Floor & Decor Holdings, Inc. (NYSE:FND) Q1 2021 Earnings Conference Call May 6, 2021 5:00 PM ET Company Participants Wayne Hood - Vice President, Investor Relations Tom Taylor - Chief Executive Officer Trevor Lang - Executive Vice President & Chief Financial Officer Lisa Laube - President Conference Call Participants Zach Fadem - Wells Fargo Michael Lasser - UBS Steven Forbes - Guggenheim Securities Simeon Gutman - Morgan Stanley Karen Short - Barclays Greg Melich - Evercore ISI Chris Horvers - JPMorgan Kat ...

Part I – Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q1 2021, covering balance sheets, operations, equity, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 1, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $354,051 | $307,772 | | Inventories, net | $607,649 | $654,000 | | Total current assets | $1,061,875 | $1,040,456 | | Total assets | $2,964,723 | $2,880,425 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $672,978 | $698,836 | | Total liabilities | $1,884,003 | $1,883,037 | | Total stockholders' equity | $1,080,720 | $997,388 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Unaudited%29) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended April 1, 2021 | Thirteen Weeks Ended March 26, 2020 | | :--- | :--- | :--- | | Net sales | $782,537 | $554,937 | | Gross profit | $336,933 | $236,032 | | Operating income | $95,949 | $46,674 | | Net income | $75,796 | $37,063 | | Diluted earnings per share | $0.71 | $0.35 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) - Total stockholders' equity increased from **$997.4 million** at the beginning of the period to **$1,080.7 million** as of April 1, 2021, primarily driven by net income of **$75.8 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Thirteen Weeks Ended April 1, 2021 | Thirteen Weeks Ended March 26, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $100,996 | $24,668 | | Net cash used in investing activities | ($45,876) | ($38,384) | | Net cash (used in) provided by financing activities | ($8,841) | $276,610 | | Net increase in cash and cash equivalents | $46,279 | $262,894 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - As of April 1, 2021, the Company operated **140 warehouse-format stores** and **two small-format standalone design studios** in **32 states**[21](index=21&type=chunk) Disaggregated Net Sales by Product Category (in thousands) | Product Category | Net Sales (Q1 2021) | % of Net Sales (Q1 2021) | | :--- | :--- | :--- | | Tile | $189,436 | 24% | | Laminate / luxury vinyl plank | $186,035 | 24% | | Decorative accessories / wall tile | $157,374 | 20% | | Installation materials and tools | $130,601 | 17% | | Wood | $62,131 | 8% | | Natural stone | $49,251 | 6% | | Adjacent categories | $12,236 | 2% | | Total | $782,537 | 100% | - On February 9, 2021, the company amended its Term Loan Facility, obtaining a **$65.0 million** supplemental term loan to repay its **$75.0 million** term loan B-1 facility[38](index=38&type=chunk) - The effective income tax rate was **19.8%** for the thirteen weeks ended April 1, 2021, compared to **17.4%** for the same period in 2020[47](index=47&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial results, highlighting **41.0% net sales growth** and **31.1% comparable store sales increase** Q1 2021 Key Performance Indicators | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Comparable store sales (% change) | 31.1% | 2.4% | | Number of warehouse-format stores | 140 | 123 | | Adjusted EBITDA (in thousands) | $127,075 | $73,126 | | Adjusted EBITDA margin | 16.2% | 13.2% | - Net sales increased by **$227.6 million** (**41.0%**) in Q1 2021 compared to Q1 2020, driven by a **31.1%** increase in comparable store sales and sales from **17 new warehouse stores** opened since March 26, 2020[94](index=94&type=chunk) - Gross margin increased by approximately **60 basis points** to **43.1%** in Q1 2021, primarily due to improved leverage of the company's distribution center and supply chain infrastructure on higher sales[96](index=96&type=chunk) - The company plans capital expenditures of approximately **$440 million to $460 million** in fiscal 2021, primarily to open **27 new warehouse stores**, relocate a distribution center, and invest in existing stores and technology[117](index=117&type=chunk)[119](index=119&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is variable-rate debt interest fluctuations; a **1.0% rate increase** could add **$2.1 million** to annual interest expense - The company's main market risk is interest rate fluctuations on its variable-rate debt As of April 1, 2021, a **1.0%** increase in the effective interest rate on its **$207.7 million** term loan would increase annual interest expense by approximately **$2.1 million**[138](index=138&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of April 1, 2021, with no material internal control changes - The company's management, including the CEO and CFO, concluded that the disclosure controls and procedures were **effective** as of April 1, 2021[139](index=139&type=chunk) - There were **no material changes** in the company's internal control over financial reporting during the fiscal quarter ended April 1, 2021[141](index=141&type=chunk) Part II – Other Information [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company faces a putative derivative complaint from June 2020 with an uncertain outcome; other legal actions are not material - A **putative derivative complaint** was filed against certain officers, directors, and stockholders in **June 2020**, with factual allegations similar to a previously dismissed securities litigation The company is currently **unable to predict the outcome or estimate possible losses**[63](index=63&type=chunk)[64](index=64&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) Updates risk factors, including COVID-19 impacts, indebtedness, supply chain disruptions, and proposed U.S. corporate tax changes - The COVID-19 pandemic continues to pose **significant risks**, including potential for future **store closures**, **staffing challenges**, and **supply chain interruptions**, which could negatively impact sales and financial results[143](index=143&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - The company faces risks related to its **indebtedness**, including **restrictive covenants** and the upcoming **transition away from LIBOR** benchmark interest rate, which could be costly and time-consuming[151](index=151&type=chunk)[153](index=153&type=chunk) - **Disruptions to the supply chain**, such as **significant congestion at U.S. ports** of entry, are causing logistical challenges, **increased time and cost to ship goods**, and have resulted in **decreased in-stock levels** for certain products[158](index=158&type=chunk) - Proposed changes to U.S. tax law, including an **increase in the corporate tax rate**, could **materially increase tax payments** and **adversely affect its financial condition and operating results**[159](index=159&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the period - **None**[160](index=160&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the period - **None**[161](index=161&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[162](index=162&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) No other information to report for the period - **None**[163](index=163&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including corporate governance documents, a credit agreement amendment, and SOX certifications - The exhibits filed with this report include the **Restated Certificate of Incorporation**, **Bylaws**, an **amendment to the Credit Agreement**, and **certifications by the CEO and CFO**[165](index=165&type=chunk)

