NATIONAL VISION HOLDINGS, INC. The following contains management's discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q (this "Form 10-Q") and the audited consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC") onFebruary 26, 2020 (the "2019 Annual Report on Form 10-K"). This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of the 2019 Annual Report on Form 10-K and in the "Risk Factors" section of this Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with theSEC . Actual results may differ materially from those contained in any forward-looking statements. You should carefully read "Special Note Regarding Forward-Looking Statements" in this Form 10-Q. Overview We are one of the largest and fastest growing optical retailers inthe United States and a leader in the attractive value segment of theU.S. optical retail industry. We believe that vision is central to quality of life and that people deserve to see their best to live their best, regardless of their budget. Our mission is to make quality eye care and eyewear affordable and accessible to all Americans. We achieve this by providing eye exams, eyeglasses and contact lenses to value seeking and lower income consumers. We deliver exceptional value and convenience to our customers, with an opening price point that strives to be among the lowest in the industry, enabled by our low-cost operating platform. We reach our customers through a diverse portfolio of 1,201 retail stores across five brands and 19 consumer websites as ofSeptember 26, 2020 . COVID-19 The COVID-19 pandemic and related federal, state and local governmental and healthcare authority guidelines continue to impact our business results and cause business disruption in theU.S. and globally. To date, the COVID-19 pandemic and related healthcare authority actions have directly and indirectly impacted our operations, including the temporary closure of our stores to the public between March andJune 2020 , and on consumer behavior, comparable store sales, our employees and optometrists and the overall market. The COVID-19 pandemic has resulted in, and may continue to result in, state, city or local quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or voluntary shut-downs of retail locations, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, have had, and we expect will continue to have, material adverse impacts on our business, financial condition and results of operations. The scope and nature of these impacts continue to evolve on a daily basis, including with a potential resurgence in COVID-19 cases for the latter portion of this fiscal year. Since the onset of the COVID-19 pandemic, we have focused on ensuring the health and safety of our employees and customers, securing liquidity, reducing expenses and deferring discretionary capital expenditures. In response to the pandemic, we temporarily closed all of our stores to the public across theU.S. onMarch 19, 2020 and successfully re-opened all stores with enhanced safety and cleaning protocols byJune 8, 2020 . We also suspended all non-essential travel for our employees and have implemented a remote work policy for certain corporate employees. OnMarch 17, 2020 , as a precautionary measure to preserve financial flexibility during the COVID-19 pandemic, we borrowed the remaining$146.3 million in available funds under our revolving credit facility and, onMay 12, 2020 , using proceeds from our issuance described below we repaid the full amount outstanding under our revolving credit facility. OnMay 12, 2020 , we completed the issuance of 2.50% convertible senior notes due onMay 15, 2025 (the "2025 Notes") and used the net proceeds to repay our outstanding borrowings under our term loan and revolving credit facility. We also entered into an amendment ("Credit Agreement Amendment") of our Amended and Restated Credit Agreement, dated as ofJuly 18, 2019 ("Credit Agreement") to suspend certain financial maintenance covenants until testing at the end of the second fiscal quarter of 2021, allowing us to focus on the prudent management of the business. Since the beginning of the pandemic, we have also implemented capital spending and expense reduction initiatives, including a temporary pause in new store openings between March andJune 2020 , reduced near term marketing, a temporary reduction in compensation across the organization until the second quarter of 2020, and working with a base of vendors and landlords to extend payment terms and modify existing contracts. In the third quarter of 2020 we paid a tangible appreciation bonus to our customer-facing doctors and associates. We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence, including its anticipated duration, and, related healthcare authority guidelines. We will continue to evaluate additional measures that we may elect to take as a response to the pandemic, including, where appropriate, 31 -------------------------------------------------------------------------------- Table of Contents future action to reduce store hours and patient appointments or temporarily close stores. There can be no assurance whether or when any such measures will be adopted. The disclosures contained in this Form 10-Q are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. For further information, please see "Risk Factors" and "Forward-Looking Statements." Brand and Segment Information Our operations consist of two reportable segments: •Owned & Host - As ofSeptember 26, 2020 , our owned brands consisted of 769America's Best Contacts and Eyeglasses ("America's Best") retail stores and 119Eyeglass World retail stores. In America's Best stores, vision care services are provided by optometrists employed by us or by independent professional corporations or similar entities. America's Best stores are primarily located in high-traffic strip centers next to value-focused retailers.Eyeglass World locations primarily feature vision care services provided by independent optometrists and optometrists employed by independent professional corporations or similar entities and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site.Eyeglass World stores are primarily located in freestanding or in-line locations near high-foot-traffic shopping centers. Our host brands consisted of 54 Vista Optical locations on select military bases and 29 Vista Optical locations within select Fred Meyer stores as ofSeptember 26, 2020 . We have strong, long-standing relationships with our host partners and have maintained each partnership for over 20 years. These brands provide eye exams primarily by independent optometrists. All brands utilize our centralized laboratories. This segment also includes sales from our America's Best,Eyeglass World , and Military omni-channel websites. •Legacy - We manage the operations of, and supply inventory and laboratory processing services to, 230 Vision Centers in Walmart retail locations as ofSeptember 26, 2020 . This strategic relationship with Walmart is in its 30th year. Pursuant to aJanuary 2020 amendment to our management & services agreement with Walmart, we added five additional Vision Centers in Walmart stores in fiscal year 2020. OnJuly 17, 2020 , NVI and Walmart extended the current term and economics of the management & services agreement by three years toFebruary 23, 2024 ; refer to Note 11. "Segment Reporting" included in Part I. Item 1. of this Form 10-Q for further information. Under the management & services agreement, our responsibilities include ordering and maintaining merchandise inventory; arranging the provision of optometry services; providing managers and staff at each location; training personnel; providing sales receipts to customers; maintaining necessary insurance; obtaining and holding required licenses, permits and accreditations; owning and maintaining store furniture, fixtures and equipment; and developing annual operating budgets and reporting. We earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner's customers on a net basis. Our management & services agreement also allows our legacy partner to collect penalties if the Vision Centers do not generate a requisite amount of revenues. No such penalties have been assessed under our current arrangement, which began in 2012. We also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement, and provide centralized laboratory services for the finished eyeglasses for our legacy partner's customers in stores that we manage. We lease space from Walmart within or adjacent to each of the locations we manage and use this space for vision care services provided by independent optometrists or optometrists employed by us or by independent professional corporations or similar entities. During the nine months endedSeptember 26, 2020 , sales associated with our legacy partner arrangement represented 8.4% of consolidated net revenue. This exposes us to concentration of customer risk. 32 -------------------------------------------------------------------------------- Table of Contents Our consolidated results also include the following activity recorded in our Corporate/Other category: •Our e-commerce platform of 15 dedicated websites managed byAC Lens . Our e-commerce business consists of six proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and nine third-party websites with established retailers, such as Walmart,Sam's Club and Giant Eagle as well as mid-sized vision insurance providers.AC Lens handles site management, customer relationship management and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories. •AC Lens also distributes contact lenses wholesale to Walmart andSam's Club . We incur costs at a higher percentage of sales than other product categories.AC Lens sales associated with Walmart andSam's Club contact lenses distribution arrangements represented 7.7% of consolidated net revenue. •Managed care business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan underCalifornia law, which arranges for the provision of optometric services at the offices next to certain Walmart stores throughoutCalifornia , and also issues individual vision care benefit plans in connection with our America's Best operations inCalifornia . •Unallocated corporate overhead expenses, which are a component of selling, general and administrative expenses and are comprised of various home office expenses such as payroll, occupancy costs, and consulting and professional fees. Corporate overhead expenses also include field services for our five retail brands. Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except reportable segment sales which are presented on a cash basis including point of sales for managed care payors and excluding the effects of unearned and deferred revenue, consistent with what our chief operating decision maker ("CODM") regularly reviews. Reconciliations of segment results to consolidated results include financial information necessary to adjust reportable segment revenues to a consolidated basis in accordance withU.S. GAAP, specifically the change in unearned and deferred revenues during the period. There are no revenue transactions between reportable segments, and there are no other items in the reconciliations other than the effects of unearned and deferred revenue. See Note 11. "Segment Reporting" in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q. Deferred revenue represents the timing difference of when we collect the cash from the customer and when services related to product protection plans and eye care club memberships are performed. Increases or decreases in deferred revenue during the reporting period represent cash collections in excess of or below the recognition of previous deferrals. Unearned revenue represents the timing difference of when we collect cash from the customer and delivery/customer acceptance, and includes sales of prescription eyewear during approximately the last seven to 10 days of the reporting period. Trends and Other Factors Affecting Our Business COVID-19 Impact The COVID-19 pandemic has had far-reaching impacts, directly and indirectly, on our operations. We are continuing to monitor the impacts COVID-19 has had, and continues to have, on our domestic labs and our outsourced third party optical laboratories inChina andMexico , including potential disruptions of product deliveries. To date, we have been able to meet customer demand with operations at our laboratories. We source merchandise from suppliers located inChina and a significant amount of domestically-purchased merchandise is manufactured inChina . We have partnered with our suppliers and third party laboratories to mitigate any potential significant delays in delivery of merchandise. Our e-commerce business remained open to serve our customers during the unprecedented period of temporary store closures. We incurred costs of$4.7 million and$7.8 million in the three and nine months endedSeptember 26, 2020 , respectively, primarily for a tangible appreciation bonus paid to our customer-facing doctors and associates, as well as personal protective equipment and other supplies needed to operate our stores safely. Incremental expenses related to the COVID-19 pandemic are not allocated to the reportable segments, but are included in the Corporate/Other category. 33 -------------------------------------------------------------------------------- Table of Contents We have seen, and may continue to see, material reductions in sales across brands and regions as a result of the COVID-19 pandemic. In addition, these reductions in revenue have not been offset by proportional decreases in expense, as we continued to incur store occupancy costs even while stores were temporarily closed, incremental costs directly related to adapting the Company's operations to the COVID-19 pandemic and certain other costs such as compensation and administrative expenses, resulting in a negative effect on profitability. In addition, we could experience further material impacts as a result of COVID-19, including, but not limited to, charges from additional asset impairment, deferred tax valuation allowances and further changes in the effectiveness of our hedging instruments. We believe our financial results in the third quarter of 2020 benefited from strong customer demand, including the effect of our stores being temporarily closed to the public earlier in the year. However, the current circumstances are dynamic and the impacts of COVID-19 on our business operations, including the duration and impact on overall customer demand, are highly uncertain, although COVID-19 has had, and may continue to have, a material adverse impact on our business, results of operations, financial condition and cash flows in fiscal 2020 to date and beyond. The Company recorded income totaling$0.2 million and$11.0 million as a result of the employee retention credits made available under the CARES Act forU.S. employees during the three and nine months endedSeptember 26, 2020 ; recognizing$0.2 million as a reduction to SG&A during the three months endedSeptember 26, 2020 , and recognizing$0.4 million as a reduction to costs of products,$6.2 million as a reduction to costs of services and plans, and$4.4 million as a reduction to SG&A during the nine months endedSeptember 26, 2020 . It is possible that our preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect our business and results of operations. For a discussion of significant risks that have the potential to cause our actual results to differ materially from our expectations, refer to "Item 1A. Risk Factors," included in our 2019 Annual Report on Form 10-K and in this Form 10-Q. Other developments As a result of theU.S. government's temporary reduction of tariff rates affecting certain of our products that originate inChina , we recognized an immaterial reduction in costs of products for the three and nine months endedSeptember 26, 2020 . The temporary reduction of tariff rates expired in September, 2020. We are monitoring ongoing political developments betweenChina andthe United States . A worsening of relations could lead to the imposition of additional tariffs, or may cause other disruptions in our supply of products fromChina . Long-term trends and factors We remain committed to our long-term vision and continue to position ourselves to make progress against our key initiatives while balancing the near-term challenges and unprecedented uncertainty presented by the COVID-19 pandemic. As a result of the COVID-19 pandemic, we implemented capital spending and expense reduction initiatives including a temporary pause in new store openings between March andJune 2020 , reduced near term marketing spend, temporarily reduced compensation and work hours across the organization, and worked with a base of vendors and landlords to extend payment terms and modify existing contracts. We have also incurred and will continue to incur incremental costs directly related to adapting the Company's operations to the COVID-19 pandemic. While we experienced stronger comparable store sales growth in the third quarter of 2020, we anticipate that comparable store sales growth figures for the fiscal years 2020 and 2021 will reflect the effects of store closures and the pandemic. We believe that the following areas will continue to be affected and relevant risk exposures may be exacerbated by the immediate and ongoing threat of the COVID-19 pandemic: •New store openings; •Comparable store sales growth; •Managed care and insurance; •Vision care professional recruitment and coverage; •Overall economic trends; •Consumer preferences and demand; •Infrastructure and investment; •Pricing strategy; •Inflation; •Interim results and seasonality; 34 -------------------------------------------------------------------------------- Table of Contents •Competition; and •Consolidation in the industry How We Assess the Performance of Our Business While we have historically attempted to exercise prudence in our use of cash, the COVID-19 pandemic has required us to closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding. We will continue to be focused on these items in addition to the other key measures we use to determine how our consolidated business and operating segments are performing, including: net revenue, costs applicable to revenue, and selling, general, and administrative expenses. In addition, we also review store growth,Adjusted Comparable Store Sales Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS. Net Revenue We report as net revenue amounts generated in transactions with retail customers who are the end users of our products, services, and plans. Net product sales include sales of prescription and non-prescription eyewear, contact lenses, and related accessories as well as eye exam services associated with our America's Best brand's signature offer of two pairs of eyeglasses and a free eye exam for one low price ("two-pair offer") to retail customers and sales of inventory in which our customer is another retail entity. Net sales of services and plans include sales of eye exams, eye care club memberships, product protection plans (i.e., warranties), and single service eye care plans inCalifornia . Net sales of services and plans also include fees we earn for managing certain Vision Centers located in Walmart stores and for laboratory services provided to Walmart. Costs Applicable to Revenue Costs applicable to revenue include both costs of net product sales and costs of net sales of services and plans. Costs of net product sales include (i) costs to procure non-prescription eyewear, contact