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Item 1A. Risk Factors

2023-03-01 compared with 2022-02-28 · 347 added, 341 removed, 270 unchanged (72% of the section changed)

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We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful.

Risks Related to Our Business and Our Industry

The COVID-19 pandemic has had, and may in the future continue to have, a material adverse impact on our business.

The COVID-19 pandemic and the travel restrictions, quarantines, and other related public health measures and actions taken by governments and the private sector have adversely affected global economies, financial markets and the overall environment for our business, and the extent to which it may continue to impact our future results of operations and overall financial performance remains uncertain.

The global macroeconomic effects of the pandemic may persist for an indefinite period of time, even after the pandemic has subsided.

As a result of the pandemic and the recommendations of U.S.

government and health authorities, our retail stores closed to the public beginning on March 19, 2020, which had a material adverse impact on our sales and profitability.

We began reopening our stores to the public on April 27, 2020 and on June 8, 2020, we announced the successful completion of the reopening process.

While we expect to be able to continue operations for the duration of the pandemic, our store operations are subject to change based on market conditions and the continued evolution of the pandemic.

The COVID-19 pandemic and its continued evolution has impacted and may continue to impact us in the following ways:

Risks Related to Our Business and Operations

The COVID-19 pandemic and related impacts, have had, and may in the future continue to have, a material adverse impact on our business.

The COVID-19 pandemic and the related actions taken by governments and the private sector to contain and combat the outbreak and spread of COVID-19 have adversely affected global economies, financial markets and the overall environment for our business, and the extent to which these may continue to impact our future results of operations and overall financial performance remains uncertain.

The global macroeconomic effects of the pandemic, including weakened economic conditions, consumer spending and supply chain disruptions, and financial market volatility have continued, and may continue for an indefinite period of time.

As a result of the pandemic, we have experienced temporary and occasional disruptions and closures of our facilities, including the temporary closure of our retail stores beginning on March 19, 2020 until June 2020, which had a material adverse impact on our sales and profitability, and other temporary closures or reduced hours due to surges in COVID-19 variants.

We have also seen shifts in consumer behaviors and preferences, as well as impacts in the demand for our products.

The COVID-19 pandemic and its effects has impacted and may continue to impact us in the following ways:

• a disruption to our growth strategy, supply chain, delivery of merchandise, professional recruitment, ability to staff stores, typical seasonality and customer demand;

• newly enacted state, local and federal healthcare laws in response to COVID-19, including any vaccine mandate, and exposure to potential lawsuits, workforce attrition and difficulty in maintaining professional recruitment;

• newly enacted state, local and federal healthcare laws in response to COVID-19, and exposure to potential lawsuits, workforce attrition and difficulty in maintaining professional recruitment;

• an inability to maintain sufficient levels of cash flow from our operations to fund our business and growth strategy and difficulty in obtaining additional financing on terms that are favorable to us.

The scope and duration of the pandemic, including the current wave of outbreaks from the emergence and spread of variants of COVID-19 throughout the United States and globally and other future resurgences, the pace at which government restrictions are lifted or re-instated to contain the virus, the impact on our ability to maintain sufficient personnel and recruit employees, the impact on our customers and suppliers, the speed and extent to which markets fully recover from the disruptions caused by the pandemic, and the impact of these factors on our business, will depend on future developments that are highly uncertain and cannot be predicted with confidence.

It is possible that changes in economic conditions and steps taken by the federal government and the Federal Reserve in response to the COVID-19 pandemic could lead to higher inflation than we had anticipated, which could in turn lead to an increase in our costs of products and services and other operating expenses.

A number of factors, including future resurgences, the pace at which government restrictions are lifted or re-instated to contain the virus, the impact on our ability to maintain sufficient personnel and recruit employees, including related labor costs, the impact on our customers and suppliers, inflationary pressures, any impairment in the fair value of our assets, the impact on our ability to access capital markets on favorable terms, the speed and extent to which markets fully recover from the disruptions caused by the pandemic, and the impact of these factors on our business, will depend on future developments that are highly uncertain and cannot be predicted with confidence.

In addition, to the extent COVID-19 adversely affects our operations and global economic conditions more generally, it may also have the effect of heightening many of the other risks described herein.

While we believe that the long-term fundamentals of our business are largely unchanged, and anticipate that our operating results in future fiscal years will begin to reflect a more normal operating environment, the current economic and public health climate has created a high degree of uncertainty.

As such, we continue to closely monitor this global health crisis and will continue to reassess our strategy and operational structure on a regular, ongoing basis as the situation evolves.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussion of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.

An overall decline in the health of the economy and other factors impacting consumer spending, including inflation, recessionary conditions, the timing and issuance of tax refunds, governmental instability and natural disasters, may affect consumer purchases, which could reduce demand for our products and materially harm our sales, profitability and financial condition.

Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war (including the recent Russian invasion of Ukraine), inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness and consumer perceptions of personal well-being and security.

Over the past few years, global markets and economic conditions have been challenging, particularly in light of the COVID-19 pandemic and resulting temporary retail store closures that we instated in the first half of 2020.

More recently, in January 2022 the consumer price index rose 7.5% on an annual basis, the highest reading since 1982.

In addition, from time to time we have temporarily closed certain stores due to hurricanes, natural disasters or civil unrest.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussion of the actual operational and financial impacts that we have experienced to date.

Market volatility, an overall decline in the health of the economy and other factors impacting consumer spending, including inflation, recessionary conditions, the timing and issuance of tax refunds, governmental instability and natural disasters, may affect consumer purchases, which could reduce demand for our products and materially harm our sales, profitability and financial condition.

federal debt ceiling, war and fears of war (including the Russian invasion of Ukraine), impacts of climate change, inclement weather, natural disasters, terrorism, cybersecurity incidents, outbreak of viruses or widespread illness and consumer perceptions of personal well-being and security.

Over the past few years, global markets and economic conditions have been challenging, particularly in light of rising interest rates and historic inflation throughout 2022 which has created continued economic uncertainty.

Reduced customer confidence and spending cutbacks may result in reduced demand for our merchandise and may force us to take inventory markdowns, increased selling and promotional expenses or, if part of a prolonged or pervasive economic downturn, may slow the pace of new store openings or cause current stores to close.

Additionally, our business is seasonal in nature, with the first and second quarters typically representing a higher portion of net sales to us than other quarters, especially with the issuance of tax refunds that consumers utilize for eyewear and eyecare in the first half of the year.

As such, a significant downward trend in the first half of the year could have a substantial negative impact on our annual financial results.

From time to time we have also temporarily closed certain stores due to hurricanes, natural disasters or civil unrest.

Such store closures due to factors that are outside of our control could materially adversely affect our sales and profitability.

Reduced customer confidence and spending cutbacks may result in reduced demand for our merchandise and may force us to take inventory markdowns.

Reduced demand also may require increased selling and promotional expenses.

Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores to close.

Furthermore, our target market, which consists of value seeking and lower income consumers, is sensitive to various factors outside of our control.

For example, this population relies on tax refunds to pay for eyewear and eye care.

A delay in the issuance of tax refunds can accordingly have a negative impact on our financial results.

Consumers could also alter how they utilize tax refund proceeds.

In addition, periods of instability in the government generally, or a renewed emphasis on immigration matters, can also cause this population to either delay or refrain from making such purchases.

Furthermore, our target market, which consists of value seeking and lower income consumers, is sensitive to a number of these and other factors outside of our control.

A continuation of these and similar circumstances could have a material negative impact on our financial performance.

Because of the importance of the first half of the fiscal year for us, a significant downward trend in the first half could have a substantial negative impact on our annual financial results.

Failure to recruit and retain vision care professionals could adversely affect our business, financial condition and results of operations.

Our ability to hire and/or contract with vision care professionals for our stores and remote offerings is critical to our operations as well as our growth strategy.

