Jonathan Lennon pitches National Vision Holdings at Sohn 2025

All right, David Rosen went out of his way to try to make me as nervous as possible in the back there. I love him. First of all, I appreciate being here. This is a cause that affects all of us. I’m the son of a mother who’s a cancer survivor twice over, and it means a lot. She’s here, incidentally, probably about to root for me like this is a Little League baseball game somewhere in the middle there.

The other reason this is meaningful to me is that I don’t really do these things. I came once to the Ira Sohn Conference in 2010. I saw Bill Ackman pitch GGP, which was kind of a seminal, inspirational moment in my career. I’ve contacted him many times since and never got a response. So, Bill, if you’re out there, now that I’ve made it to the stage 15 years later, give me a look, man. I promise not to pitch you Herbalife, at least.

1. The National Vision Thesis

We’re pitching National Vision on the long side here. My team put this together. It’s a little cutesy for my taste, but there’s a little pun and a play on words all together in one there. The point being, there’s a bunch of noise that we think we can help people see through.

Just quickly, some background on us as a firm: We’re a private and public equity partnership. We have a public equity long/short fund, a private equity drawdown structure, and then a multimanager, essentially talent-incubation platform.

Without further ado, you might not know National Vision, but you’d know their 2 biggest banners, which are America’s Best and Eyeglass World. They have 1,200 stores, roughly $2 billion in revenue, and a $1.5 billion market cap. Probably the most meaningful thing to point out now is that 60% of the revenue comes from a cash-pay, uninsured customer, and 40% from a managed-care customer. That customer segmentation is a big part of our thesis, which I’ll come back to.

There are really 3 simple drivers to why we’re so excited about this one. The first is that there’s a very meaningful industry inflection occurring right now in transaction volumes that we think will reinstantiate a replacement cycle that’s been very consistent for a long time, but that COVID disrupted. The second piece is that new management is driving managed-care monetization. The third is that there’s a tremendous cost-structure opportunity in aggregate.

We think that can get you to essentially—this isn’t going to be a 30-bagger like Ackman’s GGP, but we do think you can get 3 times your money here with pretty limited downside. I’ll walk through how we get there over the course of the presentation.

2. The Replacement Cycle Returns

This is that replacement cycle. There are 40 years of data showing that every 2 to 3 years in the U.S., people tend to replace their eyeglasses. COVID basically led to especially low-income consumers having excess stimulus in their pockets. It pulled forward a lot of demand. Folks who maybe only had a lens or a pair of glasses for a year might have upgraded with stimulus money.

So, the industry grew 21% in 2021 and then, essentially due to that pull-forward, collapsed in 2022 and 2023. Honestly speaking, we were marginally short the stock at the time, thinking it was a great business but that they were just overearning. When the stock went from $60 to $16 over that sequential period of time, we said, “Look, the law of markets is that things may overshoot to the downside.” We thought there was probably $30 of value in the shares.

What we started doing was tracking a cohort of private competitors. We only had 4 or so quarters of data and noticed that they basically had 100% directional consistency with National Vision’s revenue itself, so we could monitor it very closely intra-quarter. We were patient and waiting, essentially, for some moment when that replacement cycle would reinstantiate itself.

When it didn’t happen by 2024, not only did EBITDA essentially collapse, but so did the multiple. It historically traded at 14 times EBITDA. As recently as the last few weeks, it was trading at 6 times EBITDA. This is just an illustrative example of 1 competitor we track. It shows that, essentially, in the 4th quarter and especially the 1st quarter, the replacement cycle started to reinstantiate itself.

At this point, we have 4 years’ worth of data showing that this private—we call it a human backtest—cohort’s data is essentially near-100% R-squared with the company’s own revenue. Because they’re private competitors, we want to triangulate that with credit-card data, which has a lower correlation than the private cohort but is still very meaningful. In Q1, and especially Q2, it’s showing a very meaningful inflection in transactions for National Vision, reverting toward that historical norm.

The final piece of the puzzle for us is always kicking the tires with industry executives. We’ve talked to 25 industry leaders. Most importantly, I think, we’ve retained 3 former C-level managers of National Vision to understand this industry replacement cycle. Through those means, we have an overwhelming stack of evidence that the cycle is reestablishing itself.

If we were to assume the transaction volume we’re seeing right now continues, and just put the historical multiple that the company has traded at on the current EBIT stream, we’d get to almost a double in the stock price over the next year. We’re not looking 5 years forward. These are 2026 estimates. This element of the thesis is compelling in and of itself.

3. Managed Care Drives Upside

What is far more compelling to us is the second tranche of our thesis. The company has been leaving money on the table for a long time by not monetizing its managed-care customer. Let me explain what that means.

These guys have been a value-oriented player in the space. Naturally speaking, a low-income consumer that doesn’t have insurance is likely to be attracted to that value offering. But they’ve naturally attracted higher-income consumers who are just looking for value and who often have insurance. They haven’t catered to that customer.

They currently have an average ASP of $90. Assume that’s a pair of glasses with some add-on. The average insurance company will cover up to $155. So, they can literally, we think, just teach sales associates to tell customers that they can get a free glaucoma test, an upgraded pair of lenses, scratch-resistant lenses, or blue-blocker lenses, and it’s all covered. Found money. We say internally, “It’s so easy a caveman could do it.”