lenses, and accessories, which we purchase and sell in finished form, (ii) costs to manufacture finished prescription eyeglasses, including direct materials, labor, and overhead, and (iii) remake costs, warehousing and distribution expenses, and internal transfer costs. Costs of services and plans include costs associated with product protection plan programs, eye care club memberships, single service eye care plans inCalifornia , eye care practitioner and eye exam technician payroll, taxes and benefits and optometric and other service costs. Customer tastes and preferences, product mix, changes in technology, significant increases or slowdowns in production, and other factors impact costs applicable to revenue. The components of our costs applicable to revenue may not be comparable to other retailers. Selling, General and Administrative Selling, general and administrative expenses, or SG&A, include store associate (including optician) payroll, taxes and benefits, occupancy, advertising and promotion, field services, corporate support and other costs associated with the provision of vision care services. Non-capital expenditures associated with opening new stores, including rent, store maintenance, marketing expenses, travel and relocation costs, and training costs, are recorded in SG&A as incurred. SG&A generally fluctuates consistently with revenue due to the variable store, field office and corporate support costs; however, some fixed costs slightly improve as a percentage of net revenue as our net revenues grow over time. New Store Openings The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results. In an effort to conserve cash during the COVID-19 pandemic, we temporarily paused new store openings during a portion of the nine months endedSeptember 26, 2020 . We expect to open 57 stores in the current year. We will continue to monitor and determine our plans for future new store openings based on based on health, safety and economic conditions. 35 -------------------------------------------------------------------------------- Table of Contents Adjusted Comparable Store Sales Growth We measure Adjusted Comparable Store Sales Growth as the increase or decrease in sales recorded by the comparable store base in any reporting period, compared to sales recorded by the comparable store base in the prior reporting period, which we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the order is placed and paid for or submitted to a managed care payor, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation during the 13th full fiscal month following the store's opening; (iii) closed stores are removed from the calculation for time periods that are not comparable; (iv) sales from partial months of operation are excluded when stores do not open or close on the first day of the month; and (v) when applicable, we adjust for the effect of the 53rd week. Quarterly, year-to-date and annual adjusted comparable store sales are aggregated using only sales from all whole months of operation included in both the current reporting period and the prior reporting period. When a partial month is excluded from the calculation, the corresponding month in the subsequent period is also excluded from the calculation. There may be variations in the way in which some of our competitors and other retailers calculate comparable store sales. As a result, our adjusted comparable store sales may not be comparable to similar data made available by other retailers. We did not adjust our calculation of Adjusted Comparable Store Sales Growth for the temporary closure of our stores to the public as a result of the COVID-19 pandemic. Adjusted Comparable Store Sales Growth is a non-GAAP financial measure, which we believe is useful because it provides timely and accurate information relating to the two core metrics of retail sales: number of transactions and value of transactions. We use Adjusted Comparable Store Sales Growth as the basis for key operating decisions, such as allocation of advertising to particular markets and implementation of special marketing programs. Accordingly, we believe that Adjusted Comparable Store Sales Growth provides timely and accurate information relating to the operational health and overall performance of each brand. We also believe that, for the same reasons, investors find our calculation of Adjusted Comparable Stores Sales Growth to be meaningful. Adjusted EBITDA, Adjusted EBITDA Margin Adjusted Operating Income, Adjusted Operating Margin, and Adjusted Diluted EPS (collectively, the "Company Non-GAAP Measures") The Company Non-GAAP Measures are key measures used by management to assess our financial performance. The Company Non-GAAP Measures are also frequently used by analysts, investors and other interested parties. We use The Company Non-GAAP Measures to supplementU.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. See "Non-GAAP Financial Measures" for definitions of the Company Non-GAAP Measures and for additional information. 36 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net revenue. Three Months Ended Nine Months Ended In thousands, except earnings per share, September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 percentage and store data Revenue: Net product sales $ 403,336 $ 355,789 $ 1,005,884 $ 1,096,482 Net sales of services and plans 82,017 76,113 209,180 226,086 Total net revenue 485,353 431,902 1,215,064 1,322,568 Costs applicable to revenue (exclusive of depreciation and amortization): Products 148,274 144,518 402,279 444,177 Services and plans 62,535 59,984 167,864 174,801 Total costs applicable to revenue 210,809 204,502 570,143 618,978 Operating expenses: Selling, general and administrative expenses 190,518 190,290 520,841 566,444 Depreciation and amortization 22,236 22,336 68,970 63,570 Asset impairment 7,150 3,516 20,916 7,387 Litigation settlement - - 4,395 - Other expense (income), net (154) 146 (312) 975 Total operating expenses 219,750 216,288 614,810 638,376 Income from operations 54,794 11,112 30,111 65,214 Interest expense, net 12,475 7,873 35,432 25,902 Debt issuance costs - - 136 - Loss on extinguishment of debt - 9,786 - 9,786 Earnings (loss) before income taxes 42,319 (6,547) (5,457) 29,526 Income tax provision (benefit) 7,030 (7,739) (6,655) 647 Net income $ 35,289 $ 1,192 $ 1,198 $ 28,879 Operating data: Number of stores open at end of period 1,201 1,145 1,201 1,145 New stores opened 18 17 57 67 Adjusted Operating Income $ 67,742 $ 26,067 $ 71,381 $ 97,808 Diluted EPS $ 0.42 $ 0.01 $ 0.01 $ 0.35 Adjusted Diluted EPS $ 0.54 $ 0.16 $ 0.42 $ 0.66 Adjusted EBITDA $ 88,127 $ 46,552 $ 134,797 $ 155,825 Percentage of net revenue: Total costs applicable to revenue 43.4 % 47.3 % 46.9 % 46.8 % Selling, general and administrative 39.3 % 44.1 % 42.9 % 42.8 % Total operating expenses 45.3 % 50.1 % 50.6 % 48.3 % Income from operations 11.3 % 2.6 % 2.5 % 4.9 % Net income 7.3 % 0.3 % 0.1 % 2.2 % Adjusted Operating Income 14.0 % 6.0 % 5.9 % 7.4 % Adjusted EBITDA 18.2 % 10.8 % 11.1 % 11.8 % 37
-------------------------------------------------------------------------------- Table of Contents Three Months EndedSeptember 26, 2020 compared to Three Months EndedSeptember 28, 2019 Net revenue The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the three months endedSeptember 26, 2020 compared to the three months endedSeptember 28, 2019 . Comparable store sales growth(1) Stores open at end of period Net revenue(2) Three Months Three Months Ended Ended In thousands, except September 26, September 28, September 28, Three Months Ended Three Months Ended percentage and store data 2020 2019 September 26, 2020 2019 September 26, 2020 September 28, 2019 Owned & Host segment America's Best 13.6 % 6.7 % 769 718$ 334,716 69.0 %$ 279,883 64.8 % Eyeglass World 18.4 % 5.2 % 119 118 52,837 10.9 % 44,178 10.2 % Military (4.6) % 2.5 % 54 54 5,820 1.2 % 6,097 1.4 % Fred Meyer (7.8) % (2.8) % 29 29 3,027 0.6 % 3,280 0.8 % Owned & Host segment total 971 919$ 396,400 81.7 %$ 333,438 77.2 % Legacy segment 3.3 % 5.7 % 230 226 40,232 8.3 % 39,355 9.1 % Corporate/Other - % - % - - 57,906 11.9 % 63,174 14.6 % Reconciliations - % - % - - (9,185) (1.9) % (4,065) (0.9) % Total 11.6 % 5.7 % 1,201 1,145$ 485,353 100.0 %$ 431,902 100.0 %Adjusted Comparable Store Sales Growth(3) 12.4 % 6.2 % (1)We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) corporate/other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 11. "Segment Reporting" in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below. (2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding. (3)There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.9% and an increase of 0.6% from total comparable store sales growth based on consolidated net revenue for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner's customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.1% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for each of the three months endedSeptember 26, 2020 andSeptember 28, 2019 . Total net revenue of$485.4 million for the three months endedSeptember 26, 2020 increased$53.5 million , or 12.4%, from$431.9 million for the three months endedSeptember 28, 2019 . This increase was primarily driven by comparable store sales growth, partially offset by deferred revenue and wholesale fulfillment. In the three months endedSeptember 26, 2020 , we opened 17 America's Best stores and oneEyeglass World store and closed one Legacy store as a result of our Legacy partner's decision to cease its overall operations at the location. Overall, store count grew 4.9% fromSeptember 28, 2019 toSeptember 26, 2020 (51, one and four net new America's Best,Eyeglass World and Legacy stores were added, respectively). 