What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-06-08 compared with 2020-12-10 · 18 added, 65 removed, 1 unchanged (99% of the section changed)

You should carefully consider the risk factors discussed in the section of the Prospectus entitled "Risk Factors", which could materially affect our business, financial condition or future results.

The risks described in the Prospectus are not the only risks facing the Company.

You should carefully consider the risk factors discussed in the section of the Annual Report entitled "Risk Factors", which could materially affect our business, financial condition or future results.

The risks described in the Annual Report are not the only risks facing the Company.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in the MD&A in this Quarterly Report and in the Risk Factors section of the Prospectus, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks.

Except as set forth below, there have been no material changes to the risk factors discussed in the section of the Prospectus entitled "Risk Factors".

As a result of the Refinancing Transactions, we are updating the following risk factors discussed under the heading "Risks Related to Our Indebtedness" in the section of the Prospectus entitled "Risk Factors".

Our high level of indebtedness requires that we dedicate a substantial portion of our cash flows to debt service payments and reduces the funds that would otherwise be available for other general corporate purposes and other business opportunities, which could adversely affect our operating performance, growth, profitability and financial condition, which in turn could make it more difficult for us to generate cash flow sufficient to satisfy all of our obligations under our indebtedness.

As of October 31, 2020, after giving effect to the Refinancing Transactions, we would have had approximately $800.0 million of outstanding indebtedness, all of which would be secured, with $844.7 million of unused availability under the ABL Facility (which is subject to customary borrowing conditions, including a borrowing base), and outstanding letters of credit of $30.8 million, $21.1 million of which were issued under the ABL Facility.

Our overall level of indebtedness requires that we dedicate a substantial portion of our cash flows to debt service payments.

Our substantial indebtedness reduces the funds that would otherwise be available for operations, future business opportunities and payments of our debt obligations and limits our ability to:

• obtain additional financing, if necessary, for working capital and operations, or such financing may not be available on favorable terms;

• make needed capital expenditures;

• make strategic acquisitions or investments or enter into joint ventures;

• react to changes or withstand a future downturn in our business, the industry or the economy in general;

• meet store growth, distribution center expansion, e-commerce growth, budget targets and forecasts of future results;

• engage in business activities, including future opportunities that may be in our interest;

• react to competitive pressures or compete with competitors with less debt.

These limitations could adversely affect our operating performance, growth, profitability and financial condition, which would make it more difficult for us to generate cash flow sufficient to satisfy our obligations under our indebtedness.

Our ability to make scheduled payments on our debt obligations also depends on our financial condition, results of operations and capital resources, which are subject to, among other things:

the business, financial, economic, industry, competitive, regulatory and other factors discussed in these risk factors, and on other factors, some of which are beyond our control, including:

the level of capital expenditures we make, including those for acquisitions, if any;

our debt service requirements;

fluctuations in our working capital needs;

our ability to borrow funds and access capital markets;

and restrictions on debt service payments and our ability to make working capital borrowings for debt service payments contained in our debt instruments.

If we are unable to generate sufficient cash flow to permit us to make scheduled service payments on our debt, including the notes, then we will be in default and holders of that debt could declare all outstanding principal and interest to be due and payable.

If our indebtedness were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full.

In addition, in the event of a default, the lenders under the ABL Facility could terminate their further commitments to loan money and our secured lenders under the Senior Secured Credit Facilities and/or holders of the notes could foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation.

Despite our high level of indebtedness, we may still be able to incur substantially more debt, which could further increase the risks to our financial condition described above.

Despite our high level of indebtedness, we may be able to incur significant additional indebtedness in the future, including off-balance sheet financings, trade credit, contractual obligations and general and commercial liabilities.

Although the credit agreements governing the Senior Secured Credit Facilities and the indenture governing the notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial.

These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness, and additionally we have further borrowing capacity under the ABL Facility.

As of October 31, 2020, after giving effect to the Refinancing Transactions, we would have had no borrowings outstanding under the ABL Facility, and an available borrowing capacity under the ABL Facility of approximately $844.7 million (which is subject to customary borrowing conditions, including a borrowing base).

We may be able to increase the commitments under the ABL Facility by $250.0 million, subject to certain conditions.

We may also be able to increase the capacity under the Term Loan Facility by up to the greater of (x) $480.0 million and (y) 100% of Consolidated EBITDA (as defined in the Term Loan Facility), plus an additional amount, subject to certain conditions, which borrowings would be secured indebtedness.

The addition of new debt to our current debt levels could further exacerbate the related risks to our financial condition that we now face.

If we are unable to generate sufficient cash to service all of our indebtedness, including the notes, we may be forced to take other actions to fund the satisfaction of our obligations under our indebtedness, which may not be successful.

