Calculating Your EBITDA

Optical laboratory owners and management are familiar with the periodic review of changes in their balance sheet and operating statements as management tools. However, period over period changes in net sales and net income often do not reflect the actual operating results of the company.

A more reliable tool for measurement of how a lab has performed is an analysis of the Earnings Before Interest, Taxes, Depreciation and Amortization, which is more commonly referred to as EBITDA. It is for this reason that EBITDA is the cornerstone for determining business valuations, establishing lending covenants, and budgeting performance goals.

EBITDA is commonly adjusted to reflect period operations, with adjustments that will normalize the actual income in order to provide a more accurate picture as to how the business actually performed. Expenses which are unique to a closely held business, nonrecurring in nature and do not follow generally accepted accounting practices are usually added back to adjust the earnings higher. Accruals not reflected in the operations, such as changes in the discount reserve, warranty redo and the allowance for bad debt are often reductions to earnings.

Once lab management establishes EBITDA for a 12-month operating period, then future periods may be benchmarked off of the base year. This allows management to periodically measure real growth, adjusted for inconsistencies unique to a given period, as well as expenses not core to the business. In addition, it allows for an initial valuation of the business, coupled with periodic future valuations, which let management measure the effect of business decisions on the market value of their company.

Balance sheet decisions such as available working capital, liquidity analysis, capital asset purchases and commitments for additional debt or capital leases should also be analyzed in relation to EBITDA. In short, EBITDA more accurately reflects free cash flow available to operate the underlying activities of the business than net income.

—Thomas F. Puckett is managing director and CEO of the San Diego based investment banking firm HPC Puckett & Company, which specializes in mergers and acquisitions of wholesale optical laboratories. Puckett can be reached via email at tfp@hpcpuckett.com. For more information about the company, go to their Web site at www.hpcpuckett.com

The Case of the Slim Fold Half-Eye

In today’s laboratory, since everything is computerized, it’s always tempting to let your lab software do all the work for you. However, some jobs need special attention and “human intervention,” as was the case recently at Tri-Supreme Optical.

“The account called to let me know they were sending a job and if we could even fabricate it,” recalled Mark Cohen, training and marketing manager at the Farmingdale, N.Y. lab. “If we could, it had to be as thin as possible. The Rx was: +7.50 -1.00 x 90, +7.00 -0.50 x 90 with a 63 pd. The challenge of the job was that it was going into a slim fold half-eye which measures 45mm with a 24mm bridge and a vertical measurement of 32mm.

“If we had let this job get processed without any intervention it probably would have been done on an +8.00 base in plastic,” said Cohen. “We would have surfaced it and once it reached our edging department, our bench department manager would have rejected it because the curve and thickness of the lenses would not allow the frame to fold.

“Since the job was sent to my attention, I spoke with both our surfacing and bench department manager before fabricating the job and we came up with several options. We decided to process the Rx in polycarbonate and on a +6.00 base. I then instructed our data entry operator on how to input the Rx. Not only was the surfacing easier to do but we had the job surfaced and edged in one day. I was very surprised that our bench department manager bought the job to me that day to show me how great it came out and how easy it was to fold and put into the case. A job well done by all. My only regret was having to send the job to the account because I really would have liked to keep it as a work of art."

Second Opinions

Lab Advisor asked two other labs how they would process this job:

“Our recommendation for this Rx is as follows: Essilor Thin & Lite Aspheric 1.67 with Crizal Alizé, computed for a 1.2mm edge on a 6.75 base curve, utilizing asphericity and flatter curves. Actual center thickness will be 4.0mm on each lens.—John D. VanNoy, president, general manager, Ozarks Optical Laboratories, Springfield, Mo.

“The appropriate way to handle this job would be to choose a base curve that allowed for minimal protrusion of lens on either side of the frame. Certainly the use of 1.67 index lenses would be the most beneficial to reduce overall thickness. A four-base, 1.67 lens would produce a back curve of roughly +1.50 (w/cylinder) while keeping the front curve at a manageable +4.00. Varying vertex distance and potential eyelash interference would be minimal and the frame would remain functional.— Jesse Arndt, sales and marketing manager, Epic Labs, Saint Cloud, Minn.

How would your lab do it? Let Lab Advisor know by emailing us at labadvisor@jobson.com

Victoria Lee Gammell of Rite-Style Optical

Every lab today needs to have a drill mount expert, and at Rite-Style Optical in Omaha, Nebraska it’s Victoria Lee Gammell. A 25-year optical lab veteran, Victoria has worked in most areas of the lab including the surface room.

“Having a broad knowledge of the steps in the production process taken before and after me helps me make decisions about the eyewear I assemble,” she said. One of the most important aspects of her job is entering the job data correctly, especially the size and configuration of the holes and notches that need to be drilled into the lens. “If the hole is too small, they would chip it out, and if it’s too big, the frame will be loose,” said Victoria, who does the drilling and mounting herself.

Victoria enjoys the challenge of doing custom jobs, which make up about 10 percent of her workload. She appreciates the creativity that goes into the design of the eyewear. “Three-piece mounts are so versatile, the possibilities are endless,” she said. “You can have lenses in the shape of a stop sign, a puzzle piece or anything.”

What type of job does she dislike? “What bugs me most are the placement of no-lines on a three-piece mount. I’ve seen them on a 17mm B lens with the seg heights at 15mm. I know that customer is going to be coming back, because the segs are placed too high.”

Is there a special tool that would make her job easier? “I’d like pliers that you could use to make adjustments without damaging the frame,” she said. “They would be plastic on both sides, and no more than 10mm wide. I’d use it to adjust for facial curves more accurately.”

LensTech's Fresh Idea

LensTech Optical Laboratory, an independently-owned lab located in Greenwood, Ind., recently developed a unique marketing program to bring more private pay customers to the independent ECPs it services. Based on the Marsh Fresh Idea Card—a discount shoppers card offered by Marsh Supermarkets, a local grocery store chain, LensTech created the Marsh Fresh Eye Deal Program. When a patient who does not have vision insurance comes to a participating ECP and shows their Marsh Fresh Idea Card, they can receive a 20 percent discount off their frame and lens purchase. The patient cannot use this with any insurance plans and must have the examination from the same office to qualify. All professional fees are excluded from the discount—only the frame and lens package gets the discount.

LensTech also developed a web site for Marsh customers to visit to help find a participating eyecare professional in their city at  www.fresheyedeal.com. LensTech gives participating doctors a 10 percent wholesale discount to share in the cost of the patient’s discount. As an added bonus, LensTech sends back a coupon from Marsh with the Rx worth $5 towards the patient’s next visit at Marsh Supermarkets.

“So far it has been a big success,” said LensTech co-owner Greg Dallas. “The non-insured patient gets a nice discount, and in many cases, the doctor gets a new family of patients, LensTech gets the Rx order and the doctor gets to give the patient a cost-saving coupon off their next grocery purchase at Marsh. “It’s a win, win, win kind of deal.”

According to Dallas, Marsh promoted the program and the Web site in its weekly coupon flyers, which reach 500,000 people twice a week. “I am not sure what a Yellow Page ad costs nowadays, but to get that kind of exposure for our customers at no cost to them is no less than a dream come true,” he remarked.