38 -------------------------------------------------------------------------------- Table of Contents Comparable store sales growth and Adjusted Comparable Store Sales Growth for the three months endedSeptember 26, 2020 were 11.6% and 12.4%, respectively and were driven by increases in average ticket. We also believe that comparable store sales growth and Adjusted Comparable Store Sales Growth benefited from strong customer demand, including the effect of our stores being temporarily closed to the public earlier in the year. Net product sales comprised 83.1% and 82.4% of total net revenue for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Net product sales increased$47.5 million , or 13.4%, in the three months endedSeptember 26, 2020 compared to the three months endedSeptember 28, 2019 , driven primarily by eyeglass sales and, to a lesser extent, contact lens sales. Net sales of services and plans increased$5.9 million , or 7.8%, driven primarily by eye exam sales. Owned & Host segment net revenue. Net revenue increased$63.0 million , or 18.9%, driven primarily by comparable store sales growth and new store openings which increased sales across our product categories. Legacy segment net revenue. Net revenue increased$0.9 million , or 2.2%, driven by increases in fees from our Legacy partner and eye exams. Corporate/Other segment net revenue. Net revenue decreased$5.3 million , or 8.3%, driven by reductions in wholesale fulfillment that was partially offset by increases in our online retail business. Net revenue reconciliations. The impact of reconciliations decreased net revenue by$5.1 million for the three months endedSeptember 26, 2020 compared to the three months endedSeptember 28, 2019 . Reconciliations include an increase in unearned revenue of$2.6 million compared to a increase in unearned revenue of$2.8 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, as well as an increase in deferred revenue of$6.6 million and an increase of$1.3 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Costs applicable to revenue Costs applicable to revenue of$210.8 million for the three months endedSeptember 26, 2020 increased$6.3 million , or 3.1%, from$204.5 million for the three months endedSeptember 28, 2019 . As a percentage of net revenue, costs applicable to revenue decreased from 47.3% for the three months endedSeptember 28, 2019 to 43.4% for the three months endedSeptember 26, 2020 . This decrease as a percentage of net revenue was primarily driven by increased eyeglass mix, higher eyeglass margin and lower growth in optometrist costs. Costs of products as a percentage of net product sales decreased from 40.6% for the three months endedSeptember 28, 2019 to 36.8% for the three months endedSeptember 26, 2020 , primarily driven by increased eyeglass mix and higher eyeglass margin. Owned & Host segment costs of products. Costs of products as a percentage of net product sales decreased from 28.7% for the three months endedSeptember 28, 2019 to 26.9% for the three months endedSeptember 26, 2020 . The decrease was primarily driven by increased eyeglass mix and higher eyeglass margin in the three months endedSeptember 26, 2020 . Legacy segment costs of products. Costs of products as a percentage of net product sales increased from 46.3% for the three months endedSeptember 28, 2019 to 46.9% for the three months endedSeptember 26, 2020 . The increase was primarily driven by a higher mix of non-managed care customer transactions versus managed care customer transactions. Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans in our Legacy segment. Costs of services and plans as a percentage of net sales of services and plans decreased from 78.8% for the three months endedSeptember 28, 2019 to 76.2% for the three months endedSeptember 26, 2020 . The decrease was primarily driven by higher eye exam sales. Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans in the Owned & Host segment decreased from 84.5% for the three months endedSeptember 28, 2019 to 76.0% for the three months endedSeptember 26, 2020 . The decrease was driven primarily by higher eye exam sales and lower growth in optometrist costs. 39 -------------------------------------------------------------------------------- Table of Contents Legacy segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans in the Legacy segment decreased from 46.2% for the three months endedSeptember 28, 2019 to 39.8% for the three months endedSeptember 26, 2020 . The decrease was driven primarily by higher management fees from our Legacy partner as well as improved optometrist coverage. Selling, general and administrative SG&A of$190.5 million for the three months endedSeptember 26, 2020 increased$0.2 million , or 0.1%, from the three months endedSeptember 28, 2019 . As a percentage of net revenue, SG&A decreased from 44.1% for the three months endedSeptember 28, 2019 to 39.3% for the three months endedSeptember 26, 2020 . The decrease in SG&A as a percentage of net revenue was primarily driven by lower advertising and stock-based compensation expense. SG&A for the three months endedSeptember 26, 2020 includes$4.7 million of incremental costs directly related to adapting the Company's operations during the COVID-19 pandemic; these costs were not reflected as adjustments for the Company's presentation of non-GAAP measures below. Owned & Host SG&A. SG&A as a percentage of net revenue decreased from 38.4% for the three months endedSeptember 28, 2019 to 32.3% for the three months endedSeptember 26, 2020 , driven primarily by lower advertising costs and payroll and occupancy leverage. Legacy segment SG&A. SG&A as a percentage of net revenue decreased from 35.4% for the three months endedSeptember 28, 2019 to 32.5% for the three months endedSeptember 26, 2020 , driven primarily by lower advertising costs. Depreciation and amortization Depreciation and amortization expense of$22.2 million for the three months endedSeptember 26, 2020 decreased$0.1 million , or 0.4%, from$22.3 million for the three months endedSeptember 28, 2019 . Our property and equipment balance, net, decreased$9.5 million , or 2.8%, during the three months endedSeptember 26, 2020 , reflective of$17.3 million in purchases of property and equipment less$20.4 million in depreciation expense and$6.4 million in impairment and other adjustments. Asset Impairment We recognized$7.2 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores during the three months endedSeptember 26, 2020 , compared to$3.5 million recognized during the three months endedSeptember 28, 2019 . The impairment charges were primarily related to our Owned & Host segment, caused by lower than projected customer sales volume in certain stores, and were determined using entity-specific assumptions related to our anticipated use of store assets. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and likelihood that these scenarios would be ultimately realized; the historical performance of the stores before the temporary store closures in response to the COVID-19 pandemic; the effect of store closures and uncertainty in store revenues over the remaining useful life of the asset group as a result of the COVID-19 pandemic; and the remaining useful lives of the assets. Asset impairment expenses were recognized in Corporate/Other. Interest expense, net Interest expense, net, of$12.5 million for the three months endedSeptember 26, 2020 increased$4.6 million , or 58.5%, from$7.9 million for the three months endedSeptember 28, 2019 . The increase was primarily driven by interest payments and amortization of debt discounts related to the 2025 Notes of$6.8 million that were partially offset by a reduction in our term loan and revolving credit facility utilization. Income tax provision Our income tax expense for the three months endedSeptember 26, 2020 reflected our statutory federal and state rate of 25.5%, offset by a discrete benefit of$3.0 million associated primarily with the exercise of stock options. In comparison, the income tax provision associated with the three months endedSeptember 28, 2019 reflected income tax expense at our statutory federal and state rate of 25.6% and was reduced by a$6.3 million income tax benefit resulting from stock option exercises. 40 -------------------------------------------------------------------------------- Table of Contents Nine Months EndedSeptember 26, 2020 compared to Nine Months EndedSeptember 28, 2019 As a result of the COVID-19 pandemic, our retail stores closed to the public beginning onMarch 19, 2020 . We began reopening our stores to the public onApril 27, 2020 , and onJune 8, 2020 , we announced the successful completion of the reopening process. Net revenue The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the nine months endedSeptember 26, 2020 compared to the nine months endedSeptember 28, 2019 . Comparable store sales growth(1) Stores open at end of period Net revenue(2) Nine Months Ended Nine Months Ended In thousands, exceptSeptember 26 ,September 28 ,September 28 , Nine Months Ended Nine Months Ended percentage and store data 2020 2019September 26, 2020 2019September 26, 2020 September 28, 2019 Owned & Host segment America's Best (10.4) % 6.5 % 769 718 $ 805,081 66.3 % $ 851,759 64.4 %Eyeglass World (8.6) % 5.7 % 119 118 127,680 10.5 % 138,451 10.5 % Military (20.2) % (0.7) % 54 54 14,790 1.2 % 18,540 1.4 % Fred Meyer (24.6) % (6.1) % 29 29 7,780 0.6 % 10,324 0.8 % Owned & Host segment total 971 919 $ 955,331 78.6 %$ 1,019,074 77.1 % Legacy segment (15.4) % 2.5 % 230 226 102,102 8.4 % 123,197 9.3 % Corporate/Other - - - - 174,950 14.4 % 189,401 14.3 % Reconciliations - - - - (17,319) (1.4) % (9,104) (0.7) % Total (11.7) % 5.5 % 1,201 1,145$ 1,215,064 100.0 %$ 1,322,568 100.0 %Adjusted Comparable Store Sales Growth(3) (11.1) % 5.6 % (1)We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 11. "Segment Reporting" in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the Legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below. (2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding. (3)There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.5% and an increase of 0.3% from total comparable store sales growth based on consolidated net revenue for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and (ii)Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner's customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in an increase of 0.1% and a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Total net revenue of$1,215.1 million for the nine months endedSeptember 26, 2020 decreased$107.5 million , or 8.1%, from$1,322.6 million for the nine months endedSeptember 28, 2019 . This decrease was driven by the closure of our stores to the public for a portion of the nine months endedSeptember 26, 2020 and was partially offset by new store sales. Total net revenue was also negatively impacted by changes in unearned revenue. In the nine months endedSeptember 26, 2020 , we opened 50 new America's Best stores and twoEyeglass World stores, and closed six America's Best stores; we also transitioned five additional Legacy stores to our management and closed one Legacy store as a result of our Legacy partner's decision to cease its overall operations at the location. Overall, store count grew 4.9% fromSeptember 28, 2019 toSeptember 26, 2020 (51, one and four net new America's Best,Eyeglass World and Legacy stores, respectively, were added during the same period). Comparable store sales growth and Adjusted Comparable Store Sales Growth for the nine months endedSeptember 26, 2020 were (11.7)% and (11.1)%, respectively. The decreases in comparable store sales growth and Adjusted Comparable Store Sales Growth were primarily driven by the temporary closure of our stores to the public in response to the COVID-19 pandemic. 41 -------------------------------------------------------------------------------- Table of Contents Net product sales comprised 82.8% and 82.9% of total net revenue for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Net product sales decreased$90.6 million , or 8.3%, in the nine months endedSeptember 26, 2020 compared to the nine months endedSeptember 28, 2019 , primarily due to decreased eyeglass sales as a result of the temporary closure of our stores to the public in response to the COVID-19 pandemic. Net sales of services and plans decreased$16.9 million , or 7.5%, primarily due to the temporary closure of our stores to the public in response to the COVID-19 pandemic. Owned & Host segment net revenue. Net revenue decreased$63.7 million , or 6.3%, due to the temporary closure of our stores to the public in response to the COVID-19 pandemic. Legacy segment net revenue. Net revenue decreased$21.1 million , or 17.1%, due to the temporary closure of our stores to the public in response to the COVID-19 pandemic. Corporate/Other segment net revenue. Net revenue decreased$14.5 million , or 7.6%, due to lower wholesale fulfillment, partially offset by growth in our online retail business. Net revenue reconciliations. The impact of reconciliations decreased net revenue by$8.2 million in the nine months endedSeptember 26, 2020 compared to the nine months endedSeptember 28, 2019 . Reconciliations include an increase in unearned revenue of$17.1 million for the nine months endedSeptember 26, 2020 compared to an increase in unearned revenue of$2.0 million for the nine months endedSeptember 28, 2019 , and an increase in deferred revenue of$0.2 million compared to an increase of$7.1 million , for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. The increase in unearned revenue compared to the prior period is due to an increase in the number of days between customer orders and pick up of those orders as well as stronger sales at the end of the third quarter of 2020. Costs applicable to revenue Costs applicable to revenue of$570.1 million for the nine months endedSeptember 26, 2020 decreased$48.8 million , or 7.9%, from$619.0 million for the nine months endedSeptember 28, 2019 . As a percentage of net revenue, costs applicable to revenue increased from 46.8% for the nine months endedSeptember 28, 2019 to 46.9% for the nine months endedSeptember 26, 2020 . This increase as a percentage of net revenue was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic as well as increased contact lens mix that was partially offset by higher eyeglass margin. Costs of products as a percentage of net product sales decreased from 40.5% for the nine months endedSeptember 28, 2019 to 40.0% for the nine months endedSeptember 26, 2020 , driven primarily by higher eyeglass margin that was partially offset by increased contact lens mix. Owned & Host segment costs of products. Costs of products as a percentage of net product sales decreased from 29.0% for the nine months endedSeptember 28, 2019 to 28.6% for the nine months endedSeptember 26, 2020 driven by higher eyeglass margin that was partially offset by increased contact lens mix. Legacy segment costs of products. Costs of products as a percentage of net product sales increased from 47.0% for the nine months endedSeptember 28, 2019 to 49.1% for the nine months endedSeptember 26, 2020 . The increase was primarily driven by increased contact lens mix and by a higher mix of non-managed care customer transactions. Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans in our Legacy segment. Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. Costs of services and plans as a percentage of net sales of services and plans increased from 77.3% for the nine months endedSeptember 28, 2019 to 80.2% for the nine months endedSeptember 26, 2020 . The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic. Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans increased from 81.5% for the nine months endedSeptember 28, 2019 to 86.7% for the nine months endedSeptember 26, 2020 . The increase was driven by optometrist and technician costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic. 42 -------------------------------------------------------------------------------- Table of Contents Legacy segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans increased from 45.4% for the nine months endedSeptember 28, 2019 to 47.3% for the nine months endedSeptember 26, 2020 . The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic. Selling, general and administrative SG&A of$520.8 million for the nine months endedSeptember 26, 2020 decreased$45.6 million , or 8.1%, from the nine months endedSeptember 28, 2019 . As a percentage of net revenue, SG&A increased from 42.8% for the nine months endedSeptember 28, 2019 to 42.9% for the nine months endedSeptember 26, 2020 . The increase in SG&A as a percentage of net revenue was primarily due to store and corporate payroll and occupancy costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic, partially offset by lower advertising expense. SG&A for the nine months endedSeptember 26, 2020 includes$7.8 million of incremental costs directly related to adapting the Company's operations during the COVID-19 pandemic; of these costs,$0.6 million were reflected as adjustments for the Company's presentation of non-GAAP measures below. Owned & Host SG&A. SG&A as a percentage of net revenue decreased from 38.0% for the nine months endedSeptember 28, 2019 to 36.6% for the nine months endedSeptember 26, 2020 , driven primarily by reduced advertising expense which was partially offset by store payroll and occupancy costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic. Legacy segment SG&A. SG&A as a percentage of net revenue increased from 34.1% for the nine months endedSeptember 28, 2019 to 36.5% for the nine months endedSeptember 26, 2020 primarily driven by store payroll costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic. Depreciation and amortization Depreciation and amortization expense of$69.0 million for the nine months endedSeptember 26, 2020 increased$5.4 million , or 8.5%, from$63.6 million for the nine months endedSeptember 28, 2019 primarily driven by new store openings and investments in new lab equipment. Our property and equipment balance, net, decreased$36.4 million , or 9.9%, during the nine months endedSeptember 26, 2020 , reflective of$45.3 million in purchases of property and equipment,$1.3 million in new finance leases, less$63.4 million in depreciation expense, and$19.6 million in impairment expense and other adjustments. Asset Impairment We recognized$20.9 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores during the nine months endedSeptember 26, 2020 compared to$7.4 million recognized during the nine months endedSeptember 28, 2019 . The impairment charges were primarily related to our Owned & Host segment and were driven by lower than projected customer sales volume in certain stores, and were determined using entity-specific assumptions related to our anticipated use of store assets. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and likelihood that these scenarios would be ultimately realized; the historical performance of the stores before the temporary store closures in response to the COVID-19 pandemic; the effect of store closures and uncertainty in store revenues over the remaining useful life of the asset group as a result of the COVID-19 pandemic; and the remaining useful lives of the assets. The asset impairment expense for the nine months endedSeptember 26, 2020 also includes$1.1 million related to a write-off of certain software assets that were deemed to be obsolete. Asset impairment expenses were recognized in Corporate/Other. Interest expense, net Interest expense, net, of$35.4 million for the nine months endedSeptember 26, 2020 increased$9.5 million , or 36.8%, from$25.9 million for the nine months endedSeptember 28, 2019 . The increase was primarily driven by losses related to changes in fair value of derivatives due to ineffectiveness of$4.6 million and charges related to interest payments and amortization of debt discounts related to the 2025 Notes of$10.4 million that were partially offset by a reduction in our term loan and revolving credit facility utilization. Income tax provision Our income tax benefit for the nine months endedSeptember 26, 2020 reflected our statutory federal and state rate of 25.5%, combined with a discrete benefit of$6.0 million associated primarily with the exercise of stock options. In comparison, the income tax provision associated with the nine months endedSeptember 28, 2019 reflected income tax expense at our statutory federal and state rate of 25.6% offset by a$7.7 million income tax benefit resulting from stock option exercises. 43