If our cash flow is insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, raise additional debt or equity capital or restructure or refinance our indebtedness.

However, we may not be able to implement any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations, including on the notes.

Even if new financing were available, it may be on terms that are less attractive to us than our then existing indebtedness or it may not be on terms that are acceptable to us.

In addition, the credit agreements governing the Senior Secured Credit Facilities and the indenture governing the notes will restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due.

Thus, we may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

If we cannot generate sufficient cash flow to permit us to make scheduled payments on our debt, including the notes, then we will be in default and holders of that debt could declare all outstanding principal and interest to be due and payable.

If our indebtedness were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full.

In addition, in the event of a default, the lenders under the ABL Facility could terminate their further commitments to loan money and our secured lenders under the Senior Secured Credit Facilities and/or holders of the notes could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

The terms of our outstanding indebtedness may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The credit agreements governing the Senior Secured Credit Facilities and the indenture governing the notes contain restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our best interest, including restrictions on our ability to:

• incur additional indebtedness and guarantee indebtedness;

• pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;

• prepay, redeem or repurchase certain debt;

• make loans, investments and other restricted payments;

• sell or otherwise dispose of assets;

• incur liens;

• enter into transactions with affiliates;

• alter the businesses we conduct;

• enter into agreements restricting our subsidiaries’ ability to pay dividends;

• consolidate, merge or sell all or substantially all of our assets.

Additionally, at certain times, the ABL Facility requires maintenance of a certain minimum adjusted fixed charge coverage ratio.

Our ability to comply with the covenants and restrictions contained in the credit agreements and the indenture may be affected by events beyond our control.

If market or other economic conditions deteriorate, our ability to comply with these covenants and restrictions may be impaired.

A breach of the covenants under one of these agreements could result in an event of default under the applicable indebtedness, which, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition.

Such a default, if not cured or waived, may allow the creditors to accelerate the related debt principal and/or related interest payments and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.

If our indebtedness were to be accelerated, there can be no assurance that we would have, or be able to obtain, sufficient funds to repay such indebtedness in full.

In addition, an event of default under the credit agreement governing the ABL Facility would permit the lenders under our ABL Facility to terminate all commitments to extend further credit under that facility.

Furthermore, if we were unable to repay the amounts due and payable under our secured indebtedness, the lenders/holders of such indebtedness could proceed against the collateral granted to them to secure that indebtedness, and we could be forced into bankruptcy or liquidation.

As a result of the IPO Over-Allotment Exercise, as discussed in Part II, Item 2 "Use of Proceeds", we are updating the following risk factors discussed under the heading "Risks Related to this Offering and Ownership of Our Common Stock" in the section of the Prospectus entitled "Risk Factors".

In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in the MD&A in this Quarterly Report and in the Risk Factors section of the Annual Report, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks.

Except as set forth below, there have been no material changes to the risk factors discussed in the section of the Annual Report entitled "Risk Factors".

KKR has the ability to exert substantial influence over us and their interests may conflict with yours in the future.

As of May 10, 2021, KKR beneficially owns approximately 31.3% of the voting power of our common stock.

As a result, KKR will be able to exert substantial influence on our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our certificate of incorporation or bylaws and other significant corporate transactions for so long as KKR and their affiliates retain significant ownership of us.

KKR and their affiliates may also influence us to make significant changes to our business operations and strategy, including with respect to, among other things, store openings and closings, new product and service offerings, team member headcount levels and initiatives to reduce costs and expenses.

This concentration of our ownership may delay or deter possible changes in control of the Company, which may reduce the value of an investment in our common stock.

So long as KKR continues to own a significant amount of our voting power, even if such amount is less than 50%, KKR will continue to be able to strongly influence or effectively control our decisions and, so long as KKR and their affiliates collectively own at least 5% of all outstanding shares of our stock entitled to vote generally in the election of directors, KKR will be able to nominate individuals to our board of directors under the stockholders agreement.

The interests of KKR may not coincide with the interests of other holders of our common stock.

See Note 12 to the financial statements included in this Quarterly Report.

In the ordinary course of their business activities, KKR and their affiliates may engage in activities where their interests conflict with our interests or those of our stockholders.

Our amended and restated certificate of incorporation provides that any of KKR, any of their affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or his or her affiliates do not have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate.

KKR and their affiliates also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

In addition, KKR may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to you.

In addition, KKR and their affiliates will be able to significantly influence the outcome of all matters requiring stockholder approval, including the election of our board of directors and potential acquisition of the Company.

This concentration of voting control could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of our common stock.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors