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Edited Transcript of BCI.TO earnings conference call or presentation 8-Nov-19 6:00pm GMT

Q3 2019 New Look Vision Group Inc Earnings Call

MONTREAL Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of New Look Vision Group Inc earnings conference call or presentation Friday, November 8, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antoine Amiel

New Look Vision Group Inc. - Vice Chairman, President & CEO

* Tania Melanie Clarke

New Look Vision Group Inc. - Senior VP & CFO

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Conference Call Participants

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* Zachary Evershed

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to New Look Vision Group's Q3 2019 Results Conference Call. (Operator Instructions) Before we begin, let me remind you that certain statements during this conference call may constitute forward-looking information within the meaning of securities laws. For reference, please read the forward-looking statement included in the SEDAR filing. It applies to this conference call as well.

I will now turn the conference over to Antoine Amiel, New Look Vision Group's President and Chief Executive Officer, who will review the Q3 2019 financial results. We will then open up for questions. Thank you.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [2]

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Good afternoon, ladies and gentlemen. Thank you for joining our quarterly call. I'm here with Tania Clarke, our CFO. Together, we're going to take you through a review of our third quarter 2019 results, after which we will take your questions.

First, some highlights for the quarter. New Look Vision Group delivered its 21st consecutive quarter of comparable store sales growth, driving a 2.1% revenue increase to $74.4 million. Our operating margin improved 20 basis points to 19.4% of sales. Adjusted net earnings attributed to shareholders increased 4.8% on a per share basis to $0.44. Free cash flow was strong at $11.1 million, up 31.7%, and deleveraging continued with debt to EBITDA narrowed down to 2.56.

Our hearing care pilot stores are operating as planned.

I will now turn the call over to Tania, who is going to take you through our reported financials.

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Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [3]

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Thank you, Antoine, and good afternoon. Before I begin, kindly note that our complete financial statements and MD&A for the third quarter of 2019 have been filed with SEDAR and are also available on our website.

Now let's begin. Revenues increases are comprised of the following items. As a percentage of revenue, materials consumed decreased by 10 basis points in both the quarter and 39-week period to 22.7% and 22.2%, respectively, as a result of ongoing purchasing and manufacturing synergies.

Employee remuneration, excluding equity-based compensation and other noncomparable items as a percentage of revenue, increased by 100 basis points in the third quarter to 33.2% and 40 basis points for the year-to-date period. While savings and efficiencies from the centralization of support functions continue to be realized, these improvements were offset by human capital investments since 2018 to support the company's growth, the impact of full employment along with rising minimum wage across several provinces and the cost structure of the newly acquired stores.

Other noncomparable items, including onetime expenses and gains connected with personnel costs related to acquisitions, restructuring and transition-related matters. Other operating expenses, excluding acquisition-related and other noncomparable items, decreased 140 basis points in the third quarter to 25% of revenue and decreased 60 basis points to 26.3% on a year-to-date basis related to ongoing cost-control measures.

As discussed on previous calls, EBITDA along with cash flow is the primary valuation metric in our industry. Therefore, we are reporting on adjusted EBITDA attributed to shareholders in order to isolate the impact of nonrecurring expenses or gain, specifically acquisition-related costs and other noncomparable items. And noncash expenses, which are equity-based compensation and gains losses from changes in fair value of foreign exchange contracts.

As a result of the factors just covered, Q3 2019 adjusted EBITDA attributed to shareholders increased 3.3% to $14.4 million as compared to last year, representing an increase of 20 basis points to reach 19.4% of revenue. On a year-to-date basis, adjusted EBITDA attributed to shareholders rose 2.1% to $41.6 million, an increase of 10 basis points to 18.6% as a percentage of revenue.

On a diluted per share basis, the adjusted EBITDA attributed to shareholders increased 3.4% to $0.92 for the third quarter and increased 1.9% to reach $2.66 for the 39-week period.

Adjusted net earnings attributed to shareholders increased by 5.3% to $6.9 million in the quarter and increased 3.5% to $18.2 million for the year-to-date period. The increase in the quarter is primarily explained by higher EBITDA and lower depreciation.

For the 39-week period, the increase is as explained for the quarter, but also offset by higher financial expenses due to an unfavorable change in the fair value of the interest rate swap.

On a diluted per share basis, Q3 adjusted net earnings increased by 4.8% to $0.44. And for the year-to-date period, the increase was 3.5% to $1.17.

Net earnings attributed to shareholders slightly decreased by 0.6% for the quarter to $4.8 million and increased 23.7% to $13.7 million for the year-to-date period. The decrease in the quarter is primarily due to higher income tax expense, offset partially by higher EBITDA, lower depreciation and financial expenses. The increase in the 39-week period is driven by higher EBITDA and lower depreciation, but offset by higher income taxes and financial expenses.