--------------------------------------------------------------------------------
Table of Contents
Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS We define EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization. We define Adjusted EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue. We define Adjusted Operating Income as net income, plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, and other expenses. We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue. We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, amortization of debt discount and deferred financing costs, losses (gains) on change in fair value of derivatives, other expenses, and tax benefit of stock option exercises, less the tax effect of these adjustments. In the first quarter of 2020, we introduced Adjusted Operating Income and Adjusted Operating Margin as measures of performance we will use in connection with Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS. Further, consistent with our presentation of Adjusted Operating Income, we no longer exclude new store pre-opening expenses and non-cash rent from our presentation of Adjusted EBITDA and Adjusted Diluted EPS. New store pre-opening expenses totaled$0.8 million and$0.8 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively;$2.0 million and$2.9 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively; and non-cash rent totaled$0.6 million and$0.5 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively; and$2.1 million and$2.4 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. The presentation of Adjusted EBITDA and Adjusted Diluted EPS for the three and nine months endedSeptember 28, 2019 has been recast to reflect these changes. See our Form 8-K filed with theSEC onFebruary 26, 2020 , which is incorporated herein by reference, for more information. EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below. EBITDA and the Company Non-GAAP Measures have been presented as supplemental measures of financial performance that are not required by, or presented in accordance withU.S. GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes EBITDA and the Company Non-GAAP Measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We also use EBITDA and the Company Non-GAAP Measures to supplementU.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplementsU.S. GAAP results with Non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business thanU.S. GAAP results alone. 44 -------------------------------------------------------------------------------- Table of Contents EBITDA and the Company Non-GAAP Measures are not recognized terms underU.S. GAAP and should not be considered as an alternative to net income or income from operations as a measure of financial performance or cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance withU.S. GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management's discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. In evaluating EBITDA and the Company Non-GAAP Measures we may incur expenses in the future that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and the Company Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on ourU.S. GAAP results in addition to using EBITDA and the Company Non-GAAP Measures. The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported underU.S. GAAP. Some of these limitations are: •they do not reflect costs or cash outlays for capital expenditures or contractual commitments; •they do not reflect changes in, or cash requirements for, our working capital needs; •EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; •EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes; •they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and •other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and the Company Non-GAAP Measures should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness. The following table reconciles our Adjusted Operating Income and Adjusted Operating Margin to net income; and EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS for the periods presented: Three Months Ended Nine Months Ended In thousands September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Net income$ 35,289 7.3 %$ 1,192 0.3 %$ 1,198 0.1 %$ 28,879 2.2 % Interest expense 12,475 2.6 % 7,873
1.8 % 35,432 2.9 % 25,902 2.0 % Income tax provision (benefit) 7,030 1.4 % (7,739)
(1.8) % (6,655) (0.5) % 647 - %
Stock compensation expense (a) 2,890 0.6 % 6,123 1.4 % 8,335 0.7 % 10,840 0.8 %
Loss on extinguishment of debt
(b) - - % 9,786 2.3 % - - % 9,786 0.7 %
Asset impairment (c) 7,150 1.5 % 3,516 0.8 % 20,916 1.7 % 7,387 0.6 %
Litigation settlement (d) - - % - - % 4,395 0.4 % - - %
Secondary offering expenses (e) - - % 401 0.1 % 26 - % 406 - %
Management realignment expenses
(f) - - % - - % - - % 2,155 0.2 %
Long-term incentive plan (g) - - % 1,108 0.3 % - - % 1,830 0.1 %
Amortization of acquisition
intangibles (h) 1,851 0.4 % 1,851 0.4 % 5,554 0.5 % 5,553 0.4 %
Other (k) 1,057 0.2 % 1,956 0.5 % 2,180 0.2 % 4,423 0.3 %
Adjusted Operating Income /
Adjusted Operating Margin $ 67,742 14.0 % $ 26,067 6.0 % $ 71,381 5.9 % $ 97,808 7.4 %Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding
Some of the percentage totals in the table above do not foot due to rounding differences
45--------------------------------------------------------------------------------
Table of Contents
Three Months Ended Nine Months Ended
In thousands September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Net income $ 35,289 7.3 % $ 1,192 0.3 %
12,475 2.6 % 7,873 1.8 % 35,432 2.9 % 25,902 2.0 %
Income tax provision (benefit) 7,030 1.4 % (7,739)
(1.8) % (6,655) (0.5) % 647 - %
Depreciation and amortization 22,236 4.6 % 22,336
5.2 % 68,970 5.7 % 63,570 4.8 %
EBITDA 77,030 15.9 % 23,662 5.5 % 98,945 8.1 % 118,998 9.0 %
Stock compensation expense (a) 2,890 0.6 % 6,123 1.4 % 8,335 0.7 % 10,840 0.8 %
Loss on extinguishment of debt
(b) - - % 9,786 2.3 % - - % 9,786 0.7 %
Asset impairment (c) 7,150 1.5 % 3,516 0.8 % 20,916 1.7 % 7,387 0.6 %
Litigation settlement (d) - - % - - % 4,395 0.4 % - - %
Secondary offering expenses (e) - - % 401 0.1 % 26 - % 406 - %
Management realignment expenses
(f) - - % - - % - - % 2,155 0.2 %
Long-term incentive plan (g) - - % 1,108 0.3 % - - % 1,830 0.1 %
Other (k) 1,057 0.2 % 1,956 0.5 % 2,180 0.2 % 4,423 0.3 %
Adjusted EBITDA / Adjusted EBITDA
Margin $ 88,127 18.2 % $ 46,552 10.8 % $ 134,797 11.1 % $ 155,825 11.8 %
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding
Some of the percentage totals in the table above do not foot due to rounding differences
Three Months Ended Nine Months Ended
September 28, September 28,
In thousands, except per share amounts
2019 September 26, 2020 2019 Diluted EPS$ 0.42 $ 0.01 $ 0.01 $ 0.35 Stock compensation expense (a) 0.03 0.08 0.10 0.13 Loss on extinguishment of debt (b) - 0.12 - 0.12 Asset impairment (c) 0.09 0.04 0.25 0.09 Litigation settlement (d) - - 0.05 - Secondary offering expenses (e) - - - - Management realignment expenses (f) - - - 0.03 Long-term incentive plan (g) - 0.01 - 0.02 Amortization of acquisition intangibles (h) 0.02 0.02 0.07 0.07 Amortization of debt discount and deferred financing costs (i) 0.05 - 0.09 0.01 Losses (gains) on change in fair value of derivatives (j) - - 0.06 - Other (k) 0.01 0.02 0.03 0.05 Tax benefit of stock option exercises (l) (0.04) (0.08) (0.07) (0.09) Tax effect of total adjustments (m) (0.05) (0.08) (0.16) (0.14) Adjusted Diluted EPS$ 0.54 $ 0.16 $ 0.42 $ 0.66 Weighted average diluted shares outstanding 83,795 81,561 82,718 81,510
Note: Some of the totals in the table above do not foot due to rounding differences