Financial Data and Key Metrics Changes - Fiscal 2020 Q4 total sales increased by 37.3% to $723.7 million from $527 million in Q4 2019 [10] - Adjusted EBITDA for Q4 increased by 65.9% to $97.6 million from $58.8 million in Q4 2019 [12] - Q4 diluted earnings per share rose by 80.8% to $0.47 from $0.26 in Q4 2019 [12] - Fiscal 2020 Q4 GAAP net income increased by 61.7% to $57.1 million from $35.3 million in Q4 2019 [61] - Fiscal 2020 Q4 non-GAAP adjusted net income increased by 86% to $50.2 million from $27 million in Q4 2019 [62] Business Line Data and Key Metrics Changes - Five new warehouse stores opened in Q4, bringing the total to 133 [14] - Comparable store sales increased by 21.6% in Q4, with a strong growth in customer transactions of 23.1% [11][19] - E-commerce sales in Q4 increased by 93.7%, accounting for 15.9% of total sales [24] Market Data and Key Metrics Changes - Strong sales growth observed across all nine geographic regions [11] - Year-to-date Q1 2021 comparable store sales increased approximately 24% despite severe weather impacting 20% of the store base [21] Company Strategy and Development Direction - Focus on new store growth with plans to open 27 new warehouse stores in fiscal 2021, a 20.3% increase from 2020 [16] - Continued investment in e-commerce and customer experience enhancements, including a new mobile app feature for contactless pickup [27] - Expansion of the Pro Premier Rewards program, with a 22% increase in enrollment in fiscal 2020 [31] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about sustained economic recovery and robust sales growth into 2021 [69] - Acknowledgment of elevated business risks due to COVID-19, with no specific annual sales and earnings guidance provided [70] - Anticipation of cost pressures in the second half of 2021 due to tariffs and increased freight costs [85] Other Important Information - The company ended fiscal 2020 with no net debt and the strongest liquidity position in its history [13] - Capital expenditures for fiscal 2021 are expected to be approximately $440 million to $460 million, reflecting an increase in new store openings [74] Q&A Session Summary Question: Can you talk about the puts and takes of gross margin in 2021? - Management expects moderately better gross margins in the first half of 2021 but anticipates cost pressures in the second half due to tariffs and increased transportation costs [83][85] Question: How much do you think you left on the table due to severe weather impacts? - Management indicated that approximately 20% of sales were impacted by severe weather, suggesting potential for recovery in sales [88] Question: What is the pipeline for pro customers? - Management reported a four- to six-week backlog for professional customers, indicating strong demand and engagement [92] Question: How is the real estate pipeline evolving? - Management expressed confidence in the real estate pipeline, noting favorable opportunities and lower rent costs for new stores [99][100] Question: How should we expect inventory levels to build over the year? - Management acknowledged challenges in maintaining inventory levels but emphasized the breadth of product assortments to mitigate stockouts [101][103]

Part I [Business Overview](index=6&type=section&id=Item%201.%20Business) Floor & Decor is a high-growth specialty retailer of hard surface flooring and accessories, targeting Pro, DIY, and BIY customers with a broad, in-stock product assortment at low prices and a strategy for significant store expansion Financial and Operational Growth (FY2016-FY2020) | Metric | FY2016 | FY2020 | CAGR | Fiscal 2020 Growth | | :--- | :--- | :--- | :--- | :--- | | **Warehouse Stores** | 69 | 133 | 17.8% | 11% increase (13 new stores) | | **Net Sales** | $1.05B | $2.43B | 23.3% | 18.6% increase YoY | | **Net Income** | $43.0M | $195.0M | 45.9% | 29.4% increase YoY | | **Comparable Store Sales** | N/A | 5.5% | N/A | 5.5% (vs 4.0% in FY2019) | - The company targets significant store expansion, aiming to grow from **133 warehouse-format stores** to approximately **400 nationwide** within the next 8-10 years, with a planned annual growth rate of about **20%** for the next several years[40](index=40&type=chunk)[58](index=58&type=chunk) - The business model focuses on a one-stop project destination concept, with large-format stores (average **78,000 sq. ft.**) carrying deep in-stock inventory (average **4,100 SKUs**, **$2.5 million** at cost per store) to ensure immediate product availability[28](index=28&type=chunk)[34](index=34&type=chunk)[56](index=56&type=chunk) - A direct global sourcing model from over **220 vendors** in **24 countries** is a key competitive advantage, enabling low prices and attractive gross margins by eliminating intermediaries[37](index=37&type=chunk)[67](index=67&type=chunk) - Pro customers are a key focus, influencing **40% of sales**, with dedicated services, loyalty programs, and commercial credit offerings to drive repeat, high-ticket purchases[35](index=35&type=chunk)[43](index=43&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces key risks including economic dependency, operational challenges from growth and competition, global supply chain disruptions, and impacts from the COVID-19 pandemic and U.S. trade policies - The business is highly dependent on home remodeling activity, which is influenced by factors beyond the company's control such as interest rates, consumer confidence, and real estate prices[92](index=92&type=chunk) - The COVID-19 pandemic poses a significant risk, having negatively impacted business in the first half of 2020, with future resurgences potentially leading to store closures, supply chain disruptions, and reduced consumer demand[99](index=99&type=chunk)[101](index=101&type=chunk) - U.S. trade policies, particularly tariffs on Chinese imports, present a major risk, as approximately **30%** of products sold in fiscal 2020 were sourced from China and are subject to significant tariffs and duties[105](index=105&type=chunk) - Failure to manage new store growth, which is planned at a rate of **20% annually**, could adversely affect operating results due to challenges in site selection, hiring qualified staff, and managing opening costs[95](index=95&type=chunk)[40](index=40&type=chunk) - Disruptions to the supply chain and four internally-managed distribution centers could adversely affect business, with risks including weather events, shipping constraints, and public health crises[106](index=106&type=chunk)[108](index=108&type=chunk) [Unresolved Staff Comments](index=43&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[204](index=204&type=chunk) [Properties](index=44&type=section&id=Item%202.