Our operations, like those of many of our competitors, depend on our ability to offer both eyewear and eye exams, which require the availability of optometrists in or near our stores.

Many states require that opticians be licensed to dispense and fit eyeglasses and contact lenses.

The failure to have vision care professionals available in or near our stores could adversely affect our ability to win managed vision care contracts.

Additionally, as we enable remote medicine at an increased number of our stores, the ability to hire and retain vision care professionals for such remote offerings and the continued successful implementation and operation of our remote medicine technology platform is essential to the expansion of our remote medicine strategy.

Competition for vision care professionals has increased, especially with the increased demand for optometrists in the current constrained labor market.

We compete with other optical retail companies, health systems and group practices for vision care professionals.

Failure to attract, hire and retain vision care professionals or to design and successfully implement more flexibility to meet the expectations of prospective and existing vision care professionals could have a material adverse effect on our business, financial condition and results of operations.

There can be no assurance that flexibility initiatives provided to vision care professionals, including with respect to scheduling, will be successful in attracting or retaining vision care professionals or addressing constraints in exam capacity.

As previously disclosed, due to the pandemic and related effects, we experienced an unexpected degree of vision care professional shortages and related exam capacity constraints over the course of 2022 despite increased recruitment and retention efforts, which included wage investments and other enhanced compensation efforts.

Such efforts have, and may continue to, increase our operating costs and adversely impact our results, and ultimately may be unsuccessful.

Additionally, our ability to recruit, hire and/or contract with vision care professionals is closely regulated.

For example, there is a risk that state authorities in some jurisdictions may find that our contractual relationships with optometrists or professional corporations or similar entities that employ optometrists violate laws prohibiting the corporate practice of medicine/optometry, in which case we may be required to restructure these arrangements, which may make it more difficult for us to attract and retain their services.

“Business-Government Regulation.”

A material change in our relationship with vision care professionals, whether resulting from constraints in exam capacity, a dispute with an eye care practitioner or a group of eye care practitioners controlling multiple practice locations, a government or regulatory authority challenging our operating structure or our relationship with vision care professionals, or other changes to applicable laws or regulations (or interpretations of the same), or the loss of these relationships, could impair our ability to provide services to our customers, cause our customers to go elsewhere for their optical needs, or result in legal sanctions against us.

In addition, some professional corporations or similar entities provide for the vision care services at a number of our retail locations, exposing us to some concentration risk.

A material change to any of the foregoing relationships could have a material adverse effect on our business, financial condition and results of operations.

Any difficulties or delays in securing the services of these professionals could also adversely affect our relationships with our Host and Legacy partners.

The optical retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.

We operate in the highly competitive optical retail industry and we may be unable to successfully compete against existing or future competitors.

Our inability to respond effectively to competitive pressure or improved performance by our competitors could result in lost market share and have a material adverse effect on our business, financial condition and results of operations.

For additional information on our competitive environment and our major competitors, see Part I.

“Business-Competition.”

Some of our competitors are larger or vertically integrated and engaged in the manufacture and distribution of eyewear as well as managed care.

Larger competitors who have greater financial and operational resources, greater brand recognition and broader geographic presence than we do, may be able to offer more competitive prices, and have larger marketing and advertising spends.

Vertically integrated competitors may advantageously leverage their structure and make it more difficult for others in the industry, including us, to compete.

We purchase many of our products from suppliers who are affiliates of our competitors.

We also compete for managed vision care contracts with certain of our competitors who are affiliates of managed care payors.

In addition, if any of our competitors were to consolidate operations, such consolidation would exacerbate the aforementioned risks.

While we strive to evolve in line with changing consumers’ shopping habits and new technologies, our business and results of operations may be adversely affected if we are not able to effectively respond to changes in the retail markets.

If we fail to open and operate new stores in a timely and cost-effective manner or fail to successfully enter new markets, our financial performance could be materially and adversely affected.

Our growth strategy depends, in large part, on growing our store base and expanding our operations, both in existing and new markets, and operating our new stores successfully.

We cannot assure you that our contemplated expansion will be successful.

Our costs in some markets are higher due to the supply and demand for real estate sites as well as increased labor and other costs.

Our ability to successfully open and operate new stores depends on many factors, including, among others, our ability to:

Achieving our growth strategy depends, in large part, on growing our store base and expanding our operations, both in existing and new markets, and operating our new stores successfully.

The success of our contemplated expansion depends on many factors, including, among others, our ability to:

• recruit and retain qualified vision care professionals (who may be licensed or unlicensed, depending on state regulations) for any new store;

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• identify and satisfy the merchandise and other preferences of our customers.

Our failure to effectively address challenges such as these could adversely affect our ability to successfully open and operate new stores in a timely and cost-effective manner.

Accordingly, we cannot assure you that we will achieve our planned growth or, even if we are able to grow our store base as planned, that our new stores will perform as expected.

There can be no assurance that newly-opened stores will achieve net sales or profitability levels comparable to those of our existing stores in the time periods estimated by us, or at all.

If our stores fail to achieve, or are unable to sustain, acceptable total net sales and profitability levels, our business may be materially harmed and we may incur significant costs associated with closing those stores.

Accordingly, we cannot assure you that we will achieve our planned growth or, even if we are able to grow our store base as planned, that our new stores will perform as expected or achieve net sales or profitability levels comparable to those of our existing stores in the time periods estimated by us or at all.

Our failure to implement our growth strategy and to successfully open and operate new stores in the time frames and at the costs estimated by us could have a material adverse effect on our business, financial condition and results of operations.

Failure to recruit and retain vision care professionals for our stores could adversely affect our business, financial condition and results of operations.

Our ability to hire and/or contract with vision care professionals for our stores is critical to our operations as well as our growth strategy.

Our operations, like those of many of our competitors, depend on our ability to offer both eyewear and eye exams.

In particular, our America’s Best brand promotes bundled offers of eyewear and eye exams, which require the availability of optometrists in or near our stores.

Furthermore, many states require that opticians be licensed to dispense and fit eyeglasses and contact lenses.

In addition, failure to have vision care professionals available in or near our stores could adversely affect our ability to win managed vision care contracts.

Our ability to attract and retain vision care professionals depends on several factors.

We compete with other optical retail companies, health systems and group practices for vision care professionals.

We, as well as the professional corporations or similar entities that employ optometrists in certain of our retail locations, could face difficulties attracting and retaining qualified professionals if we or such corporations fail to offer competitive compensation and benefits.

Increased compensation for vision care professionals could raise our costs and put pressure on our margins.

We believe that the demand for optometrists in particular may continue to exceed supply in certain areas for a period of time and that the costs to employ or retain optometrists may increase, potentially materially, from current levels, which we have experienced to date due in part to hiring and labor market constraints.

Additionally, our ability to recruit, hire and/or contract with vision care professionals is closely regulated.

“Business-Government Regulation.”

A material change in our relationship with vision care professionals, whether resulting from a dispute with an eye care practitioner or a group of eye care practitioners controlling multiple practice locations, a government or regulatory authority challenging our operating structure or our relationship with vision care professionals, or other changes to applicable laws or regulations (or interpretations of the same), or the loss of these relationships, could impair our ability to provide services to our customers, cause our customers to go elsewhere for their optical needs, or result in legal sanctions against us.

In addition, some professional corporations or similar entities provide for the vision care services at a number of our retail locations, exposing us to some concentration risk.

A material change to any of the foregoing relationships could have a material adverse effect on our business, financial condition and results of operations.

Any difficulties or delays in securing the services of these professionals could also adversely affect our relationships with our Host and Legacy partners.

Future operational success depends on our ability to develop, maintain and extend relationships with managed vision care companies, vision insurance providers and other third-party payors.

An increasing percentage of our customers receive vision insurance coverage through managed care payors.