(a)Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and performance vesting conditions. (b)Reflects write-off of deferred financing fees related to the extinguishment of debt. (c)Reflects write-off of property, equipment and lease related assets on closed or underperforming stores for the three and nine months endedSeptember 26, 2020 andSeptember 28, 2019 . (d)Expenses associated with settlement of litigation. See Note 10. "Commitments and Contingencies" for further details. (e)Expenses related to our secondary public offerings. 46 -------------------------------------------------------------------------------- Table of Contents (f)Expenses related to a non-recurring management realignment described in our Current Report on Form 8-K filed with theSEC onJanuary 10, 2019 . (g)Expenses pursuant to a long-term incentive plan for non-executive employees who were not participants in the management equity plan for fiscal year 2019. This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co. Inc. (the "KKR Acquisition"). (h)Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition. (i)Amortization of debt discount is associated with the amortization of the conversion feature related to the convertible note and amortization of deferred financing costs relate to the convertible notes, term loan and revolving credit facility borrowings. Amortization of debt discount and deferred financing costs in aggregate total$4.5 million and$0.2 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and$7.2 million and$1.1 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. (j)Reflects$0.3 million of gains recognized in interest expense on change in fair value of de-designated hedges for the three months endedSeptember 26, 2020 and$4.6 million of losses for the nine months endedSeptember 26, 2020 . (k)Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), including our share of losses on equity method investments of$0.2 million for the three months endedSeptember 28, 2019 and$1.2 million for the nine months endedSeptember 28, 2019 ; the amortization impact of adjustments related to the KKR Acquisition, (e.g., fair value of leasehold interests) of$0.1 million for each of the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively and$0.4 million and$0.3 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively; costs of severance and relocation of$0.6 million and$1.0 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and$1.1 million and$1.8 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively; excess payroll taxes related to stock option exercises of$0.2 million and$0.5 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and$0.6 million for each of the nine months endedSeptember 26, 2020 andSeptember 28, 2019 ; incremental costs directly related to adapting the Company's operations during the COVID-19 pandemic of$0.6 million for the nine months endedSeptember 26, 2020 ; and other expenses and adjustments totaling$0.1 million and$0.2 million for the three months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively, and$(0.5) million and$0.5 million for the nine months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. (l)Tax benefit associated with accounting guidance requiring excess tax benefits related to stock option exercises to be recorded in earnings as discrete items in the reporting period in which they occur. (m)Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates. Liquidity and Capital Resources As described in more detail below, onMay 5, 2020 , we entered into the Credit Agreement Amendment with the lenders under our credit facility in order to prevent the effects of the COVID-19 pandemic, including the temporary closure of our stores, from creating uncertainty relative to our ability to comply with certain financial covenants and allow the Company to focus on prudent management of the business over the quarters ahead. In addition, onMay 12, 2020 , we completed the issuance of the 2025 Notes and we used the net proceeds of this offering to repay a portion of the outstanding borrowings on our term loan and revolving credit facility. Our primary cash needs are for inventory, payroll, store rent, capital expenditures associated with new stores and updating existing stores, as well as information technology and infrastructure, including our corporate office, distribution centers, and laboratories. We continue to prioritize cash conservation and prudent use of cash, while safely conducting normal operations. The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred and unearned revenue and other payables and accrued expenses. We believe that cash on hand, cash expected to be generated from operations and the cash available through our revolving credit facility will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures, and payments due under our existing credit facilities for at least the next 12 months. The Company is continuing to evaluate additional measures that it may elect to take as it continues to respond to the impact of COVID-19 on its business. There can be no assurance whether or when any such measures will be adopted. As ofSeptember 26, 2020 , we had$377.0 million in cash and cash equivalents and$294.3 million of availability under our revolving credit facility, which includes$5.7 million in outstanding letters of credit. We purchased$40.8 million in capital items in the nine months endedSeptember 26, 2020 . Approximately 80% of our capital spend is related to our expected growth (i.e., new stores, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments). Our working capital requirements for inventory will increase as we continue to open additional stores. We primarily fund our working capital needs using cash provided by operations. 47
--------------------------------------------------------------------------------
Table of Contents The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:
Nine Months Ended
In thousands September 26, 2020 September 28, 2019
Cash flows provided by (used for):
Operating activities $ 203,716 $ 170,938
Investing activities (40,514) (75,908)
Financing activities 174,906 (17,742)Net increase in cash, cash equivalents and restricted cash $ 338,108 $
77,288
Net Cash Provided by Operating Activities
Cash flows provided by operating activities increased $32.8 million from $170.9
million during the nine months ended September 28, 2019 to $203.7 million for
the nine months ended September 26, 2020 . The increase in cash provided by
operating activities consisted of a decrease in net income of $27.7 million , due
primarily to the temporary closure of our stores to the public as a result of
the COVID-19 pandemic, and an increase of non-cash expense items of $4.4 million
driven by asset impairment charges of $13.5 million , amortization of loan costs
of $6.2 million , depreciation and amortization of $5.4 million , losses
recognized for the changes in the fair values of derivatives of $4.6 million ,
partially offset by decreases in loss on extinguishment of debt of $9.8 million ,
deferred income tax expense of $7.4 million and credit loss expense of $5.8
million .
Changes in net working capital and other assets and liabilities contributed
$56.1 million in cash compared to the nine months ended September 28, 2019 .
Increases in other liabilities during the nine months ended September 26, 2020
contributed $34.0 million in year-over-year cash, which was driven by a $14.8
million increase in year-over-year cash due to timing of unearned revenue during
the nine months ended September 26, 2020 , as well as increases in accrued
capital expenditures of $8.3 million due to increases in new store accruals and
increases of $6.3 million due to lease concessions and deferrals. Increases in
accounts payable during the nine months ended September 26, 2020 contributed
$26.2 million in year-over-year cash, primarily due to timing of payments.
Decreases in inventory contributed $11.3 million in year-over-year cash, due to
no forward buys occurring after the first quarter of 2020, offset by increases
in other assets which used $8.8 million in year-over-year cash driven by cloud
hosted software assets of $4.2 million and smaller decreases in rent-related
items during the nine months ended September 26, 2020 when compared with the
nine months ended September 28, 2019 . Changes in deferred revenue used $6.8
million in year-over-year cash driven by decreased sales of our eye care club
membership and purchase protection plan.
Net Cash Used for Investing Activities
Net cash used for investing activities decreased by $35.4 million , to $40.5
million , during the nine months ended September 26, 2020 from $75.9 million
during the nine months ended September 28, 2019 . The decrease was primarily due
to reduced new store openings.
Net Cash Provided By (Used For) Financing Activities
Net cash provided by (used for) financing activities increased $192.6 million ,
from $17.7 million use of cash during the nine months ended September 28, 2019
to $174.9 million provision of cash during the nine months ended September 26,
2020 . The increase in cash provided by financing activities was primarily
related to proceeds of $548.8 million from the issuance of the 2025 Notes and
borrowings on our revolving credit facility, partially offset by principal
payments on our revolving credit facility and term loan debt of $369.3 million
during the nine months ended September 26, 2020 .
Term Loan and Revolving Credit Facility
As of September 26, 2020 , we had $317.4 million of first lien term loan
outstanding under our credit agreement. As of September 26, 2020 , we also had
$294.3 million of availability under our $300.0 million Revolving Credit
Facility which includes $5.7 million in outstanding letters of credit.
The interest rate payable on the first lien term loan is based on either LIBOR
or an alternative borrowing rate plus an additional margin that varies dependent
on NVI's consolidated first lien leverage ratio. The first lien term loan will
amortize in quarterly installments equal to 2.50% per annum in the first three
years of the loan and 5.00% per annum
48
--------------------------------------------------------------------------------
Table of Contents
thereafter. As a result of the $75.0 million pay down of the term loan and the
$25.0 million principal prepayment in 2019; we have no additional mandatory
principal payments on the term loan until maturity on July 18, 2024 .
In addition, under our credit agreement we must maintain certain covenants based
on our financial results. Our credit agreement also contains covenants that,
among other things, limit NVI's ability to incur additional debt, create liens
against assets, make acquisitions, pay dividends or distributions on its stock,
merge or consolidate with another entity and transfer or sell assets. As of
September 26, 2020 , we were in compliance with all of our debt covenants under
our credit agreement.