Moving to the company's liquidity. Cash at quarter end was $8.9 million versus $10.6 million at the end of 2018. The decrease is due to the resuming of the company's consolidation and growth strategy along with the voluntary debt servicing, which were positively offset by increased operating cash flows.

Cash flows related to operating activities in the third quarter were $13.5 million, an increase of $4 million over last year. And on a year-to-date basis, operating cash flows increased by $8.9 million to $36.3 million. These increases are a result of higher EBITDA, lower income taxes paid and favorable changes in working capital items, which are mainly the result of timing.

Free cash flow, defined as operating cash flows after acquisitions of property, plant and equipment, increased 31.7% in the quarter and 48.5% for the year-to-date period, primarily driven by higher operating cash flows. The increased use of investing cash flows for the period discussed is mainly due to acquisitions and investment in capital expenditures.

Financing cash flows increased in the third quarter compared to the same period last year as a result of a favorable variation in loans and advances from related parties, drawings made on the company's revolver to fund acquisitions and a decrease in interest and finance fees paid.

On a year-to-date basis, financing cash flows also increased due to voluntary debt payments, and higher interest and finance fees paid due to timing were offset by borrowings to fund external growth.

Net debt to adjusted EBITDA attributed to shareholders decreased from 2.88x as of September 2018 to 2.56x this quarter. As at September 28, 2019, $29.5 million was available for use from the company's revolving credit facility.

The company's operating cash flows continue to trend positively as a result of synergies and the streamlined operation. This, together with significant deleveraging efforts has contributed to a strong balance sheet, which sets the foundation for continued growth activity. The quarterly dividend of $0.15 per share was declared on November 7, 2019, unchanged from prior periods for shareholders of record on December 20, 2019. The company's dividend reinvestment program is maintained, and 18.5% of the dividends declared in August were reinvested in shares. Shares are issued from treasury at 95% of the weighted average trading price for the 5 days preceding the payment date.

It was a pleasure to review our quarterly results, and I now turn the call back to Antoine.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [4]

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Thank you very much, Tania. We are opening the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Zachary Evershed from National Bank Financial.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [2]

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Congrats on the quarter. So first off, any updates or color you can share on the pilots would be appreciated.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [3]

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The hearing care pilot is going according to plan. So we are about in the middle of it time-wise and in line with the targets that have been set at the beginning. So progressing satisfactorily is what I can say at this point in time.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [4]

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Excellent. And Topology, still looking towards the beginning of next year for that one.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [5]

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Yes. First, physical evidence of Topology in store expected early Q1, yes.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [6]

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Perfect. Changing track a little bit. Have you been getting any traction on the online appointment bookings that you rolled out to your website?

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [7]

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Yes. Yes, we have. And with good conversion, which was higher than expected. So the answer to that is a big yes.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [8]

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Excellent. And when we think about that, when you think about that, is it in terms of organic growth or efficiency gains on the margin side?

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [9]

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You're talking about the online appointment?

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [10]

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Yes, sir.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [11]

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There is some organic growth. It is not all organic growth. We think that a share of the appointments booked online would have been booked over the phone had the online booking not being available. And it is certainly an efficiency gain as opposed to the situation prior where appointments were booked by humans on the phone, and those are store-based team. Therefore, expensive resource.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [12]

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Understood. And then on the rollout of the other tech implementations. Maybe you can give us a little bit of an update on that front.

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [13]

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Not so much, no. Because I see a number of competitors on the list of people who are on the call right now. So no. I'll wait until you pay your quarterly visit to our office, which is always very much appreciated, and we'll be happy to have an in-depth discussion then.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [14]

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I'm looking forward to it. Then one last one to me. Can you quantify your M&A pipeline and how the industry will adopt?

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [15]

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I can't answer that.

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Operator [16]

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(Operator Instructions)

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Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [17]

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All right. If there are no further questions, just a closing remark. On behalf of all of us at New Look Vision Group to say that we are where we wanted to be at the middle point of the seventh year of our development plan, thus successfully deleveraging our balance sheet. We have resumed our disciplined consolidation of the fragmented Canadian retail optical market. We have made a strategic investments in technology and a business model that will underpin a differentiated omni-channel experience. We are testing a portfolio extension in hearing care. We continue to pursue, both external and organic growth aggressively.

I thank you for dialing in, and I am looking forward reconnecting with you early in 2020 to discuss our fourth quarter and fiscal year 2019 results. Have a great afternoon.

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Operator [18]

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Ladies and gentlemen, this concludes the conference call for today. We thank you all for your participation and ask that you please disconnect. Have a great day.