These payors represent an increasingly significant portion of our overall revenues and our revenue growth and represented approximately one third of our overall revenues in fiscal year 2021.

While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk.

Our future operational success could depend on our ability to negotiate contracts with managed vision care companies, vision insurance providers and other third-party payors, several of whom have significant market share.

As our managed care business continues to expand, we have incurred and expect to incur additional costs related to this area of our business.

In addition, as our managed care business continues to grow closer to overall industry penetration levels, we expect our associated revenue growth rate to slow over time.

We may be unable to establish or maintain satisfactory relationships with managed care and other third-party payors.

In addition, many managed care payors have existing provider structures in place that they may be unable or unwilling to change.

Some vertically-integrated payors also have their own networks, and these payors may take actions to maintain or protect these networks in ways that negatively affect us, including by increasing costs or not allowing our new or existing stores to participate in their networks.

Increasing consolidation in the optical industry may give such payors greater market power which may adversely affect our ability to negotiate reimbursement rates under managed care arrangements.

Our inability to enter into arrangements with managed care payors in the future or to maintain existing relationships with managed care payors on commercially reasonable terms could have a material adverse effect on our business, financial condition and results of operations.

In addition, delays in receiving or the failure to receive reimbursements under our managed care arrangements, significant changes to the economics of a managed care contract or relationship or the loss of a significant managed care contract or relationship could have a significant negative impact on our business, financial condition and results of operations.

If the performance of our Host and Legacy brands declines or we are unable to maintain or extend our operating relationships with our Host and Legacy partners, our business, profitability and cash flows may be adversely affected and we may be required to incur impairment charges.

We derive significant revenues and operating cash flows from our relationships with our Legacy and Host partners through our operations of 230 Vision Centers in select Walmart stores, 29 Vista Optical locations within select Fred Meyer stores and 54 Vista Optical locations on select military bases.

We derive revenues and operating cash flows from our relationships with our Legacy and Host partners through our operations of 230 Vision Centers in select Walmart stores, 29 Vista Optical locations within select Fred Meyer stores and 54 Vista Optical locations on select military bases.

Termination or expiration of our Host and Legacy agreements would result in a reduction of our revenues and operating cash flows, which could be material and which could adversely affect our business, financial condition and results of operations including an impairment of the intangible assets.

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For example, our current management & services agreement with Walmart presents a variety of risks.

The current term of the management & services agreement ends on February 23, 2024.

The current term of the management & services agreement ends on February 23, 2024 and will automatically renew for a three-year period unless, no later than July 2023, either party gives written notice of non-renewal.

Sales associated with this arrangement with Walmart represented 7.6% of consolidated net revenue in fiscal year 2022, which exposes us to concentration of customer risk.

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Further, a breach by us of the terms and conditions of this agreement could cause us to lose all management fees derived under this agreement, which could adversely affect our financial position and results of operations.

At January 1, 2022, the carrying value of goodwill and intangible assets at our Host and Legacy brands was $23.1 million and $79.0 million, respectively.

At December 31, 2022, the carrying value of goodwill and intangible assets at our Host and Legacy brands was $21.6 million and $73.0 million, respectively.

We review the carrying value of our goodwill and intangibles for impairment annually, or more frequently when impairment indicators exist.

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If a significant write down were required, the charge could have a material adverse effect on our operating results and stockholders’ equity, and could impact the trading price of our common stock.

We are subject to extensive state, local and federal vision care and healthcare laws and regulations and failure to adhere to such laws and regulations would adversely affect our business.

We are subject to extensive state, local and federal vision care and healthcare laws and regulations.

“Business-Government Regulation.” The laws applicable to us are also subject to evolving interpretations.

As such, we must monitor our compliance with laws in every jurisdiction in which we operate on an ongoing basis and we cannot guarantee that subsequent interpretation of, or changes to, the applicable laws will not negatively affect our business operations.

For example, the arrangements we have implemented with optometrists and professional corporations or similar entities owned by eye care practitioners could subject us to scrutiny by federal and state regulatory bodies regarding federal and state anti-kickback, fraud and abuse, or other laws.

In addition, our failure, or the failure of vision care professionals who are our associates or with whom we have contractual arrangements, to obtain and maintain appropriate licenses could result in the unavailability of vision care professionals in or near our stores, loss of sales and/or the closure of our stores without licensed professionals, as well as fines and penalties for dispensing prescription eyewear without such licensed professionals.

We must comply with the FCLCA and its implementing regulations with respect to verifying contact lens prescriptions in connection with our online sales of contact lenses.

Our extended warranty plans may subject us to state laws, which vary by state, that regulate the sale of product service contracts or insurance-like arrangements.

It is possible that regulators in certain states could determine that our warranty plans should be subject to these laws and mandate that we comply with various registration, disclosure and financial requirements.

In such event, we could be required to incur enhanced compliance costs, as well as the risk of cease and desist orders and monetary penalties.

We are subject to HIPAA, the HITECH Act and the health data privacy, security and breach notification regulations issued pursuant to these statutes, which govern our collection, use, access, disclosure, transmission and/or storage of PHI, in connection with the sales of our products and services, customer service, billing and employment practices, as well as our operations as a business associate to multiple healthcare providers.

In addition, there are existing state privacy, security and breach notification laws and regulations that apply to both PHI and PII collected by us.

These existing laws and regulations may be amended and states may adopt new laws or regulations regarding consumer data privacy (such as the California Consumer Privacy Act of 2018, which became effective in January 2020).

Our failure to effectively implement the required or addressable data privacy and security safeguards and breach notification procedures, or our failure to accurately anticipate the application or interpretation of these statutes, regulations and standards, could lead to invalidation or modification of our agreements with optometrists or professional corporations or similar entities owned by eye care practitioners, create material civil and/or criminal liability for us or require us to change our business practices, which could result in adverse publicity and loss of consumer trust, and have a material adverse effect on our business, financial condition and results of operations.

Our participation in federal healthcare programs, such as Medicare and Medicaid, requires us to comply with laws regarding the way in which we conduct business and submit claims.

These laws include the federal Anti-Kickback Statute, which attaches criminal liability to unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs;

the federal physician self-referral laws, which attach repayment and monetary damages where a healthcare service provider seeks reimbursement for providing certain services to a patient who was referred by a physician that has certain types of direct or indirect financial relationships with such service provider;

and the FCA, which attaches per-claim liability and potentially treble damages to the filing of false claims for payment under federally funded programs.

Many states have also adopted similar laws that apply to any third-party payor including commercial plans.

Our operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible civil and criminal penalties, litigation and exclusion from government healthcare programs in the event of deemed noncompliance.

In addition, a person who offers or transfers to a federal healthcare program beneficiary any remuneration, including the transfer of items or services for free or other than fair market value, that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services, may be liable for significant civil monetary penalties.

Although this prohibition applies only to federal healthcare program beneficiaries;

the provision of free items and services to patients covered by commercial payors may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud.

In addition, state regulators or boards of optometry may also challenge our promotional practices, including America’s Best’s bundled offers, as, among other things, violating applicable state laws regarding unfair competition, false advertising to consumers, or corporation practice of optometry prohibitions.

To the extent our promotional programs are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties.

Eyeglasses and contact lenses are regulated as medical devices in the United States by the FDA, and under the FDC Act, such medical devices must meet a number of regulatory requirements.

We do not hold any marketing authorizations for the eyeglasses and contact lenses that we sell as we serve as the retailer for third-party manufacturers’ devices.

We cannot provide assurance that such third-party manufacturers’ eyeglasses or contact lenses we sell comply with these regulatory requirements.

We also engage in certain manufacturing, repackaging and relabeling activities that subject us to direct oversight by the FDA under the FDC Act and its implementing regulations.

If we, or any of the third-party manufacturers whose products we sell, fail to comply with applicable requirements, we or they may be subject to legal action by the U.S.

Department of Justice, on behalf of the FDA and/or various forms of FDA enforcement and compliance actions, which include recalls, fines, penalties, injunctions, seizures, prosecutions, adverse publicity (such as FDA press releases) or other adverse actions.

Our failure to comply with the applicable regulations could have severe consequences, including the closure of our stores, possible breaches of the agreements relating to certain of our brands, changes to our way of doing business and the imposition of fines and penalties.

We are subject to managed vision care laws and regulations.

We are engaged in managed vision care, both as a managed care entity through our subsidiary, FirstSight, and as a provider to managed care payors and insurers, and are subject to additional regulations as a result.

FirstSight is licensed as a single-service HMO and is subject to the managed care laws of the State of California and is comprehensively regulated by the DMHC.

FirstSight’s failure to comply with the regulations and requirements under such managed care laws may result in the imposition of various sanctions, including the suspension or revocation of FirstSight’s license, civil penalties and appointment of a receiver, among others.

Material changes to the operations of FirstSight, including the opening of America’s Best locations outside of defined service areas, must be approved by the DMHC.

This approval process can be complex and can cause delays in the projected opening of our stores.

The sale of managed care products by FirstSight is essential to our expansion of America’s Best in California, and the suspension or loss of our license or our failure to otherwise comply with applicable regulatory requirements could have a material adverse impact on our expansion plans in California.

In addition, our Eyecare Club programs may be subject to regulation under managed care and related state laws, including those of California, where these programs are offered by FirstSight.

Our Eyecare Club programs may also subject us to state statutes regulating discount medical plans, requiring the licensing or registration of organizations that provide discounted access to health care providers.

It is possible that state regulators could determine that we are operating as a discount medical plan and as such are subject to various registration, disclosure and solvency requirements.

We could incur increased compliance costs as a result.

We would also be subject to the risk of cease and desist orders and monetary penalties.

We require significant capital to fund our expanding business.

If we are unable to maintain sufficient levels of cash flow from our operations, we may not be able to execute or sustain our growth strategy or we may require additional financing, which may not be available to us on satisfactory terms or at all.

To support our expanding business and execute our growth strategy, we need significant amounts of capital, including funds to pay our lease obligations, build out new store spaces, laboratories and distribution centers, implement and operate remote medicine technology and EHR platforms, purchase inventory, pay personnel and further invest in our infrastructure and facilities including investments in transitioning and updating our enterprise resource planning and other technological systems and capabilities.

Further, our plans to grow our store base may create cash flow pressure if new locations do not perform as projected.

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If such financing is not available to us, or is not available on satisfactory terms, our ability to operate and expand our business could be curtailed and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy.

We depend on our distribution centers and optical laboratories.

The loss of, or disruption in the operations of, one or more of these facilities may adversely affect our ability to process and fulfill customer orders and deliver our products in a timely manner, or at all, and may result in quality issues, which would adversely affect our reputation, our business and our profitability.

Substantially all of our inventory is shipped directly from suppliers to our two distribution centers in Lawrenceville, Georgia and Columbus, Ohio.

Inventory is then processed, sorted and shipped using third-party carriers to our stores, to our laboratories for further processing, to our online customers or to Walmart stores and Sam’s Club locations.

We operate laboratory facilities in Lawrenceville, Georgia;

Cloud, Minnesota;

Plano, Texas;

and Salt Lake City, Utah.

We also have outsourcing relationships with third-party laboratories in Mexico and China.

These laboratories process most of the lenses ordered by our customers in our stores, as well as on our websites.

Once processed at the laboratories, the finished products are returned to our distribution centers for shipment to stores, our customers or our business partners.

We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our distribution centers.

Increase in transportation costs (including increases in fuel costs), increased shipping costs, issues with overseas shipments, supplier-side delays, reductions in the transportation capacity of carriers, labor strikes or shortages in the transportation industry, disruptions to the national and international transportation infrastructure and unexpected delivery interruptions or delays also have the potential to derail our distribution process.

We face additional risks related to the laboratories in China and Mexico, including port of entry risks such as longshoremen strikes, import restrictions, foreign government regulations, trade restrictions, customs and duties.

We source merchandise from suppliers located in China, a significant amount of domestically-purchased merchandise is manufactured in China, and one of our outsourced third-party laboratories is located in China.

Historically, tariffs have not materially affected our financial results, and we believe that less than 15% of costs applicable to revenue are subject to tariffs on Chinese imports.

Effective September 1, 2019, the U.S.

government implemented a 15% tariff on specified products imported into the U.S.

from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%.

In June 2020, the U.S.

government granted a temporary exclusion for plastic and metal frames with a retroactive effective date of September 1, 2019, and such exclusion expired in September 2020.

Given the current U.S.

presidential administration, there is uncertainty whether there will be, and the resulting impacts of, any changes to U.S.

government trade policy.

While we have implemented mitigation plans and continue to focus on additional mitigation strategies to offset the impact of tariffs, costs with respect to products subject to these tariffs have increased.

If we are unable to mitigate the full impact of the enacted tariffs or if there is a further escalation of tariffs, costs on a significant portion of our products may increase further and our financial results may be negatively affected.

If we change the transportation companies we use, we could face logistical difficulties that could adversely affect deliveries and we could incur costs and expend resources in connection with such change.

We also may not be able to obtain terms as favorable as those received from the third-party transportation providers we currently use, which could increase our costs.

We also may not anticipate changing demands on our distribution system, including the effect of any expansion we may need to implement in our distribution centers.

Additionally, events beyond our control, such as disruptions in operations due to natural or man-made disasters, inclement weather conditions, accidents, system failures, power outages, political instability, break-in, server failure, work stoppages, slowdowns or strikes by associates, acts of terrorism, widespread illness, health concerns regarding infectious diseases, and other unforeseen or catastrophic events, could damage our optical laboratories and/or distribution centers or render them inoperable, making it difficult or impossible for us to process customer orders for an extended period of time.

For example, the COVID-19 pandemic has resulted in increased travel restrictions and affected certain companies’ operations globally, which may impact our outsourced laboratory in China and our processing of customer orders.

Such events may also result in delays in our receipt of inventory and the delivery of merchandise between our stores, our optical laboratories and our distribution centers.

We could also incur significantly higher costs and longer lead times associated with distributing inventory during the time it takes for us to reopen or replace one or both of our distribution centers.

In addition, the unavailability of, or disruptions to, equipment to process lenses and assemble custom-made eyeglasses or trained operators of such equipment in our optical laboratories could adversely affect our ability to fulfill customer orders in a timely manner.

Any disruption to the laboratories’ operations may reduce or impair the quality of assembled eyeglasses.

The inability to fulfill, or any delays in processing, customer orders through our laboratory network or any quality issues could result in the loss of customers, issuances of refunds or credits and may also adversely affect our reputation.

The success of our stores depends on their timely receipt of products for sale and any repeated, intermittent or long-term disruption in, or failures of, the operations of our distribution centers and/or optical laboratories could result in lower sales and profitability, a loss of loyalty to our brands and excess inventory.

The insurance we maintain for business interruption may not cover all risk, or be sufficient to cover all of our potential losses, may not continue to be available to us on acceptable terms, if at all, and any insurance proceeds may not be paid to us in a timely manner.

We face risks associated with vendors from whom our products are sourced and are dependent on a limited number of suppliers.

We purchase all of our merchandise from domestic and international vendors.

For our business to be successful, our suppliers must be willing and able to provide us with products in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis.

Our ability to obtain a sufficient selection or volume of merchandise on a timely basis at competitive prices could suffer as a result of any deterioration or change in our vendor relationships or events that adversely affect our vendors.

Other than our contracts for the supply of spectacle lenses and our private label contact lenses, we typically do not enter into long-term contracts with our vendors and, as such, we operate without significant contractual assurances of continued supply, pricing or access to new products.