That hypothetical opportunity is $65 in ASP. We’re assuming here a 55% incremental margin and that they realize half of that ASP increase through putting in place these very simple sales tactics. That would get us to essentially doubling EBITDA from where consensus is right now, and we think that’s conservative. For example, if you do a glaucoma test in an optometry center, you’ve got an optometrist on staff, so there’s zero incremental cost. It’s closer to 100% margin. In a more bullish case, they could double EBITDA.

Here’s what we’re most into as a firm: observability. They hired a new president in August of last year, Alex Wilks. We have a value-added LP relationship that, indirectly, enables us to talk to the patriarch of the optometry industry, EssilorLuxottica. He worked there in the past, and they spoke very highly of him. He said, “Hey, you’re right. This managed-care opportunity is a huge deal. Just watch what happens.”

Alternative data doesn’t usually corroborate a thesis this perfectly, but he joined the company in August. What we did here was take credit-card data and break out cohorts of higher-income customers who are more likely to have insurance. What this shows is that 2 months after he joined, there was just a massive inflection in average ticket—basically 1,000 basis points. So, we knew something was happening.

It was kind of too good to be true, and we wanted to double- and triple-check it. We also talked to some of these industry leaders. We found the COO of 1 of the largest insurers in the space, who would generally be biased against this opportunity because if people start to fulfill a $150 allowance for insurance, that’s coming out of his pocket.

This is a quote from that insurance executive, literally saying that they’re selling glasses for $60 and that they’d happily cover up to $150. Finally, we got a research associate and a bunch of our interns to visit 64 stores in the company’s 4 major markets, among others, in person. We conducted 38 in-depth telephonic interviews as well to understand that they’re now in the early innings of training all these sales associates and store managers how to monetize this customer.

A massive number of those calls said things like, “We’re blowing the doors off. We’re exceeding expectations. This is a record sales month or week for us.” Once you put that in place and capitalize it, we’re conservatively outlining a $90 million EBITDA opportunity. You get to over 150% upside, or $48 a share.

4. The Cost Structure Opportunity

That’s not all. The final piece to this is that there’s a cost-structure opportunity as well. There’s a well-known activist that’s known for operational turnarounds. They’ve really attacked this from 360 degrees. They have 2 board seats now. The company created an operationally focused, essentially cost-cutting committee, and management put in place, just 2 months ago, a new CFO who’s much more focused on the cost structure.

He kind of redoubled his commitment to that in our conversations with him as recently as last week. The company also hired Accenture, a third-party expert, to go ahead and basically be incentivized to cut costs. So that all makes sense.

Practically speaking, they also have margins that are 400 basis points below pre-COVID levels. We think that’s largely from SG&A being $100 million higher. The company hasn’t grown units that much, so we think they can get at least $40 million of EBITDA savings. We’ve triangulated that with vendor contacts and some of the other research advisors we put in place.

5. The Valuation Bridge

All in, this is where we get to. I myself would—no offense to the Sohn committee—say that PowerPoint presentations are generally better used as toilet paper than for communications. But this slide I would actually pay attention to. It essentially shows you the bridge from consensus 2026 EBITDA of $193 million, through the 3 thesis drivers, to $350 million, which is 80% above consensus estimates. Capitalized at their historical 13-times EBITDA multiple, that would get us to almost 200% upside, or $55 per share.

6. The Downside Has Protection

The final thing I’ll say is that while we love the massive upside to this investment, I think there are some real downside mitigants, too. One is that this is a space that is very strategically interesting to folks. There have been 11 transactions in the past 10 years. You can see here that the average multiple at which businesses were acquired was 14.8, almost 15 times.

Household names like KKR, EssilorLuxottica, and Goldman Sachs have been involved. To the extent we’re right on our thesis and these guys were to sell themselves, you can get to well north of 200% upside, and closer to $63 per share. The only other shout-out I will give is to Jefferies, as an investment bank, on a non-fee-paying basis.

The head of their consumer group has done almost all of those deals and had, I’d say, industry knowledge as well as access to many operators. It was very helpful to us in navigating the space. So bankers are worth their salt for once.

The other thing is that we really mitigate downside here by winning in a procyclical or countercyclical environment. This chart is very emblematic of that. You can see that even in the doldrums of 2009, these guys actually accelerated growth, growing 17.5% versus the industry at 2.4%.

The general reason behind that is because they’re the lowest-price offering. When people lose their jobs and don’t have insurance, they obviously want to be able to see. They need to get glasses replaced, and these guys tend to take share. So again, I think in a countercyclical environment, we win. We win here, too.

The last thing—which, I guess, in the last 2 days people don’t care about anymore, but with 1 tweet they will care again—is that these guys have very limited tariff exposure. This is from their 10-K: less than 10% of their costs are subject to tariffs. They also have competitors on the supply side that would be subject to tariffs, so we actually think a tariff war would probably be a net benefit to the company’s competitive position.

All that said, we’ve accumulated a large position. We’re 1 of the largest shareholders, quietly, over the past few months. We think this thing can be a total rocket ship, and join us. Thank you.