%20Properties) As of fiscal year-end 2020, the company operated 133 leased warehouse-format stores and two design studios across 31 states, with its corporate headquarters also leased in Atlanta, Georgia Store Count by State (Top 5) | State | Number of Stores | | :--- | :--- | | Florida | 21 | | California | 19 | | Texas | 19 | | Georgia | 8 | | Illinois | 8 | - The company operates **133 warehouse-format stores** and two small-format design studios across **31 states**[206](index=206&type=chunk) - All of the company's stores, its store support center in Atlanta, GA, and its distribution centers are leased properties[207](index=207&type=chunk) [Legal Proceedings](index=45&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal actions and claims arising in the ordinary course of business, including contract, product liability, intellectual property, and employment matters - The company is engaged in various legal actions and claims arising in the ordinary course of business[208](index=208&type=chunk) [Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[209](index=209&type=chunk) Part II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=45&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under 'FND', with no current cash dividends planned, and has significantly outperformed market indices since its April 2017 IPO - Common stock is listed on the NYSE under the symbol **'FND'**[211](index=211&type=chunk) - The company does not currently expect to pay any cash dividends, retaining funds for business operation and growth[212](index=212&type=chunk) Stock Performance Comparison (April 27, 2017 - Dec 31, 2020) | Index | Initial Investment ($100) | Value at 12/31/2020 | | :--- | :--- | :--- | | **FND** | $100.00 | $289.70 | | **S&P 500 Index** | $100.00 | $157.54 | | **S&P 500 Home Improvement Retail** | $100.00 | $175.37 | [Selected Financial Data](index=46&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is not applicable as the company has elected not to provide this information, in accordance with recent SEC rule changes - No selected financial data is provided[217](index=217&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2020 saw net sales grow 18.6% to $2.43 billion and net income rise 29.4% to $195.0 million, driven by comparable store sales and new openings, despite initial COVID-19 impacts Fiscal 2020 vs. Fiscal 2019 Results of Operations | Metric | Fiscal 2020 | Fiscal 2019 | % Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $2.43B | $2.05B | 18.6% | | **Gross Profit** | $1.03B | $863.0M | 19.9% | | **Operating Income** | $214.6M | $159.2M | 34.8% | | **Net Income** | $195.0M | $150.6M | 29.4% | | **Gross Margin** | 42.7% | 42.2% | +50 bps | | **Operating Margin** | 8.8% | 7.8% | +100 bps | - The 53rd week in fiscal 2020 contributed approximately **$41.8 million** in net sales and **$6.4 million** in net income[258](index=258&type=chunk) - Comparable store sales increased **5.5%**, driven by a **4.8%** increase in customer transactions and a **0.7%** increase in average ticket[258](index=258&type=chunk) - The COVID-19 pandemic caused comparable store sales to decline by **20.8%** in Q1 and **9.6%** for the first half of 2020, but they increased by **18.4%** in Q3 and **21.6%** in Q4[223](index=223&type=chunk) - The company plans capital expenditures of **$440 million to $460 million** in fiscal 2021, primarily for opening **27 new stores** and relocating its Houston distribution center[280](index=280&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=66&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks include interest rate fluctuations on variable-rate debt, with minimal foreign currency exposure, and monitored inflation and commodity price changes - The company is exposed to interest rate risk from its variable-rate Term Loan Facility, which had a principal balance of **$217.8 million** at year-end[331](index=331&type=chunk) - A hypothetical **1.0%** increase in the effective interest rate would increase annual interest expense by approximately **$2.2 million**[331](index=331&type=chunk) - Foreign currency risk is limited as substantially all contracts with overseas suppliers are denominated in U.S. dollars[330](index=330&type=chunk) [Financial Statements and Supplementary Data](index=67&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal year 2020, including balance sheets, income statements, equity statements, and cash flow statements, prepared in conformity with U.S. GAAP Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Account | Amount | | :--- | :--- | | **Total Assets** | **$2.88B** | | Cash and cash equivalents | $307.8M | | Inventories, net | $654.0M | | Fixed assets, net | $579.4M | | Right-of-use assets | $916.3M | | **Total Liabilities** | **$1.88B** | | Trade accounts payable | $417.9M | | Lease liabilities | $1.04B | | Term loans | $208.8M | | **Total Stockholders' Equity** | **$997.4M** | Consolidated Statement of Operations Highlights (Fiscal Year 2020) | Account | Amount | | :--- | :--- | | **Net Sales** | **$2.43B** | | Gross Profit | $1.03B | | Operating Income | $214.6M | | **Net Income** | **$195.0M** | | Diluted Earnings Per Share | $1.84 | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[337](index=337&type=chunk)[346](index=346&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=104&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None reported[528](index=528&type=chunk) [Controls and Procedures](index=104&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the fourth quarter - Management concluded that both disclosure controls and procedures, and internal control over financial reporting, were effective as of December 31, 2020[529](index=529&type=chunk)[533](index=533&type=chunk) - No material changes were made to the company's internal control over financial reporting during the fourth quarter of fiscal 2020[534](index=534&type=chunk) [Other Information](index=104&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None reported[535](index=535&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=105&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[537](index=537&type=chunk) [Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive and director compensation is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[538](index=538&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=105&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information concerning security ownership of beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[539](index=539&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=105&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[539](index=539&type=chunk) [Principal Accounting Fees and Services](index=105&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[540](index=540&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=106&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Annual Report on Form 10-K, including financial statements and a comprehensive list of exhibits - This section contains a list of all financial statements and exhibits filed with the Form 10-K[541](index=541&type=chunk) [Form 10-K Summary](index=108&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - None provided[548](index=548&type=chunk)