Any of our vendors could discontinue supplying us with desired products in sufficient quantities or offer us less favorable terms on future transactions for a variety of reasons.

The benefits we currently experience from our vendor relationships could be adversely affected if our vendors:

• discontinue selling merchandise to us;

• enter into arrangements with competitors that could impair our ability to sell their products, including by giving our competitors exclusivity arrangements or limiting our access to certain products;

• sell similar or identical products to our competitors with similar or better pricing, some of whom may already purchase merchandise in significantly greater volume and at lower prices than we do;

• raise the prices they charge us;

• refuse to allow us to return merchandise purchased from them;

• change pricing terms to require us to pay on delivery or upfront, including as a result of changes in the credit relationships some of our vendors have with their various lending institutions;

• lengthen their lead times;

• initiate or expand sales of their products to retail customers directly through their own stores, catalogs or on the Internet and compete with us directly.

Events that adversely impact our vendors could impair our ability to obtain adequate and timely supplies.

Such events include, among others, difficulties or problems associated with our vendors’ business, the financial instability and labor problems of vendors, merchandise quality and safety issues, natural or man-made disasters, inclement weather conditions, war, acts of terrorism and other political instability, economic conditions, shipment issues, the availability of raw materials and increased production costs.

Our vendors may be forced to reduce their production, shut down their operations or file for bankruptcy.

The occurrence of one or more of these events could impact our ability to get products to our customers, result in disruptions to our operations, increase our costs and decrease our profitability.

We also source merchandise directly from suppliers outside of the United States.

Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad.

Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control including increased shipping costs, the imposition of additional import or trade restrictions, including legal or economic restrictions on overseas suppliers’ ability to produce and deliver products, increased custom duties and tariffs, unforeseen delays in customs clearance of goods, more restrictive quotas, loss of a most favored nation trading status, currency exchange rates, transportation delays, port of entry issues and foreign government regulations, political instability and economic uncertainties in the countries from which we or our vendors source our products.

Our product sourcing could be impacted by current and future travel restrictions and/or the shut-down of certain businesses in China or elsewhere due to the COVID-19 pandemic and the resurgence of variants.

Supply chain disruptions arising from COVID-19 may impact our ability to make products, the cost for such products and the ability to deliver products to customers in a timely fashion.

Our sourcing operations may also be hurt by health concerns regarding infectious diseases in countries in which our merchandise is produced.

Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the products sold in our stores.

These and other issues affecting our international vendors or internationally manufactured merchandise could have a material adverse effect on our business, financial condition and results of operations.

The former presidential administration advocated for greater restrictions on international trade generally, including with respect to the North American Free Trade Agreement (“NAFTA”) and the World Trade Organization (the “WTO”).

In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the “USMCA”), which replaced NAFTA.

In July 2020, the U.S.

notified the United Nations of its intention to withdraw from the WTO.

While the current presidential administration has rejoined the WTO, it remains difficult to predict what affect the USMCA, the WTO or other trade agreements and organizations will have on our business.

were to withdraw from or materially modify any other international trade agreements to which it is a party or if the U.S.

imposes significant additional tariffs or other restrictions on imports from China and Mexico, where our outsourced optical laboratories are located and where the majority of our frames are sourced and manufactured, it could have an adverse impact on our business.

Any such tariffs, restrictions or other changes could lead to additional costs, delays in shipments, embargoes and other uncertainties that could negatively impact our relationships with our international vendors and labs and materially adversely affect our business, including by requiring us to increase our prices and identify alternative sources for merchandise and labs.

See also “ We depend on our distribution centers and optical laboratories.

Material changes in the pricing practices of our suppliers could negatively impact our profitability.

For example, we have in the past been subject to the unilateral pricing policies implemented by certain contact lens manufacturers, which policies mandated the minimum prices at which certain contact lenses could be sold to consumers.

Such manufacturers could refuse to supply us with their products if they deemed us in breach of such policies.

Our vendors may also increase their pricing if their raw materials became more expensive.

The raw materials used to manufacture our products are subject to availability constraints and price volatility.

Our vendors may pass the increase in sourcing costs to us through price increases, thereby impacting our margins.

In addition, some of our vendors may not have the capacity to supply us with sufficient merchandise to keep pace with our growth plans, especially if we need significantly greater amounts of inventory.

In such cases, our ability to pursue our growth strategy will depend in part upon our ability to develop new vendor relationships.

Some of our suppliers are owned by vertically-integrated companies with retail divisions that compete with us and, as such, we are exposed to the risk that these suppliers may not be willing, or may become unwilling, to sell their products to us on acceptable terms, or at all.

We rely on a limited number of vendors to supply the majority of our eyeglass lenses and contact lenses and are thus exposed to concentration of supplier risk.

In particular, we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier.

During fiscal year 2021, 90% of lens expenditures were from this vendor and 92% of contact lens expenditures were with three vendors.

We are less exposed to a supplier risk for our eyeglass frames as only 57% of frame expenditures were with two vendors.

If we were to lose any significant supplier, we may be unable to establish additional or replacement sources for our products that meet our quality controls and standards in a timely manner or on commercially reasonable terms, if at all.

As a few major suppliers dominate the optical retail industry, the risks associated with finding alternative sources may be exacerbated.

For example, effective October 1, 2018, Essilor and Luxottica completed their merger to become EssilorLuxottica, which exacerbates our concentration of supplier risk.

The optical retail industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.

We compete directly with national, regional and local retailers, including other optical retail chains, warehouse clubs, mass merchandisers and internet-based retailers.

We also compete with independent ophthalmologists, optometrists and opticians located in our markets as they often provide many of the same goods and services we provide.

The retail landscape is changing as a result of changes in consumers’ shopping habits, as well as the introduction of new technologies such as online vision exams.

“Business-Competition.”

Some of our competitors are larger companies and have greater financial and operational resources, greater brand recognition and broader geographic presence than we do.

As a result, they may be able to engage in extensive and prolonged price promotions or otherwise offer competitive prices, which may adversely affect our business.

They may also be able to spend more than we do for advertising.

We may be at a substantial disadvantage to larger competitors with greater economies of scale.

If our costs are greater compared to those of our competitors, the pricing of our products and services may not be as attractive, thus depressing sales or the profitability of our products and services.

Our competitors may expand into markets in which we currently operate and we remain vulnerable to the marketing power and high level of customer recognition of these larger competitors and to the risk that these competitors or others could attract our customer base.

Some of our competitors are vertically integrated and are also engaged in the manufacture and distribution of eyewear as well as managed care.

These competitors can advantageously leverage this structure to better compete and certain vertically-integrated organizations with significant market power could potentially utilize this power to make it more difficult for us to compete.

We purchase many of our products from suppliers who are affiliates of our competitors.

We also compete for managed vision care contracts with certain of our competitors who are affiliates of managed care payors.

In addition, if any of our competitors were to consolidate operations, such consolidation would exacerbate the aforementioned risks.

We may not continue to be able to successfully compete against existing or future competitors.

Our inability to respond effectively to competitive pressures, improved performance by our competitors and changes in the retail markets could result in lost market share and have a material adverse effect on our business, financial condition and results of operations.

We rely heavily on our information technology systems, as well as those of our vendors, for our business to effectively operate and to safeguard confidential information;

any significant failure, inadequacy, interruption or security breach could adversely affect our business, financial condition and operations.

We rely heavily on our information technology systems for many functions across our operations, including managing our supply chain and inventory, processing customer transactions in our stores, allocating lens processing jobs to the appropriate laboratories, our financial accounting and reporting, compensating our associates and operating our websites.

Our ability to effectively manage our business and coordinate the sourcing, distribution and sale of our products depends significantly on the reliability and capacity of these systems.

We also collect, process and store sensitive and confidential information, including our proprietary business information and that of our customers, associates, suppliers and business partners, including Walmart and Sam’s Club.

