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Edited Transcript of BCI.TO earnings conference call or presentation 6-Nov-20 6:00pm GMT

·20 min read

Q3 2020 New Look Vision Group Inc Earnings Call MONTREAL Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of New Look Vision Group Inc earnings conference call or presentation Friday, November 6, 2020 at 6:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Antoine Amiel New Look Vision Group Inc. - Vice Chairman, President & CEO * Tania Melanie Clarke New Look Vision Group Inc. - Senior VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Doug Cooper Beacon Securities Limited, Research Division - MD and Head of Research * Kyle McPhee Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research * Zachary Evershed National Bank Financial, Inc., Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. Welcome to New Look Vision Group's Third Quarter 2020 Results Conference Call. (foreign language) (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. Participants, please read the forward-looking statements included in the SEDAR filings. It applies to this conference call as well. I will now turn the call over to Antoine Amiel, New Look Vision Group's President and Chief Executive Officer, who will review the Q3 2020 financial results. We will then open up for questions. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [2] -------------------------------------------------------------------------------- Thank you very much. Good afternoon, ladies and gentlemen. Thank you for joining our quarterly call. I hope you're all healthy and safe. I am here with Tania Clarke, our CFO. Together, we're going to take you through a review of our third quarter 2020 results, after which we will take your questions. Yesterday, we reported exceptionally high results for the quarter, July to September. Those are testimony to New Look Vision Group's team, careful planning and superb execution, and to the trust the team has earned from our patients and our customers. The stores and factory have been operating at full capacity since the restart and in full compliance with our stringent health and safety protocols. The performance also highlights the strength and the resilience of New Look Vision's business model, focused on eyewear, [perfect vision]. Some highlights for the quarter. Revenues increased 16.8% overall year-over-year and 13.5%. In comparable stores, driven by fully booked clinics and high conversion from examination to sales. EBITDA more than doubled at $29 million for the quarter compared to $14.4 million same period last year, yielding a record high operating margin at 33.4%, up 140 basis points over the prior year. Our operating costs were optimized prior to the COVID period and the specific COVID-related expenses have been offset. Therefore, the revenue increase has slowed down to earnings. Free cash flow was 2.3x higher than last year at $25.8 million versus $11.1 million last year same period, which allowed us to resume leveraging debt-to-EBITDA stood at 2.64 at quarter's end, only 4x higher than pre-COVID. This enables us to be ambitious in external growth. We have just launched the touchless optical solution we co-invested in with Topology last year, combining websites, iPhone application and online optician meeting. It provides customers with tailored eyewear, which achieves the same comfort and quality of vision as when both in-store, which is an industry first. And lastly, our focus on external growth is indicated by the current environment, which is rich in high-quality targets. I will now turn the call over to Tania, who is going to take you through our reported financials. -------------------------------------------------------------------------------- Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [3] -------------------------------------------------------------------------------- Thank you, Antoine, and good afternoon. Before I begin, please note that our complete financial statements and MD&A for the third quarter 2020 have been filed with SEDAR and are also available on our website. As noted, the company adopted IFRS 16 leases in the first quarter of this year and applied it on a modified [perspective] basis. The filed MD&A presents the company's Q3 and year-to-date 2020 results with and without the impact of IFRS 16. This financial review that I will conduct with you now is based on results excluding the impact of IFRS 16 for comparability purposes. Q3 began with basically all of our stores opened and operating at full capacity to meet the pent-up demand tied to the temporary store closure. Operating under a by appointment-only basis with COVID-19 operating guidelines in place, covering pre-appointment triage, social distancing, sanitation and of course, the mandated and accepted use of personal protective equipment. Our record revenue increase of 16.8% in the third quarter was driven by the 13.5% increase in comparable store sales growth and the revenues generated from the acquisition of 19 stores in the last 12 months, partially offset by lost revenues from 5 planned store closures and 1 store sale. Year-over-year revenues decreased 18.6% due to the temporary store closures in the first and second quarters of the year. Total operating expenses in the third quarter were 68% of revenue down from 82.5% last year and increased to 83.5% from 82.7% on a year-to-date basis. The decrease in the quarter is attributed to higher quarterly sales, coupled with the maintaining of firm cost controls that began in March. Whereas the increase on a year-to-date basis is mainly due to COVID-19 revenue decline, overshadowing the tight expense control since mid-March. For the 13-week period, materials consumed as a percentage of revenue decreased to 22.5% as compared to 22.7%. The 20 basis points improvement is due to the realigning of the product mix with the store reopening, offset by higher -- sorry, excuse me, offset by a higher cost ratio of newly acquired business and higher outsourcing costs to meet the record sales level. For the year-to-date period, this ratio increased 180 basis points to 24% of revenue as a result of the temporary store closure that led to temporary product mix changes during that period. Employee remuneration expenses, excluding equity-based compensation and other noncomparable items as a percentage of revenue decreased by 910 basis points in the quarter and 470 basis points for the year-to-date period. The improvement in the ratios is essentially driven by the receipt of government programs and subsidy, staffing shifts and, of course, in the quarter, the record sales level. Other noncomparable items include onetime expenses and gains tied to personnel costs related to acquisitions, restructuring and transition-related matters. Other operating expenses, excluding acquisition-related and other noncomparable items as a percentage of revenue decreased in the third quarter to 20.7% of revenues compared to 25% in the same period last year. This decrease is driven in part by higher sales but also as a result of a focused cost containment on essential items only and includes rent abatements that are partially offset by PPE costs. Year-over-year, as a percentage of revenue, this category increased to 29.1% from 26.3% due to the lower revenue base, additional COVID-19-related operating expenses such as PPE and newly acquired businesses operating at a higher cost ratio. EBITDA along with cash flow is the primary valuation metric in our industry. Given the foregoing, adjusted EBITDA attributed to shareholders doubled to $28.9 million and improved 1,400 basis points as a percentage of revenue to arise at 33.4% of sales. On a diluted per share basis, the improvement was 101.1% to land at $1.85 per share. Year-over-year, adjusted EBITDA decreased by 18% to $34.1 million and improved 10 basis points to 18.7%. Depreciation is impacted by acquisitions and higher capital investments made in the year both in the quarter and for the year-to-date period. Financial expenses increased in both the quarter and year-to-date due to higher interest expense, unfavorable change in the interest rate swaps due to economic conditions and for the year-to-date only expenses tied to the amendment of credit lines and debt arrangements in Q2 2020. Net earnings attributed to shareholders increased in the third quarter and decreased for the year-to-date period for the reasons just explained. Maximizing liquidity and strengthening the balance sheet was and remains a key focus for management and our Board of Directors. Cash at quarter end was $70 million versus $47.1 million in Q2 2020. Operating cash flows in the third quarter increased to $28.5 million and $41.4 million for the year-to-date period. Working capital changes were favorable in Q3, generating $0.9 million of cash driven by the receipt of government to [waive] subsidies, lower inventory purchases and careful management of vendor payments. Investment cash flows increased in the third quarter and year-to-date period compared to the same period last year as a result of business acquisitions completed and investment activity. As previously shared, CapEx investment is limited to -- CapEx investment -- sorry, was limited to mandatory store renovations and restarted projects that were in progress at shutdowns. Optical equipment to improve eye care service and technological investments supporting our omnichannel initiatives. The lower use of financing cash flows in the quarter is tied to the postponement of debt repayments, dividend suspension and the timing of the net variation of loans and advances from related parties. Key to note that no additional draws against our credit facility were required for operations during the quarter. And along with the strong cash generations, net debt improved by $23 million versus the last quarter. Total cash and availability at quarter end was $121.2 million. These exceptional results, which demonstrates resilience is derived from the swift measures taken by management and the Board of Directors going into the pandemic. The historical profitability, strong cash generation and a proven growth track record as well. All of these contributed to a strong balance sheet and financial flexibility to weather future headwinds as necessary. This concludes our review of the financial results, and I will now turn the call back over to Antoine. Thank you. -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [4] -------------------------------------------------------------------------------- Thank you very much, Tania. I now turn the floor to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Zachary Evershed of National Bank Financial. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [2] -------------------------------------------------------------------------------- Congrats on the quarter. So first things first, very excited about the online offering that's being rolled out. I was wondering if you could tell me a little bit more about when we can expect the Topology partnership to be expanded beyond Quebec? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [3] -------------------------------------------------------------------------------- It is currently expanded beyond Quebec. It's available in Iris -- some Iris stores, selected Iris stores, first wave outside of Quebec. So it's already Canada [way]. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [4] -------------------------------------------------------------------------------- Fantastic. And how's the uptake on the offering? Has there been a good reaction thus far? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [5] -------------------------------------------------------------------------------- Yes. Obviously, it's very early days, very good reaction. We're especially confident in the performance measured by rate of first fit. So those are glasses dispensed online for internal purposes, that's provided a perfect fit. So very, very excited. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [6] -------------------------------------------------------------------------------- And then you mentioned that the pace of sales is slowing as you chewed through the backlog from Q2 thus far into Q4, as seeing as we're in November now, what's traffic like on the ground? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [7] -------------------------------------------------------------------------------- I think Tania is going to be [remissed] if I give you too precise of an answer. I'll just say it, our Q3 momentum carried into the first period of the fourth quarter. But we are cautious for the periods ahead. Obviously, because of the pandemic numbers not exactly looking in the right direction. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [8] -------------------------------------------------------------------------------- Exactly. On that topic, actually, could you brief us on plans for a potential partial or full lockdown in a second wave? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [9] -------------------------------------------------------------------------------- I think it would unfortunately look quite like the first time around. We'll do it better when we do things for a second time, we always do better in many ways. I think to the customer, it will look the same to our people internally will provide even more support than the first time around. We feel we're ready, if suddenly, we have to crank into action again. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [10] -------------------------------------------------------------------------------- Understood. And I hope you don't mind me probing a little bit deeper on the online offering. But if you were forced to close your doors in a second wave, are there capacity limitations as to how much production capacity you have for the perfect fit frames? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [11] -------------------------------------------------------------------------------- No. No, there's no limitation. No. We actually would have many, many, many opticians available to do online meeting with customers. Because this solution involves -- really puts the optician who is a vision specialist at the [hands] of the customer journey. And obviously, 90% of our stores would be closed, we would have a very, very large capacity of optician to do online appointments. So no limitation whatsoever. -------------------------------------------------------------------------------- Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [12] -------------------------------------------------------------------------------- Fantastic. And then one last one for me. You mentioned that it's a target-rich environment. How discussions with the target company has been going? Have you seen a change in the tenor or the tone of conversations? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [13] -------------------------------------------------------------------------------- Well, I think we can segregate the target cooling in 2 categories, those who have had a decent or good restart and those who have not. So obviously, the tone has changed with the second category, but not really with the first one, no. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Your next question comes from Doug Cooper of Beacon Securities. -------------------------------------------------------------------------------- Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [15] -------------------------------------------------------------------------------- Antoine, Tania, the quarter is fantastic, obviously, I had to look twice to see the numbers. So volume, obviously, in Q3 was much higher than I guess, normalized because you -- some of the pent-up demand and so forth. So is there a new paradigm in terms of margins? I mean under a normalized environment, would you still anticipate sort of 19%, 20% EBITDA margins where you've been for the last kind of 10 years? Or has something changed now? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [16] -------------------------------------------------------------------------------- It is difficult, I would say, since March to kind of set our mind to what would be normal, to be honest. So if nothing had happened, let's say. Yes, we were on course, I think, to have -- to produce higher operating margins from organic growth, improvement in mix, optimization of operating costs, additional revenues we're bringing in with the same infrastructure. So yes, that's what we were expecting, now to the question what is it going to look like in the future? I would say, it depends what the future is made of. But interestingly, yes, the business model is designed to generate higher margin than before. -------------------------------------------------------------------------------- Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [17] -------------------------------------------------------------------------------- Okay. Okay. The focus of the M&A, is it the same focus maybe Ontario? Or is it has it moved more to the U.S. given your recent experience there? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [18] -------------------------------------------------------------------------------- No. The focus has not changed, and our focus is not regional, as you know, because you've been very supportive many years. We look primarily for excellent teams, store teams, operations team. So wherever we find those teams, U.S. is not a bigger focus than Canada, absolutely not. Canada remains our home market. And there is still a lot of runway in Canada and the very unfortunate circumstance of the first half of the year have actually created a number of opportunities. So on top of the very good runway we knew prior to COVID. This has been implemented by COVID-related opportunities. -------------------------------------------------------------------------------- Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [19] -------------------------------------------------------------------------------- And just the last one, I've noticed in your MD&A, you talked briefly on the hearing aid that sort of pilot continues. Is there any more -- anything more you can add to that? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [20] -------------------------------------------------------------------------------- Yes. I'll be happy to. Some parts will be a repeat. Some parts will be an update. Prior to the shutdown, we had reached in tests in all test stores, KPIs that were our targets. And those KPIs are from -- especially the European retailers that are performing well in the hearing aid segment. So we were there. Then, of course, our audio clinic shutdown by the rest. Now since restarts, A, we have expanded our test pool to some of our locations with higher volume, which is the plus. The minus is our stores and clinics have been operating at full, full capacity every hour they've been opened since the restart. And by design, priorities given to optical. Therefore, in numbers, we've not seen the progress we would have seen in a normal environment. But in skills, we have. So very, very satisfied and very confident for future deployment. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Your next question comes from Kyle McPhee of Cormark. -------------------------------------------------------------------------------- Kyle McPhee, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [22] -------------------------------------------------------------------------------- Regarding the employee remuneration line item. So that came way down as a percentage of revenue this quarter. I'm just hoping we can dig in a bit on some of the moving parts and how sustainable that is. So first, how much of a CEWS wage subsidy benefit was in there in Q3? And then maybe what are some of the other moving parts that might be permanent? For instance, are the staffing shifts you mentioned that are source of cost savings? Are those now permanent? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [23] -------------------------------------------------------------------------------- That's for Tania. Tania, go ahead. -------------------------------------------------------------------------------- Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [24] -------------------------------------------------------------------------------- Yes, absolutely. Kyle, thank you for your questions. The CEWS amount, we don't actually disclose it. So I have to pass on that one. With respect to the staffing shift, so what has happened in some of our regions is we gained a lot of knowledge when we closed down. So the positive of the Covid shutdown is that it forced us in certain instances to look at our operations and we became more efficient. And what that led to is in certain areas, reduced headcount from what we had pre-COVID, without any impact on our delivery of service. So there's shifts, so there's some lower -- based on lower headcount base, in some of our own banners, as a result. -------------------------------------------------------------------------------- Kyle McPhee, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [25] -------------------------------------------------------------------------------- Okay, and it sounds like that, not just a temporary COVID thing, that's like the new part of the business model? -------------------------------------------------------------------------------- Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [26] -------------------------------------------------------------------------------- More than likely, yes, it is. We intend to continue operating under the same structure as I mentioned in my portion of the call, whereby [excitement] only. And given the current headcount structure, it's very very manageable. But I mean obviously if it continues -- if the pace continues and the level continues and we need to -- and we will in order to servicing customers. -------------------------------------------------------------------------------- Kyle McPhee, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [27] -------------------------------------------------------------------------------- And then on your plans to consolidate the PEA facility, into Montreal facility, can you provide a timing update there on when that will be completed? And also if you're willing, how much cost savings you think will be triggered when that's all done? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [28] -------------------------------------------------------------------------------- Timing is end of the year, the following year, early December. And as far as cost savings, I'll respectfully ask, Tania, what we can say? -------------------------------------------------------------------------------- Tania Melanie Clarke, New Look Vision Group Inc. - Senior VP & CFO [29] -------------------------------------------------------------------------------- Well, no, we're not going to say anything, because we haven't disclosed it. There are synergies involved in the consolidation and that's the most that I can say. -------------------------------------------------------------------------------- Kyle McPhee, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [30] -------------------------------------------------------------------------------- Okay. That's fine for now. On the online investments you've made in the launch of that platform in Q3, I know you already spoke to it, but I'm wondering if you view this as a source of driving incremental sales, or is it just an alternate route for your existing customers that you would have otherwise been doing business with? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [31] -------------------------------------------------------------------------------- I believe it will be mostly incremental. It's a true nature, of [eye sciences]. It's a much better access. And therefore, I think it's going to be a major tool for new customer acquisition. -------------------------------------------------------------------------------- Kyle McPhee, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [32] -------------------------------------------------------------------------------- Got it. Okay. And then, Antoine, last question for me. Can you offer any guidance on CapEx for next year, 2021? -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [33] -------------------------------------------------------------------------------- I would say if the world resume stability, it will be comparable to years past. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- There are no further questions at this time. -------------------------------------------------------------------------------- Antoine Amiel, New Look Vision Group Inc. - Vice Chairman, President & CEO [35] -------------------------------------------------------------------------------- Thank you. Thank you, and thank you all for the good questions. In closing, I would like to share a few thoughts. The hallmarks of our business have traditionally been resilient revenue because eye wears are primary needs. And high ability to convert revenue into cash flow. The post-COVID restart has proven those once more. We are cautious for the near term in light of the pandemic's recent evolution and at the same time, confident in our ability to meet that challenge to generate organic growth costs and to leverage the external growth opportunities. I thank you all for dialing in today. For your continued interest in and support for New Look Vision. And I am looking forward reconnecting with you early in 2021 to discuss our fourth quarter and fiscal year 2020 results. Have a great afternoon. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- 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.