May 2020 Amendment to Credit Agreement
On May 5, 2020 , we entered into the Credit Agreement Amendment with the lenders
under our credit facility in order to amend certain provisions of the Credit
Agreement. As set forth in greater detail below, the principal purpose of the
Credit Agreement Amendment was to suspend certain financial maintenance
covenants contained in the Credit Agreement until testing at the end of the
second fiscal quarter of 2021. Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Credit Agreement and
Amendment, as applicable.
Pursuant to the Credit Agreement Amendment, the financial covenants relating to
maintenance of a maximum Consolidated Total Debt to Consolidated EBITDA Ratio
and a minimum Consolidated Interest Coverage Ratio are suspended until testing
at the end of the second fiscal quarter of 2021. From and after such time, such
covenants will be reinstated on a modified basis so that, subject to certain
exceptions and limitations as described in the Credit Agreement Amendment, (i)
with respect to the second and third fiscal quarters of 2021, the Consolidated
Total Debt to Consolidated EBITDA Ratio shall not exceed 4.50 to 1.00 and, with
respect to the fourth fiscal quarter of fiscal 2021 and thereafter, the
Consolidated Total Debt to Consolidated EBITDA Ratio shall not exceed 4.00 to
1.00, in each case with NVI being able to elect to annualize certain quarterly
periods so that quarterly performance from fiscal 2020 is excluded and (ii) with
respect to the second fiscal quarter of 2021 and thereafter, the Consolidated
Interest Coverage Ratio shall not be less than 3.00 to 1.00. In lieu of such
financial covenants, pursuant to the Credit Agreement Amendment NVI has agreed
during the suspension period, (i) not to have Consolidated EBITDA for any six
fiscal quarter period be less than $0 , with the second fiscal quarter of 2020
permitted to be excluded in certain circumstances, and (ii) to have a minimum
level of liquidity (defined as cash and cash equivalents plus the unused portion
of the revolving credit facility) equal to the lesser of (x) $100,000,000 and
(y) $40,000,000 plus the amount of any net proceeds from capital markets
financings during such period in excess of $75,000,000 .
In addition, the Credit Agreement was amended pursuant to the Credit Agreement
Amendment to, among other things, (i) limit the flexibility of NVI and Holdings
with respect to certain transactions during the covenant suspension period,
including the ability to declare or pay dividends, incur debt and make
investments and dispositions, (ii) require prepayments of the term loans under
certain circumstances during the covenant suspension period from the net
proceeds from debt or equity capital markets transactions by the Company (with
the amount of the term loans to be paid down equal to $75 million from the first
$400 million of capital raised and 50% of any proceeds above such amount) and
(iii) restrict NVI's ability to borrow under the revolving credit facility if
unrestricted cash and cash equivalents exceeds $50 million (and, in the event of
any such excess, to require a mandatory prepayment of such amount). Also
pursuant to the Credit Agreement Amendment, the margins upon which interest is
calculated for the term loans were amended to a range of 1.75% to 2.75% (for
LIBOR Loans) and 0.75% to 1.75% (for ABR Loans), in each case based on NVI's
Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio at such time,
with such margins subject to an increase of 50 basis points in the event that
either (i) the Company has not raised at least $135 million in additional
proceeds from certain capital markets transactions within 30 days of the date of
the Credit Agreement Amendment or (ii) Consolidated EBITDA for the most recently
ended four quarters is less than $0 .
2025 Notes
In May 2020 , we completed the issuance of the 2025 Notes. The 2025 Notes were
sold only to persons reasonably believed to be qualified institutional buyers in
reliance on Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). The 2025 Notes will pay interest semi-annually in arrears on
May 15 and November 15 of each year, commencing on November 15, 2020 , at an
annual rate of 2.50% and will be convertible into cash, shares of common stock
or a combination of cash and shares of common stock, at our election, based on
the applicable conversion rate at such time. The 2025 Notes have a maturity date
of May 15, 2025 . Refer to Note 4. "Long-term Debt" for more information.
We received proceeds from the offering of $390.9 million , net of $11.6 million
in underwriter fees and other issuance costs.
49
--------------------------------------------------------------------------------
Table of Contents
Future cash requirements and sources of cash
The Company's capital allocation strategy, priorities and investments are
reviewed by the Company's Board of Directors considering both liquidity and
severity of impacts to the business resulting from COVID-19.
Primary sources of cash
The Company's primary source of cash to execute its growth strategy is its
operating cash flows, used to fund operations throughout the fiscal year and to
support future growth. The Company continues to operate in this period of
COVID-19 uncertainty with a healthy liquidity position and remains focused on
prudently enhancing the Company's ability to meet its short-term liquidity needs
in order to best position the business for its key stakeholders, including the
Company's associates, customers and shareholders.
Primary uses of cash
The Company's current capital allocation strategy is to prioritize effectively
managing the near-term uncertainties that COVID-19 presents and continuing to
fund operating activities. As a result, over the next twelve months, the Company
expects its primary cash requirements to be towards funding operating
activities, including the acquisition of inventory, and obligations related to
compensation, leasing arrangements, taxes and other operating activities.
The Company also evaluates opportunities for investments in line with our key
initiatives that position the business for sustainable long-term growth. These
improvements may include opening new stores, improving store experiences or
investments in its omni-channel initiatives or other technology opportunities.
In addition, the Company evaluates store closures, including options to
terminate store leases early at certain underperforming locations. Historically,
the Company has utilized free cash flow generated from operations to fund any
discretionary capital expenditures, which have been prioritized towards new
store openings, as well as digital and omni-channel investments, information
technology, and other projects.
When appropriate, the Company may utilize excess liquidity, towards debt service
requirements, including voluntary debt prepayments, or required interest and
principal payments, if any, based on excess cash flows.
Off-balance Sheet Arrangements
We follow U.S. GAAP in making the determination as to whether or not to record
an asset or liability related to our arrangements with third parties. Consistent
with current accounting guidance, we do not record an asset or liability
associated with long-term purchase, marketing and promotional commitments, or
commitments to philanthropic endeavors. We have disclosed the amount of future
commitments associated with these items in our fiscal year 2019 annual
consolidated financial statements filed on the Form 10-K. We were not a party to
any other off-balance sheet arrangements.
Contractual Obligations
As a result of the $75 million prepayment of debt principal during the second
quarter of 2020, the Company does not owe principal payments on its term loan
until 2024. There were no other material changes outside the ordinary course of
business in our contractual obligations and commercial commitments from those
reported as of December 28, 2019 in the 2019 Annual Report on Form 10-K, except
for the 2025 Notes issued in the second quarter of 2020 and due on May 15, 2025 .
Critical Accounting Policies and Estimates
Management has evaluated the accounting policies used in the preparation of the
Company's unaudited condensed consolidated financial statements and related
notes and believes those policies to be reasonable and appropriate. Certain of
these accounting policies require the application of significant judgment by
management in selecting appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. These judgments are based on historical experience, trends in the
industry, information provided by customers and information available from other
outside sources, as appropriate. The most significant areas involving management
judgments and estimates may be found in the 2019 Annual Report on Form 10-K, in
the "Critical Accounting Policies and Estimates" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
have been no material changes to our critical accounting policies as compared to
the critical accounting policies described in the 2019 Annual Report on Form
10-K, except for the adoption of Accounting Standards Update ("ASU") No.
2016-13, Measurement of Credit Losses on Financial Instruments, and ASU No.
2018-15, Customer's Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service Contract. These changes are
discussed in Note 1. "Description of Business and Basis of Presentation" of our
unaudited condensed consolidated financial statements included in Part I. Item
1. of this Form 10-Q.
50
--------------------------------------------------------------------------------
Table of Contents
Adoption of New Accounting Pronouncements
The information set forth in Note 1. "Description of Business and Basis of
Presentation" to our unaudited condensed consolidated financial statements under
Part I. Item 1. under the heading "Adoption of New Accounting Pronouncements" of
this Form 10-Q is incorporated herein by reference.
51--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