The secure processing, maintenance and transmission of this information is critical to our operations.

Our systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood, ransomware and natural disasters.

Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.

In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support the increasing needs of our expanding business.

Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations.

Our systems and those of our third-party service providers and business partners may be vulnerable to security breaches, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors or other similar events.

Security breaches, computer malware and computer hacking have become more prevalent across industries and are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated organized groups and individuals.

As a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our reliance on internet technology and the increased number of employees working remotely.

If unauthorized parties gain access to our networks or databases, or those of our third-party service providers or business partners, they may be able to steal, publish, delete, use inappropriately or modify our private and sensitive third-party information including protected health information, payment card information and personal identification information.

In addition, associates may intentionally or inadvertently cause data or security breaches that result in unauthorized release of sensitive or confidential information.

Because the techniques used to circumvent security systems can be highly sophisticated, change frequently, are often not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address all possible techniques or implement adequate preventive measures for all situations.

Like most corporations, the Company’s systems are a target of attacks.

Although the incidents that we have experienced to date have not had a material effect on our business, there can be no assurance that such incidents will not have a material adverse effect on us in the future.

Any such breach, attack, virus or other event could result in costly investigations and litigation exceeding applicable insurance coverage or contractual rights available to us, civil or criminal penalties, operational changes or other response measures, loss of consumer confidence in our security measures, and negative publicity that could adversely affect our financial condition, results of operations and reputation.

The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements across our business.

For instance, as an entity that collects and maintains personally identifiable information and protected health information, we could be forced, in the event of a data breach, to report the breach not only to affected customers, but also to various public agencies and media outlets, potentially harming our reputation and our business Our business partners may have contractual rights of indemnification against us or seek to terminate our contracts with them in the event that their customer or proprietary business information is released as a result of a breach of our information technology.

Additionally, business partners may also face a data breach, allowing for our customer or proprietary business information to be released, could result in a loss of consumer confidence in our security measures, harm our business and also lead to costly investigations and litigation.

Such a data breach of a business partner also may not be adequately covered under contractual rights of indemnification or cyber insurance.

Further, if we are unable to comply with the security standards established by banks and the payment card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect our retail operations.

As privacy and information security laws and regulations change, we may incur additional compliance costs.

Any material disruption or slowdown of our systems or those of our third-party service providers and business partners, could have a material adverse effect on our business, financial condition and results of operations.

We are a low-cost provider and our business model relies on the low-cost of inputs.

Factors such as wage rate increases, inflation, cost increases, increases in raw material prices and energy prices could have a material adverse effect on our business, financial condition and results of operations.

Increases in compensation, wage pressure and other expenses for vision care professionals, as well as our other associates, may adversely affect our profitability.

Increases in minimum wages and other wage and hour regulations can exacerbate this risk.

Increases in compensation, wage pressure and other expenses for vision care professionals, as well as our other associates, have adversely affected, and may continue to adversely affect our profitability.

Increases in minimum wages and other wage and hour regulations and labor shortages can exacerbate this risk.

As a result of the impacts of the COVID-19 pandemic, we have experienced an increasingly competitive labor market for vision care professionals and increased preferences for adjusted work schedules, resulting in the demand for optometrists exceeding supply in certain areas during fiscal year 2022 and causing constraints in exam capacity.

Due to these factors, we experienced wage pressure for our vision care professionals and associates in 2022.

Targeted wage investments, including increases in compensation and other expenses for our optometrists and associates, along with other initiatives, were implemented in response to these factors that have and will continue to impact our costs applicable to revenue and selling, general and administrative expenses.

The costs to employ or retain optometrists may increase further, potentially materially.

See “Failure to recruit and retain vision care professionals could adversely affect our business, financial condition and results of operations” above.

Additional tariffs or other future cost increases, such as increases in the cost of merchandise, shipping rates, raw material prices, freight costs and store occupancy costs, may also reduce our profitability.

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These increased demands could strain our resources and cause us to operate our business less effectively, which in turn could cause the performance of our new and existing stores to suffer.

As our store base grows, we will need to continually evaluate the adequacy of our laboratory, distribution and information technology capabilities.

As our store base grows, we will need to continually evaluate the adequacy of our laboratory, distribution and information technology capabilities, including those related to our remote medicine offerings.

Our laboratories and distribution centers have a finite capacity and, to the extent we grow beyond this capacity, we will need to expand our current laboratories and/or distribution centers or add new laboratories and/or distribution capabilities, the cost of which could be material.

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Should we open additional laboratories or distribution centers, any related construction or expansion projects entail risks which could cause delays and cost overruns, such as unavailability of suitable space, shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, weather interference, fires or other casualty losses and unanticipated cost increases.

For example, we entered into a lease for an additional laboratory facility in 2018 which became operational in the first quarter of 2019.

The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons.

We cannot guarantee that any project will be completed on time or within established budgets.

We cannot guarantee that any project will be completed on time or within established

Any delay or increased costs associated with any project could adversely affect the financial and overall performance of our existing and planned new stores.

We cannot anticipate all of the demands that our expanding operations will impose on our business, personnel and systems and our failure to address such demands and to profitably manage our growth could have a material adverse effect on our business, financial condition and results of operations.

In addition, opening new stores in our established markets may result in inadvertent oversaturation, temporarily or permanently divert customers and sales from our existing stores to new stores and reduce comparable store sales, thus adversely affecting our overall financial performance.

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In addition, oversaturation, or the risk of oversaturation, may reduce or adversely affect the number or location of stores we plan to open, and could thereby materially and adversely affect our growth plans overall or in particular markets.

Our success depends upon our marketing, advertising and promotional efforts.

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We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.

We lease our America’s Best and Eyeglass World store locations, our corporate headquarters, the AC Lens corporate office, the FirstSight corporate office, our laboratories in Georgia, Texas and Utah and our distribution centers.

We lease our America’s Best and Eyeglass World store locations, our corporate office, the AC Lens corporate office, the FirstSight corporate office, our laboratories in Georgia, Texas and Utah and our distribution centers.

We also lease our Vista Optical locations inside Fred Meyer stores.

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The success of our business depends, in part, on our ability to identify suitable premises for our stores and to negotiate acceptable lease terms.

Our ability to effectively renew our existing store leases or obtain store leases to open new stores depends on the availability of store premises that meet our criteria for traffic, square footage, lease economics, demographics and other factors.

We may not be able to renew or extend our existing store leases on acceptable terms, or at all, and may have to abandon desirable locations or renew leases on unfavorable terms.

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• limiting our ability to obtain additional financing.

We depend on cash flows from operations to pay our lease expenses and to fulfill our other cash needs.

If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from borrowings or other sources, we may not be able to service our lease expenses, grow our business, respond to competitive changes or fund our other liquidity and capital needs, which could harm the business.

If we are not able to make the required payments under our leases, landlords with a contractual or statutory security interest in the assets of the relevant stores may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations.

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Certain technological advances, greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems may reduce the demand for our products and adversely impact our business and profitability.

Technological advances in vision care, including the development of telemedicine and other new or improved products, as well as future drug development for the correction of vision-related problems, could significantly change how eye exams may be conducted and make our existing products less attractive or even obsolete.

Several companies have developed technologies for and some companies are incorporating the remote delivery of eye examinations and eye refractions.

We have begun to pilot remote medicine technologies in a limited number of locations to enable the provision of remote eye examinations.

Technological advances in vision care, including the development of remote medicine and other new or improved products, as well as future drug development for the correction of vision-related problems, could significantly change how eye exams may be conducted and make our existing products less attractive or even obsolete.

Although, we have enabled remote medicine technologies in a number of locations to enable the provision of eye examinations by remote doctors to patients in-store, several companies have developed technologies for, and some companies are incorporating the remote delivery of eye examinations and eye refractions more broadly.