Financial Data and Key Metrics Changes - Total sales for Q3 2020 increased by 31.4% to $684.8 million from $521.1 million in Q3 2019 [11] - Comparable store sales rose by 18.4%, exceeding expectations, with a year-to-date comparable store sales flat compared to last year [11][12] - Adjusted EBITDA reached a record $106.7 million, up 86.8% from $57.1 million in Q3 2019, with an adjusted EBITDA margin of 15.6% [13][47] - GAAP net income increased by 67.8% to $68.8 million from $41 million in the same period last year, with diluted earnings per share rising to $0.65 from $0.39 [48] Business Line Data and Key Metrics Changes - Three new warehouse stores were opened in Q3 2020, bringing the total to 128 stores, a 13.3% increase from 113 stores at the end of Q3 2019 [14] - E-commerce sales surged by 111.5% year-over-year, accounting for 16.6% of total sales compared to 10.2% last year [20] Market Data and Key Metrics Changes - Existing home sales grew for the fourth consecutive month in September, reaching a seasonally adjusted annual rate of 6.5 million, up 9.4% from the prior month and nearly 21% from last year [31] - The housing market is benefiting from sustained low mortgage interest rates, which are hovering at or below 3% [31] Company Strategy and Development Direction - The company plans to open five new warehouse stores in Q4 2020, aiming for a total of 133 stores by the end of fiscal 2020, a 10.8% increase from fiscal 2019 [15] - The company is focusing on enhancing its Pro Premier Rewards program to drive engagement with professional customers, with enrollment increasing by 30% year-over-year [24][26] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the economic recovery, citing factors such as increased savings rates and a shift in consumer spending towards home improvement due to COVID-19 [30][33] - The company remains cautious about potential risks related to COVID-19, including the possibility of renewed restrictions in certain markets [58] Other Important Information - The company announced the appointment of three new board members with significant operational and strategic expertise, effective January 1, 2021 [34][35] - The company maintained a strong liquidity position with unrestricted liquidity of $628.5 million as of September 24, 2020 [49] Q&A Session Summary Question: Trends throughout the quarter and geographic consistency - Management noted consistent improvement across all geographies, with September showing a strong exit rate of 20.8% [68] Question: Gross margin expectations for Q4 - Management clarified that the Q4 gross margin is expected to be up year-over-year but less than the 200 basis point increase seen in Q3 [72] Question: Comparison of flooring category performance - Management indicated that consumer apprehension about allowing professionals into homes is not a significant concern, as professionals are in demand [78] Question: Transportation costs and supply chain strategies - Management highlighted the effectiveness of long-term contracts in mitigating transportation cost increases, with no immediate impact felt [104] Question: October performance compared to September - Management confirmed that October's performance is consistent with the strong exit rate from September [106] Question: Future outlook for gross margins and housing turnover - Management acknowledged the potential for gross margins to improve but noted that it is too early to provide specific guidance for next year [108]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ Table of Contents FORM 10-Q _________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 24, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 001-38070 _________________ ...

Floor & Decor Holdings, Inc. (NYSE:FND) Q2 2020 Earnings Conference Call July 30, 2020 5:00 PM ET Company Participants Wayne Hood – Vice President of Investor Relations Tom Taylor – Chief Executive Officer Lisa Laube – President Trevor Lang – Executive Vice President and Chief Financial Officer Conference Call Participants Christopher Horvers – JPMorgan Zach Fadem – Wells Fargo Chuck Grom – Gordon Haskett Steven Forbes – Guggenheim Securities Michael Lasser – UBS Kate McShane – Goldman Sachs Simeon Gutman – ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements and notes are presented, detailing financial position, performance, and cash flows [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This table provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | As of June 25, 2020 | As of December 26, 2019 | | :-------------------- | :------------------ | :---------------------- | | **Assets** | | | | Total current assets | $829,981 | $701,486 | | Total long-term assets | $1,698,749 | $1,622,823 | | **Total assets** | **$2,528,730** | **$2,324,309** | | **Liabilities** | | | | Total current liabilities | $533,690 | $552,541 | | Total long-term liabilities | $1,144,544 | $1,007,432 | | **Total liabilities** | **$1,678,234** | **$1,559,973** | | **Stockholders' Equity** | | | | Total stockholders' equity | $850,496 | $764,336 | | **Total liabilities and stockholders' equity** | **$2,528,730** | **$2,324,309** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Unaudited)) This table outlines the company's financial performance over specific periods, including net sales, gross profit, operating income, and earnings per share | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | $462,352 | $520,311 | $1,017,289 | $997,361 | | Gross profit | $196,692 | $217,823 | $432,724 | $419,197 | | Operating income | $21,089 | $45,895 | $67,763 | $85,657 | | Income before income taxes | $19,801 | $43,672 | $64,668 | $80,513 | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Basic earnings per share | $0.31 | $0.44 | $0.68 | $0.76 | | Diluted earnings per share | $0.30 | $0.42 | $0.65 | $0.71 | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) This table details changes in stockholders' equity, including net income and stock-based compensation, between reporting periods | Metric (in thousands) | Balance, December 27, 2019 | Balance, June 25, 2020 | | :-------------------- | :------------------------- | :--------------------- | | Total Stockholders' Equity | $764,336 | $850,496 | | Net income | $37,063 (to March 26, 2020) | $32,004 (to June 25, 2020) | | Stock-based compensation expense | $2,908 (to March 26, 2020) | $4,234 (to June 25, 2020) | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This table summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (in thousands) | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $96,705 | $122,157 | | Net cash used in investing activities | $(65,994) | $(78,172) | | Net cash provided by financing activities | $76,672 | $6,821 | | Net increase in cash and cash equivalents | $107,383 | $50,806 | | Cash and cash equivalents, end of the period | $134,420 | $51,450 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Basis of Presentation and Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's business, the impact of the COVID-19 pandemic, and key accounting policy adoptions - The Company is a rapidly growing specialty retailer of hard surface flooring and related accessories, operating **125 warehouse-format stores** and **one small-format design center** across **30 states** as of **June 25, 2020**[20](index=20&type=chunk)[21](index=21&type=chunk) - The COVID-19 pandemic has materially negatively impacted fiscal 2020 operations and financial results, leading to temporary store closures and a shift to curbside pickup, though all stores reopened for in-store shopping by **June 25, 2020**, with June sales exceeding the prior year[25](index=25&type=chunk)[26](index=26&type=chunk) - The Company qualitatively assessed goodwill and indefinite-lived intangible assets for impairment as of **March 26, 2020**, and **June 25, 2020**, and determined no impairment occurred despite the pandemic's impact[31](index=31&type=chunk) - The Company negotiated rent deferrals or abatements totaling approximately **$5.9 million** as of **June 25, 2020**, in response to COVID-19[32](index=32&type=chunk) - The Company adopted ASU No. 2018-15 (Cloud Computing Arrangements) and ASU No. 2016-13 (Credit Losses) in **Q1 fiscal 2020**, neither of which had a material impact on financial statements[34](index=34&type=chunk)[35](index=35&type=chunk) [2. Revenues](index=10&type=section&id=2.