01 | 0.03 | ||||||||||||||||||||
| Other ^(j)^ | 0.01 | 0.01 | 0.02 | 0.02 | 0.06 | 0.01 | 0.02 | 0.02 | 0.02 | 0.08 | ||||||||||||||||||||
| Amortization of acquisition intangibles and deferred financing costs ^(k)^ | 0.03 | 0.03 | 0.03 | 0.03 | 0.12 | 0.03 | 0.03 | 0.02 | 0.03 | 0.11 | ||||||||||||||||||||
| Tax benefit of stock option exercises ^(l)^ | (0.03 | ) | (0.02 | ) | (0.17 | ) | (0.10 | ) | (0.32 | ) | — | (0.01 | ) | (0.08 | ) | (0.03 | ) | (0.12 | ) | |||||||||||
| Tax effect of total adjustments ^(m)^ | (0.02 | ) | (0.02 | ) | (0.08 | ) | (0.05 | ) | (0.17 | ) | (0.04 | ) | (0.03 | ) | (0.08 | ) | (0.03 | ) | (0.18 | ) | ||||||||||
| Adjusted Diluted EPS - 2019 Definition | $ | 0.34 | $ | 0.20 | $ | 0.11 | $ | 0.01 | $ | 0.66 | $ | 0.33 | $ | 0.20 | $ | 0.18 | $ | 0.11 | $ | 0.81 | ||||||||||
| No longer adjusting for: | ||||||||||||||||||||||||||||||
| New store pre-opening expenses ^(e)^ | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.03 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.04 | ) | ||||||||||
| Non-cash rent ^(f)^ | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.04 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.04 | ) | ||||||||||
| Associated tax effect | 0.01 | 0.01 | 0.01 | 0.01 | 0.02 | — | — | — | — | 0.02 | ||||||||||||||||||||
| Adjusted Diluted EPS - 2020 Definition | $ | 0.33 | $ | 0.19 | $ | 0.10 | $ | — | $ | 0.61 | $ | 0.31 | $ | 0.18 | $ | 0.16 | $ | 0.09 | $ | 0.75 | ||||||||||
| Weighted average diluted shares outstanding | 77,837 | 77,858 | 79,710 | 77,526 | 79,041 | 81,466 | 81,424 | 81,561 | 81,785 | 81,683 |
Note: Some of the totals in the table above do not foot due to rounding differences
Reconciliation of Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted
Diluted EPS Footnotes
| (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) | Fees associated with the issuance of the new term loans. |
| --- | --- |
| (c) | For fiscal year 2019, reflects write-off of deferred financing fees related to the extinguishment of debt. |
| --- | --- |
| (d) | Reflects write-off of property and equipment and lease-related assets on closed or underperforming stores; additionally reflects non-cash charges related to impairment of long-lived assets, primarily goodwill in our Military and Fred Meyer brands for the three months ended December 29, 2018 and fiscal year 2018. |
| --- | --- |
| (e) | 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. |
| --- | --- |
| (f) | 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. |
| --- | --- |
| (g) | Expenses related to our secondary public offerings during fiscal years 2018 and 2019. |
| --- | --- |
| (h) | Expenses related to a non-recurring management realignment described in our Form 8-K filed with the SEC on January 10, 2019. |
| --- | --- |
| (i) | Expenses pursuant to a long-term incentive plan for non-executive employees who were not participants in the management equity plan for fiscal year 2019. This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co. Inc. (the "KKR Acquisition"). During the third quarter of fiscal year 2018, $4.6 million cash payout was triggered as a result of the second secondary offering of common stock by KKR and other selling shareholders. The remaining $2.4 million relates to the third secondary offering and is accrued but not paid as of fiscal year end 2018. |
| --- | --- |
| (j) | Other adjustments include the following 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 $0.6 million and $0.3 million for the three months ended December 28, 2019 and December 29, 2018, and $1.8 million and $1.3 million for fiscal years 2019 and 2018, respectively; the amortization impact of the KKR Acquisition-related adjustments (e.g., fair value of leasehold interests) of $0.2 million, $0.1 million, $0.5 million and $0.4 million for the three months ended December 28, 2019 and December 29, 2018; differences between the timing of expense versus cash payments related to contributions to charitable organizations of $(0.2) million for three months ended December 29, 2018 and $(1.0) million for the fiscal year 2018; costs of severance and relocation of $0.6 million, $0.1 million, $2.3 million and $1.0 million for the three months ended December 28, 2019 and December 29, 2018 and fiscal years 2019 and 2018, respectively; excess payroll taxes related to stock option exercises of $0.2 million and $0.6 million for the three months ended December 28, 2019 and December 29, 2018, respectively and $0.8 million and $1.8 million for fiscal year 2019 and 2018, respectively; and other expenses and adjustments totaling $0.4 million and $0.6 million for the three months ended December 28, 2019 and December 29, 2018, respectively and $1.0 million and $1.1 million for fiscal years 2019 and 2018, respectively. Refer to our Form 8-Ks filed with the SEC on May 9, 2019, August 6, 2019 and November 7, 2019 for information on adjustments recognized in the other periods presented. |
| --- | --- |
| (k) | 1) Amortization of the increase in carrying values of finite-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 December 28, 2019 and December 29, 2018 and $7.4 million for each of the fiscal years 2019 and 2018; and 2) Amortization of debt discounts 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 $0.5 million of additional expense for the three months ended December 28, 2019 and December 29, 2018, respectively and $1.3 million and $1.9 million of additional expense for fiscal years 2019 and 2018, respectively. Refer to our Form 8-K's filed with the SEC on May 9, 2019, August 6, 2019 and November 7, 2019 for information on adjustments recognized in the other periods presented. |
| --- | --- |
| (l) | Tax benefit associated with accounting guidance adopted at the beginning of fiscal year 2017 (ASU 2016-09, Compensation - Stock Compensation), requiring excess tax benefits related to stock option exercises be recorded in earnings as discrete items in the reporting period in which they occur. |
| --- | --- |
| (m) | Represents the income tax effect of the total adjustments, at our combined statutory federal and state income tax rates. |
| --- | --- |
| (n) | Reflects other expenses in (j) above, except for our share of losses on equity method investments of $0.6 million and $0.3 million for the three months ended December 28, 2019 and December 29, 2018 and $1.8 million and $1.3 million for fiscal year 2019 and 2018, respectively; and facility opening expenses of $0.4 million for the three months ended December 29, 2018 and $0.7 million for fiscal year 2018, respectively, which are non-SG&A expenses. |
| --- | --- |
| (o) | Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition. |
| --- | --- |