If consumers accept the use of these technologies, consumers could become less likely to obtain an in-person eye examination and therefore less likely to shop at our retail locations.

We also may not be able to successfully incorporate remote medicine technologies into our business which could make our exam process less attractive to customers.

Additionally, the greater availability and acceptance, or reductions in the cost, of vision correction alternatives to prescription eyeglasses and contact lenses, such as corneal refractive surgery procedures, photo-refractive keratotomy, or PRK and LASIK, may reduce the demand for our products, lower our sales and thereby adversely impact our business and profitability.

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Our business is partly dependent on our ability to strategically source a sufficient volume and variety of brand name merchandise at opportunistic pricing.

Some of our products are sourced from suppliers or with significantly reduced prices for specific reasons, and we are not always able to purchase specific merchandise on a recurring basis and we may not have control over the supply, design, cost or availability of some products we offer for sale in our stores.

Some of our products are sourced from suppliers or with significantly reduced prices.

We are not always able to purchase specific merchandise on a recurring basis and we may not have control over the supply, design, cost or availability of some products we offer for sale in our stores.

We also compete with other retailers for discounted merchandise to sell in our stores.

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Any unanticipated decrease in demand for our products during such period could require us to sell excess inventory at a substantial markdown, which could have a material adverse effect on our business, financial condition and results of operations.

We rely on third-party coverage and reimbursement, including government programs, for an increasing portion of our revenues, the future reduction of which could adversely affect our results of operations.

We rely on third-party coverage and reimbursement, including government and private insurance plans, such as managed vision care plans, for an increasing portion of our net revenue.

We are generally reimbursed for the vision care services and products that we provide through payment systems managed by private insurance companies, managed care organizations and governmental agencies.

Coverage and payment levels are determined at each third-party payor’s discretion, and we have limited control over third-party payor’s decision-making with respect to coverage and payment levels.

Coverage restrictions and reductions in reimbursement levels or payment

methodologies may negatively impact our sales and profits.

Many third-party payors may continue to explore cost-containment strategies that may potentially impact coverage and/or payment levels for our services and products and impose utilization restrictions and risk-based compensation arrangements.

We cannot provide any assurances that we will be able to maintain or increase our participation in managed care arrangements or that we will be adequately reimbursed by managed care payors, vision insurance providers and other third-party payors for the services we provide and the products we sell.

From time to time, vision care insurance payors may make changes to their EDI claim systems.

Such changes may require us to update our processes and could impact our ability to submit claims or to timely receive reimbursements from our managed care partners.

If claims for payment are disputed by managed care payors or if we fail to timely or accurately submit claims, we may not receive payment for such claims in a timely manner or at all, which could negatively impact our relationship with manage care organizations and could require us to take write-offs or otherwise have a significant negative impact on our business, financial condition and results of operations.

Furthermore, any changes to or repeal of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or any other significant changes to the healthcare regulatory landscape may reduce or eliminate coverage or reimbursement rates of insurance-funded eye exams or eyewear.

Our e-commerce and omni-channel business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability.

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Risks associated with our e-commerce and omni-channel business include:

• uncertainties associated with our websites including changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as we upgrade our website software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our website operations and e-commerce fulfillment;

• uncertainties associated with our websites, mobile applications and in-store systems including changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as we upgrade our website software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our website operations and e-commerce fulfillment;

• disruptions in telephone service or power outages;

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• rapid technology changes;

• time and costs associated with training and implementing new technologies and systems;

• credit or debit card fraud and other payment processing related issues;

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• liability for online content;

• cybersecurity and consumer privacy concerns and regulation;

• cybersecurity and consumer and HIPAA privacy concerns and regulation;

• natural disasters or adverse weather conditions.

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Furthermore, if our e-commerce and omni-channel business successfully grows, it may do so in part by attracting existing customers, rather than new customers, who choose to purchase products from us online rather than from our brick and mortar stores, thereby detracting from the financial performance of our stores.

We depend on our distribution centers and optical laboratories.

Substantially all of our inventory is shipped directly from suppliers to our two distribution centers in Lawrenceville, Georgia and Columbus, Ohio.

We operate laboratory facilities in Lawrenceville, Georgia;

Cloud, Minnesota;

Plano, Texas;

and Salt Lake City, Utah.

We also have outsourcing relationships with third-party laboratories in Mexico and China.

These laboratories process most of the lenses ordered by our customers in our stores, as well as on our websites.

Once processed at the laboratories, the finished products are returned to our distribution centers for shipment to stores, our customers or our business partners.

We also may not be able to obtain terms as favorable as those received from the third-party transportation providers we currently use, which could increase our costs.

We also may not anticipate changing demands on our distribution system, including the effect of any expansion we may need to implement in our distribution centers.

Events beyond our control, including, but not limited to, disruptions in operations due to natural or man-made disasters, inclement weather conditions, accidents, system failures, or public health emergencies could also result in delays in our receipt of inventory and the delivery of merchandise between our stores, our optical laboratories and our distribution centers, significantly higher costs and longer lead times or an adverse effect on our ability to fulfill customer orders in a timely manner.

Any disruption to the laboratories’ operations may reduce or impair the quality of assembled eyeglasses.

We may incur losses arising from our investments in technological innovators in the optical retail industry, which would negatively affect our financial results.

We are regularly presented with opportunities to invest and have invested in certain venture-backed emerging companies and technological innovators across the optical retail industry.

Such investments could include equity or debt instruments in companies that may be non-marketable.

The success of these companies may depend on product development, market acceptance, operational efficiency and other key business factors.

If any of these companies fail, we could lose all or part of our investment in that company.

If we determine that impairment indicators exist and that there are other-than-temporary declines in the fair value of the investment, we may be required to write down the investments to their fair value and recognize the related write-down as an investment loss.

Environmental, social and governance (ESG) issues, including those related to climate change, could have a material adverse effect on our business, financial condition and results of operations.

Investors, customers, employees and other stakeholders have increasingly focused on the ESG practices of companies in recent years.

As we published our second Corporate Responsibility Report in 2022 and continue to develop our corporate responsibility strategy, our ESG practices will be evaluated against stakeholders’ evolving expectations and standards for responsible corporate citizenship.

If our practices in the areas of social impact, employee empowerment, environmental stewardship and corporate governance fail to meet such expectations and standards, our reputation and employee and customer retention may be negatively impacted.

Additionally, increased regulatory requirements regarding climate and ESG disclosures, as well as environmental stewardship could also lead to increased operational costs.

If we do not adapt to new regulations or meet evolving stakeholder expectations on ESG issues, investors may reconsider their investment in the company and customers may choose to find alternative providers, which could have a material adverse effect on our business, financial condition and results of operations.

Changing climate and weather patterns leading to severe weather and disasters may cause significant business interruptions and expenditures.

Severe weather conditions and other natural phenomena resulting from changing weather patterns and rising sea levels or other causes, including hurricanes, floods, fires, landslides, extreme temperatures, significant precipitation, and earthquakes, may result in damage to our stores or other facilities and unavailability of our workforce.

Additionally, shifts in weather patterns caused by climate change are expected to increase the frequency, severity or duration of certain adverse weather conditions, which could cause more significant business interruptions that result in increased costs, increased liabilities, and decreased revenues.

Such losses could materially and adversely affect our business, financial condition and results of operations.

Climate change may also have indirect effects on our business, including for example, leading to increased costs (or unavailability) of property or other insurance policies.

Additionally, changes in federal or state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing stores and other facilities and could also require us to spend more on new stores or facilities without a corresponding increase in revenue.

Risks Related to Our Dependence on Third Parties

We face risks associated with vendors from whom our products are sourced and are dependent on a limited number of suppliers.

We purchase all of our merchandise from domestic and international vendors.