%20Revenues) This section details the company's net sales broken down by various product categories over different reporting periods Net Sales by Product Category | Product Category | Thirteen Weeks Ended June 25, 2020 (Net Sales, in thousands) | Thirteen Weeks Ended June 27, 2019 (Net Sales, in thousands) | Twenty-six Weeks Ended June 25, 2020 (Net Sales, in thousands) | Twenty-six Weeks Ended June 27, 2019 (Net Sales, in thousands) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Tile | $118,981 | $136,319 | $253,893 | $261,629 | | Laminate / luxury vinyl plank | $105,427 | $108,218 | $230,421 | $205,720 | | Decorative accessories / wall tile | $87,547 | $97,594 | $201,144 | $192,034 | | Installation materials and tools | $73,213 | $88,592 | $167,789 | $168,301 | | Wood | $41,901 | $52,762 | $90,896 | $101,992 | | Natural stone | $30,319 | $32,903 | $65,196 | $63,790 | | Other | $4,964 | $3,923 | $7,950 | $3,895 | | **Total** | **$462,352** | **$520,311** | **$1,017,289** | **$997,361** | [3. Debt](index=12&type=section&id=3.%20Debt) This section provides an overview of the company's long-term debt, including refinancing activities and new credit facilities Long-Term Debt Summary | Metric (in thousands) | June 25, 2020 | December 26, 2019 | | :-------------------- | :------------ | :---------------- | | UBS Facility Term Loan B | $144,263 | $145,500 | | UBS Facility Term Loan B-1 | $75,000 | — | | Total secured debt at par value | $219,263 | $145,500 | | Net carrying amount | $209,535 | $142,606 | | Total long-term debt | $206,977 | $142,606 | - On **February 14, 2020**, the Company refinanced its Term Loan Facility, extending the maturity to **February 14, 2027**, and amended interest margins[44](index=44&type=chunk)[45](index=45&type=chunk) - On **May 18, 2020**, the Company secured a new **$75.0 million** incremental term loan B-1 facility to provide additional liquidity in response to COVID-19 uncertainties, receiving net proceeds of **$70.5 million**[46](index=46&type=chunk) - A **$1.0 million** gain on early extinguishment of debt was recognized in **Q2 fiscal 2020** due to the partial extinguishment of existing debt by a lender participating in the incremental term loan[49](index=49&type=chunk) - The ABL Facility was amended on **February 14, 2020**, increasing revolving commitments to **$400.0 million** and extending maturity to **February 14, 2025**. Net availability under the ABL Facility was **$362.1 million** as of **June 25, 2020**[50](index=50&type=chunk)[54](index=54&type=chunk) [4. Income Taxes](index=14&type=section&id=4.%20Income%20Taxes) This section explains the company's effective income tax rates and the significant impact of the CARES Act on tax benefits and refunds Effective Income Tax Rates | Period | Effective Tax Rate | | :----- | :----------------- | | Thirteen Weeks Ended June 25, 2020 | (61.6)% | | Thirteen Weeks Ended June 27, 2019 | 0.2% | | Twenty-six Weeks Ended June 25, 2020 | (6.8)% | | Twenty-six Weeks Ended June 27, 2019 | 7.7% | - The significant decrease in the effective tax rate for both the thirteen and twenty-six weeks ended **June 25, 2020**, was primarily due to income tax benefits from the **CARES Act** and higher excess tax benefits from stock option exercises[57](index=57&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The **CARES Act** allowed for a five-year carryback of net operating losses, resulting in a **$7.7 million** income tax benefit and an estimated **$28.4 million** in cash refunds for fiscal 2020 due to accelerated QIP depreciation[62](index=62&type=chunk)[63](index=63&type=chunk) - The Company deferred **$3.1 million** of employer social security taxes and recorded a **$1.1 million** credit for employee retention credits under the **CARES Act**[64](index=64&type=chunk)[65](index=65&type=chunk) [5. Commitments and Contingencies](index=16&type=section&id=5.%20Commitments%20and%20Contingencies) This section details the company's operating lease costs and ongoing legal proceedings, including class action lawsuits Total Lease Cost for Operating Leases | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Operating lease cost | $34,221 | $28,914 | $68,037 | $54,929 | | Sublease income | $(597) | $(606) | $(1,194) | $(1,229) | | **Total lease cost** | **$33,624** | **$28,308** | **$66,843** | **$53,700** | - The Company is involved in two putative class action lawsuits (Taylor v. Floor & Decor Holdings, Inc. and Lincolnshire Police Pension Fund v. Taylor, et al.) alleging federal securities law violations and breaches of fiduciary duties, respectively. The Company denies the allegations and is unable to reasonably estimate potential losses[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) [6. Stock-based Compensation](index=17&type=section&id=6.%20Stock-based%20Compensation) This section outlines the company's stock-based compensation expense, stock option activity, and unrecognized compensation costs for various equity awards - Stock-based compensation expense for the twenty-six weeks ended **June 25, 2020**, was **$7.1 million**, an increase from **$4.4 million** in the prior year period[76](index=76&type=chunk) Stock Option Activity (Twenty-six Weeks Ended June 25, 2020) | Metric | Options | Weighted Average Exercise Price | | :----- | :------ | :------------------------------ | | Outstanding at December 27, 2019 | 6,037,079 | $13.64 | | Granted | 278,499 | $57.22 | | Exercised | (1,291,255) | $6.71 | | Forfeited or expired | (91,618) | $23.00 | | Outstanding at June 25, 2020 | 4,932,705 | $17.74 | | Vested and exercisable at June 25, 2020 | 2,746,188 | $10.39 | - Total unrecognized compensation cost for stock options as of **June 25, 2020**, was **$20.2 million**, expected to be recognized over **2.6 years**[79](index=79&type=chunk) - The Company granted **114,440 restricted stock units** during the twenty-six weeks ended **June 25, 2020**, with a weighted average grant date fair value of **$56.76**[81](index=81&type=chunk) - Total unrecognized compensation cost for restricted stock units was **$5.9 million**, expected to be recognized over **3.7 years**[81](index=81&type=chunk) - The Company issued performance-based, TSR, and service-based restricted stock awards to executive officers and non-employee directors, with a weighted average grant date fair value of **$53.85**[82](index=82&type=chunk)[83](index=83&type=chunk) - Total unrecognized compensation cost for restricted stock awards was **$18.5 million**, expected to be recognized over **3.1 years**[83](index=83&type=chunk) [7. Earnings Per Share](index=20&type=section&id=7.%20Earnings%20Per%20Share) This section presents the calculation of basic and diluted earnings per share, including net income and weighted average shares outstanding Basic and Diluted Earnings Per Share | Metric (in thousands, except per share data) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :------------------------------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Basic weighted average shares outstanding | 102,114 | 98,642 | 101,872 | 98,214 | | Dilutive effect of share-based awards | 3,352 | 6,198 | 3,604 | 6,392 | | Diluted weighted average shares outstanding | 105,466 | 104,840 | 105,476 | 104,606 | | Basic earnings per share | $0.31 | $0.44 | $0.68 | $0.76 | | Diluted earnings per share | $0.30 | $0.42 | $0.65 | $0.71 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and operating results, highlighting COVID-19 impacts, key performance indicators, liquidity, and debt [Forward-Looking Statements](index=21&type=section&id=Forward-Looking%20Statements) This section cautions readers about forward-looking statements and outlines key risks that could affect future financial results and business operations - The report contains forward-looking statements regarding future operating results, financial position, business strategy, and the impact of the COVID-19 pandemic, which are subject to known and unknown risks and uncertainties[87](index=87&type=chunk)[88](index=88&type=chunk) - Key risk factors include economic decline, the COVID-19 pandemic's impact on staffing and credit markets, distribution disruptions, competition, inability to manage growth, dependence on foreign imports, and regulatory violations[89](index=89&type=chunk)[94](index=94&type=chunk) [Overview](index=22&type=section&id=Overview) This section provides a high-level description of the company's business as a specialty retailer and its strategic investments during the reporting period - Floor & Decor is a high-growth, multi-channel specialty retailer of hard surface flooring, operating **125 warehouse-format stores** across **30 states** as of **June 25, 2020**[92](index=92&type=chunk) - Strategic investments during the twenty-six weeks ended **June 25, 2020**, included opening **five new stores**, focusing on innovative products, investing in customer and Pro personnel/technology, enhancing in-store experience, and protecting employee/customer health[95](index=95&type=chunk) [COVID-19 Update](index=22&type=section&id=COVID-19%20Update) This section details the operational and sales impact of the COVID-19 pandemic, including store closures, curbside services, and reopening strategies Comparable Store Sales Impact from COVID-19 | Period | Comparable Store Sales Change | | :----- | :---------------------------- | | Thirteen Weeks Ended June 25, 2020 | (20.8)% | | Twenty-six Weeks Ended June 25, 2020 | (9.6)% | | Second Quarter Fiscal 2020 (curbside model) | (49.6)% | | Second Quarter Fiscal 2020 (in-store shopping) | 8.6% | - The Company temporarily limited most stores to curbside services from late March through early May, significantly impacting sales, but all stores reopened for in-store shopping by June, with positive comparable sales thereafter[94](index=94&type=chunk)[96](index=96&type=chunk) - The Company's priorities during the pandemic are to protect employee/customer health, maintain brand strength and customer support, and position the company for strong emergence[99](index=99&type=chunk) [Coronavirus Aid, Relief, and Economic Security Act](index=23&type=section&id=Coronavirus%20Aid,%20Relief,%20and%20Economic%20Security%20Act) This section explains the financial benefits received from the CARES Act, including income tax benefits, cash refunds, and deferred employer social security taxes - The **CARES Act** provided a **$7.7 million** income tax benefit for the thirteen and twenty-six weeks ended **June 25, 2020**, due to accelerated depreciation of qualified improvement property (QIP) and net operating loss carrybacks[100](index=100&type=chunk) - The Company expects to receive an estimated **$28.4 million** in cash refunds in fiscal 2020 related to the **CARES Act** provisions[100](index=100&type=chunk) - Cash savings in fiscal 2020 include **$3.1 million** from deferred employer social security taxes and **$1.1 million** from employee retention credits[100](index=100&type=chunk) [Key Performance Indicators](index=24&type=section&id=Key%20Performance%20Indicators) This section identifies the primary metrics used by management to evaluate the company's financial and operational performance - Key performance indicators include comparable store sales, new store openings, gross profit and margin, operating income, and EBITDA/Adjusted EBITDA[101](index=101&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial results, including sales, gross profit, and various operating expenses [Selected Financial Information](index=26&type=section&id=Selected%20Financial%20Information) This table presents key financial and operational metrics, including comparable store sales, store count, and Adjusted EBITDA Selected Financial Information | Metric | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :----- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Comparable store sales (% change) | (20.8)% | 3.0% | (9.6)% | 3.1% | | Comparable average ticket (% change) | 2.0% | 1.9% | 2.5% | 1.5% | | Comparable customer transactions (% change) | (22.3)% | 1.1% | (11.9)% | 1.5% | | Number of warehouse-format stores | 125 | 106 | 125 | 106 | | Adjusted EBITDA (in thousands) | $45,555 | $66,592 | $118,681 | $126,660 | | Adjusted EBITDA margin | 9.9% | 12.8% | 11.7% | 12.7% | [Net Sales](index=26&type=section&id=Net%20Sales) This section analyzes changes in net sales, attributing fluctuations to comparable store sales, new store openings, and customer transaction trends - Net sales decreased by **$58.0 million (11.1%)** for the thirteen weeks ended **June 25, 2020**, primarily due to a **20.8% decrease** in comparable store sales, partially offset by new store openings[106](index=106&type=chunk) - For the twenty-six weeks ended **June 25, 2020**, net sales increased by **$19.9 million (2.0%)**, driven by new store sales, but offset by a **9.6% decrease** in comparable store sales[107](index=107&type=chunk) - The decrease in comparable store sales was primarily due to a decline in customer transactions (**22.3%** for 13 weeks, **11.9%** for 26 weeks) caused by COVID-19 operational disruptions, partially offset by an increase in comparable average ticket[106](index=106&type=chunk)[107](index=107&type=chunk) [Gross Profit and Gross Margin](index=26&type=section&id=Gross%20Profit%20and%20Gross%20Margin) This section discusses the drivers behind changes in gross profit and margin, including product costs and merchandising strategies - Gross profit decreased by **$21.1 million (9.7%)** for the thirteen weeks ended **June 25, 2020**, but gross margin increased by **60 basis points** to **42.5%**, driven by lower product costs from tariff elimination and improved merchandising[109](index=109&type=chunk) - For the twenty-six weeks ended **June 25, 2020**, gross profit increased by **$13.5 million (3.2%)**, with gross margin increasing by **50 basis points** to **42.5%** due to similar factors[110](index=110&type=chunk) [Selling and Store Operating Expenses](index=26&type=section&id=Selling%20and%20Store%20Operating%20Expenses) This section analyzes the trends in selling and store operating expenses, considering new store openings and sales disruptions - Selling and store operating expenses increased by **$3.8 million (2.8%)** for the thirteen weeks and **$29.5 million (11.3%)** for the twenty-six weeks ended **June 25, 2020**, primarily due to **19 new store openings**[111](index=111&type=chunk)[112](index=112&type=chunk) - As a percentage of net sales, these expenses increased by approximately **400 basis points (to 29.9%)** for the thirteen weeks and **240 basis points (to 28.7%)** for the twenty-six weeks, mainly due to sales disruptions from the pandemic[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [General and Administrative Expenses](index=27&type=section&id=General%20and%20Administrative%20Expenses) This section examines changes in general and administrative expenses, including depreciation, incentive compensation, and cost-saving measures - General and administrative expenses increased by **$2.8 million (9.0%)** for the thirteen weeks and **$3.5 million (5.6%)** for the twenty-six weeks ended **June 25, 2020**, driven by increased depreciation and incentive compensation[114](index=114&type=chunk)[115](index=115&type=chunk) - As a percentage of net sales, these expenses increased to **7.3% (up 140 bps)** for the thirteen weeks and **6.3% (up 20 bps)** for the twenty-six weeks, influenced by pandemic-related sales impact and cost-saving measures[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [Pre-Opening Expenses](index=27&type=section&id=Pre-Opening%20Expenses) This section details the fluctuations in pre-opening expenses, primarily influenced by the number of new store openings or preparations - Pre-opening expenses decreased by **$2.9 million (46.1%)** for the thirteen weeks and **$1.5 million (14.7%)** for the twenty-six weeks ended **June 25, 2020**, due to fewer store openings or preparations compared to the prior year[117](index=117&type=chunk)[118](index=118&type=chunk) [Interest Expense](index=27&type=section&id=Interest%20Expense) This section analyzes changes in net interest expense, considering new borrowings, interest rates, and interest income from tariff refunds - Net interest expense slightly increased by **$0.1 million (3.6%)** for the thirteen weeks ended **June 25, 2020**, due to new borrowings, offset by higher interest income[119](index=119&type=chunk) - Net interest expense decreased by **$1.0 million (20.1%)** for the twenty-six weeks ended **June 25, 2020**, primarily due to lower interest rates on borrowings and increased interest income from tariff refund receivables[120](index=120&type=chunk) [Income Taxes](index=27&type=section&id=Income%20Taxes) This section discusses the company's income tax benefit or expense, highlighting the impact of the CARES Act - The Company reported an income tax benefit of **$12.2 million** for the thirteen weeks and **$4.4 million** for the twenty-six weeks ended **June 25, 2020**, compared to expenses in the prior year, primarily due to **CARES Act** benefits[121](index=121&type=chunk)[122](index=122&type=chunk) [Non-GAAP Financial Measures](index=28&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial metrics like EBITDA and Adjusted EBITDA, used for performance assessment - EBITDA and Adjusted EBITDA are key non-GAAP metrics used by management and the board to assess financial performance, eliminate non-core operating expenses, and evaluate business strategies[123](index=123&type=chunk) Reconciliation of Net Income to EBITDA and Adjusted EBITDA | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Depreciation and amortization | $21,991 | $17,392 | $43,664 | $34,263 | | Interest expense, net | $2,303 | $2,223 | $4,110 | $5,144 | | Gain on early extinguishment of debt | $(1,015) | — | $(1,015) | — | | Income tax (benefit) expense | $(12,203) | $76 | $(4,399) | $6,197 | | **EBITDA** | **$43,080** | **$63,287** | **$111,427** | **$119,920** | | Stock compensation expense | $4,234 | $2,168 | $7,142 | $4,418 | | COVID-19 costs | $1,601 | — | $2,911 | — | | Tariff refunds | $(3,615) | — | $(4,016) | — | | Other | $255 | $1,137 | $1,217 | $2,322 | | **Adjusted EBITDA** | **$45,555** | **$66,592** | **$118,681** | **$126,660** | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources of liquidity, cash needs, and proactive measures taken in response to the COVID-19 pandemic - Liquidity is primarily provided by cash flows from operations and the **$400.0 million** asset-backed revolving credit facility (ABL Facility)[130](index=130&type=chunk) - Unrestricted liquidity as of **June 25, 2020**, was **$496.5 million**, comprising **$134.4 million** in cash and cash equivalents and **$362.1 million** available under the ABL Facility[130](index=130&type=chunk) - Primary cash needs include merchandise inventories, payroll, store rent, operating expenses, and capital expenditures for new/remodeling stores, IT, e-commerce, and store support center infrastructure[131](index=131&type=chunk) - The COVID-19 pandemic has significantly impacted liquidity, leading to proactive measures such as reducing operating expenses and capital expenditures, and securing a **$75.0 million** incremental term loan[136](index=136&type=chunk) - Planned capital expenditures for fiscal 2020 are revised higher to **$188.0 million to $196.0 million**, primarily for **13 new warehouse-format stores**, existing store remodels, and IT investments[138](index=138&type=chunk)[139](index=139&type=chunk) [Cash Flow Analysis](index=31&type=section&id=Cash%20Flow%20Analysis) This section provides a summary and analysis of cash flows from operating, investing, and financing activities Summary of Cash Flow Activities | Metric (in thousands) | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $96,705 | $122,157 | | Net cash used in investing activities | $(65,994) | $(78,172) | | Net cash provided by financing activities | $76,672 | $6,821 | | Net increase in cash and cash equivalents | $107,383 | $50,806 | - Net cash provided by operating activities decreased to **$96.7 million** (from **$122.2 million**) for the twenty-six weeks ended **June 25, 2020**, primarily due to an increase in inventory and other working capital[142](index=142&type=chunk) - Net cash used in investing activities decreased to **$66.0 million** (from **$78.2 million**) for the twenty-six weeks ended **June 25, 2020**, mainly due to fewer new stores under construction[144](index=144&type=chunk) - Net cash provided by financing activities significantly increased to **$76.7 million** (from **$6.8 million**) for the twenty-six weeks ended **June 25, 2020**, driven by net proceeds from the incremental term loan facility[146](index=146&type=chunk) [Credit Facility Amendments](index=31&type=section&id=Credit%20Facility%20Amendments) This section details the refinancing and amendments made to the company's Term Loan and ABL Facilities, including new incremental term loans - The Term Loan Facility was refinanced and extended to **February 14, 2027**, with an 'accordion' feature for additional borrowings[147](index=147&type=chunk) - The ABL Facility was amended to increase revolving commitments to **$400.0 million** and extend maturity to **February 14, 2025**, also including an 'accordion' feature[147](index=147&type=chunk) - A new **$75.0 million** incremental term loan B-1 facility was established on **May 18, 2020**, maturing **February 14, 2027**, to support growth and for general corporate purposes[148](index=148&type=chunk) [Credit Ratings](index=32&type=section&id=Credit%20Ratings) This section reports on the company's credit ratings from Moody's and S&P, including any changes in outlook - Moody's upgraded the Company's issuer corporate family rating to **Ba3** (from **B1**) in **November 2019** but changed the outlook to negative (from stable) in **April 2020**[150](index=150&type=chunk) - S&P reaffirmed the Company's corporate credit rating of **BB-** with a stable outlook in **November 2019**[150](index=150&type=chunk) [U.S. Tariffs and Global Economy](index=32&type=section&id=U.S.%20Tariffs%20and%20Global%20Economy) This section discusses the impact of U.S. tariffs on products imported from China and the company's mitigation strategies - Approximately **half** of the Company's products were historically imported from China, with many impacted by **25% U.S. tariffs**[151](index=151&type=chunk) - The Company is mitigating tariff impacts by negotiating lower vendor costs, increasing retail pricing, and sourcing from alternative countries[151](index=151&type=chunk) [Antidumping and Countervailing Duties](index=32&type=section&id=Antidumping%20and%20Countervailing%20Duties) This section outlines the duties imposed on ceramic tile imports from China and the company's actions to mitigate future exposure - The U.S. Department of Commerce imposed final countervailing duties of **358.81%** and antidumping duties of **203.71% or 330.69%** on ceramic tile imports from China[152](index=152&type=chunk) - The Company has ceased importing applicable products from China to mitigate future exposure and estimates potential exposure up to **$6.0 million** for additional duties, though no reserve has been established[154](index=154&type=chunk) [Contractual Obligations](index=33&type=section&id=Contractual%20Obligations) This section confirms that there were no material changes to contractual obligations during the reporting period - There were no material changes to contractual obligations outside the ordinary course of business during the twenty-six weeks ended **June 25, 2020**[155](index=155&type=chunk) [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) This section states that the company was not party to any material off-balance sheet arrangements - The Company was not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition or results of operations[156](index=156&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section addresses the potential impact of the COVID-19 pandemic on critical accounting estimates and policies - The COVID-19 pandemic could impact estimates used for critical accounting policies, but as of the report date, no specific events required an update to estimates or materially affected asset/liability carrying values[157](index=157&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, focusing on interest rate fluctuations and COVID-19 impacts [Interest Rate Risk](index=33&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to variable interest rates on its credit facilities and the potential impact of rate changes - The Company is exposed to interest rate fluctuations on its variable-rate Credit Facilities, with approximately **$219.3 million** in outstanding variable rate debt as of **June 25, 2020**[160](index=160&type=chunk) - A **1.0% increase** in the effective interest rate would increase interest expense by approximately **$2.2 million** over the next twelve months[160](index=160&type=chunk) - An interest rate cap agreement caps LIBOR at **2.0%**, but its impact is not anticipated to be significant in the near term due to historically low interest rates following central bank actions in response to COVID-19[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=34&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of **June 25, 2020**[161](index=161&type=chunk) [Changes in Internal Control Over Financial Reporting](index=34&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on the absence of any material changes in the company's internal control over financial reporting - There have been no material changes in the Company's internal control over financial reporting during the fiscal quarter ended **June 25, 2020**[162](index=162&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed discussion of legal proceedings, including litigation and tariff impacts - Legal proceedings, including litigation and impacts from U.S. tariffs and global economy, are detailed in Note 5 and Item 2 of this report[163](index=163&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risk factors that could materially affect the company's business, focusing on COVID-19 impacts - The COVID-19 pandemic is negatively impacting the Company's net sales, results of operations, financial position, store operations, new store openings, and earnings[164](index=164&type=chunk) - Responses to COVID-19 included temporary store closures, shifting to curbside pickup, furloughs, cost savings, and phased reopening with enhanced safety measures[166](index=166&type=chunk) - Potential future risks include re-emerging business interruptions, difficulty accessing liquidity, staffing challenges due to illness or quarantine, supply chain disruptions, construction delays, increased cybersecurity risks, and reduced consumer demand[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[173](index=173&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities to report[174](index=174&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[175](index=175&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information to report[176](index=176&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, credit agreements, and certifications - Exhibits include Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Amendment No. 4 and Incremental Term Loan Agreement, Section 302 and 906 Certifications, and XBRL documents[178](index=178&type=chunk) SIGNATURES [Signatures](index=38&type=section&id=Signatures) This section contains the required signatures of the company's principal executive and financial officers, certifying the report's submission - The report is signed by Thomas V. Taylor, Chief Executive Officer, and Trevor S. Lang, Executive Vice President and Chief Financial Officer, on **July 30, 2020**[184](index=184&type=chunk)

Floor & Decor Holdings, Inc. (NYSE:FND) Q1 2020 Earnings Conference Call April 30, 2020 5:00 PM ET Company Participants Wayne Hood - VP of IR Thomas Taylor - CEO Trevor Lang - EVP & CFO Lisa Laube - President Conference Call Participants Simeon Gutman - Morgan Stanley Steven Forbes - Guggenheim Securities Chris Horvers - JPMorgan Seth Sigman - Crédit Suisse Mike Lasser - UBS Matt McClintock - Raymond James John Baugh - Stifel Peter Keith - Piper Sandler Chuck Grom - Gordon Haskett Kate McShane - Goldman Sac ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 26, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-38070 Floor & Decor Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware 27-3730271 (State or o ...