Any of our vendors could discontinue supplying us with desired products in sufficient quantities or offer us less favorable terms on future transactions for a variety of reasons.

The benefits we currently experience from our vendor relationships could be adversely affected if our vendors:

• discontinue selling merchandise to us;

• sell similar or identical products to our competitors with similar or better pricing, some of whom may already purchase merchandise in significantly greater volume and at lower prices than we do;

• raise the prices they charge us;

• refuse to allow us to return merchandise purchased from them;

• change pricing terms to require us to pay on delivery or upfront, including as a result of changes in the credit relationships some of our vendors have with their various lending institutions;

• lengthen their lead times;

• initiate or expand sales of their products to retail customers directly through their own stores, catalogs or on the Internet and compete with us directly.

Events that adversely impact our vendors could impair our ability to obtain adequate and timely supplies.

Our vendors may be forced to reduce their production, shut down their operations or file for bankruptcy.

The occurrence of one or more of these events could impact our ability to get products to our customers, result in disruptions to our operations, increase our costs and decrease our profitability.

We also source merchandise directly from suppliers outside of the United States.

Additionally, a significant amount of our domestically-purchased merchandise is manufactured abroad.

Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control including increased shipping costs, the imposition of additional import or trade restrictions, including legal or economic restrictions on overseas suppliers’ ability to produce and deliver products, increased custom duties and tariffs, unforeseen delays in customs clearance of goods, more restrictive quotas, loss of a most favored nation trading status, currency exchange rates, transportation delays, port of entry issues and foreign government regulations, political instability, public health emergencies and economic uncertainties in the countries from which we or our vendors source our products.

Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from the products sold in our stores.

were to withdraw from or materially modify any other international trade agreements to which it is a party or if the U.S.

For example, we source merchandise from suppliers located in China, a significant amount of domestically-purchased merchandise is manufactured in China, and one of our outsourced third-party laboratories is located in China.

Historically, tariffs have not materially affected our financial results, and we believe that less than 10% of costs applicable to revenue are subject to tariffs on Chinese imports.

Effective September 1, 2019, the U.S.

government implemented a 15% tariff on specified products imported into the U.S.

from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%.

In June 2020, the U.S.

government granted a temporary exclusion for plastic and metal frames with a retroactive effective date of September 1, 2019, and such exclusion expired in September 2020.

Given the current U.S.

presidential administration, there is uncertainty whether there will be, and the resulting impacts of, any changes to U.S.

government trade policy.

Material changes in the pricing practices of our suppliers could negatively impact our profitability.

Such manufacturers could refuse to supply us with their products if they deemed us in breach of such policies.

Our vendors may also increase their pricing if their raw materials became more expensive.

The raw materials used to manufacture our products are subject to availability constraints and price volatility.

Our vendors may pass the increase in sourcing costs to us through price increases, thereby impacting our margins.

We have faced such price

increases previously and could face material changes in the future, impacting our ability to continue to provide our products at competitive prices to customers.

In such cases, our ability to pursue our growth strategy will depend in part upon our ability to develop new vendor relationships.

We rely on a limited number of vendors to supply the majority of our eyeglass lenses and contact lenses and are thus exposed to concentration of supplier risk.

In particular, we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier.

During fiscal year 2022, 87% of lens expenditures were from this vendor and 92% of contact lens expenditures were with three vendors.

We are less exposed to a supplier risk for our eyeglass frames as only 53% of frame expenditures were with two vendors.

As a few major suppliers dominate the optical retail industry, the risks associated with finding alternative sources may be exacerbated.

For example, effective October 1, 2018, Essilor and Luxottica completed their merger to become EssilorLuxottica, which exacerbates our concentration of supplier risk.

Future operational success depends on our ability to develop, maintain and extend relationships with managed vision care companies, vision insurance providers and other third-party payors.

An increasing percentage of our customers receive vision insurance coverage through managed care payors.

These payors represent an increasingly significant portion of our overall revenues and our revenue growth and represented approximately one third of our overall revenues in fiscal year 2022.

As our managed care business continues to expand, we have incurred and expect to incur additional costs related to this area of our business.

In addition, as our managed care business continues to grow closer to overall industry penetration levels, we expect our associated revenue growth rate to slow over time.

We may be unable to establish or maintain satisfactory relationships with managed care and other third-party payors.

In addition, many managed care payors have existing provider structures in place that they may be unable or unwilling to change.

Increasing consolidation in the optical retail industry may give such payors greater market power which may adversely affect our ability to negotiate reimbursement rates under managed care arrangements.

We rely heavily on our information technology systems, as well as those of our vendors, for our business to effectively operate and to safeguard confidential information;

any significant failure, inadequacy, interruption or security breach could adversely affect our business, financial condition and operations.

We rely heavily on our information technology systems for many functions across our operations, including managing our supply chain and inventory, processing customer transactions in our stores, allocating lens processing jobs to the appropriate laboratories, providing and maintaining our remote medicine and EHR platform, our financial accounting and reporting systems, operating our websites, and human resources administration.

Our ability to effectively manage our business and coordinate the sourcing, distribution and sale of our products depends significantly on the reliability and capacity of these systems.

We also collect, process and store sensitive and confidential information, including our proprietary business information and that of our customers, associates,

suppliers and business partners, including Walmart and Sam’s Club.

The secure processing, maintenance and transmission of this information is critical to our operations.

Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.

We may face increased cybersecurity risks due to our reliance on internet technology and the increased number of employees working remotely following the pandemic.

In addition, associates may intentionally or inadvertently cause data or security breaches that result in unauthorized release of sensitive or confidential information.

Like most corporations, the Company’s systems are a target of attacks.

We rely on third-party coverage and reimbursement, including government and private insurance plans, such as managed vision care plans, for an increasing portion of our net revenue.

Coverage restrictions and reductions in reimbursement levels or payment methodologies may negatively impact our sales and profits.

From time to time, vision care insurance payors may make changes to their EDI claim systems.

Such changes may require us to update our processes and could impact our ability to submit claims or to timely receive reimbursements from our managed care partners.

If claims for payment are disputed by managed care payors or if we fail to timely or accurately submit claims, we may not receive payment for such claims in a timely manner or at all, which could negatively impact our relationship with managed care organizations and could require us to take write-offs or otherwise have a significant negative impact on our business, financial condition and results of operations.

Risks Related to Our Legal and Regulatory Environment

We are subject to extensive state, local and federal vision care and healthcare laws and regulations and failure to adhere to such laws and regulations would adversely affect our business.

We are subject to extensive state, local and federal vision care and healthcare laws and regulations.

“Business-Government Regulation.” The laws applicable to us are also subject to evolving interpretations.

Additionally, our ability to recruit, hire and/or contract with vision care professionals is closely regulated.

“Business-Government Regulation.”

State legislators and regulators may also be reluctant to accept telehealth and remote medicine as an additional way to provide access to quality patient care.

Recently, there has been an increase in legislative and rulemaking activity that creates disparity across jurisdictions on how telehealth is regulated and how we are able to implement our remote medicine solution.

Our ability to launch our remote medicine solution in certain jurisdictions or in the most cost-efficient manner is highly dependent on the evolution of these state-by-state requirements and restrictions.

We have already seen some states take positions on telehealth that significantly limit our ability to deploy our current remote medicine solution, or that prohibit the use of telehealth by optometrists to conduct eye examinations.

The ever-changing regulatory landscape may cause disruption as we launch our remote medicine solution in various states, causing us to significantly reconfigure the solution or potentially decide to not deploy in that particular state.

This may have an abrupt and material effect on our business operations or financial status.

If a legal challenge to our chosen remote medicine solution were successful, and we are unable to modify the model to comply with the requirements but still meet the needs of patients and optometrists, this may have a material effect on our business operations or financial status in that jurisdiction.

We cannot provide any assurances that we will not be subject to reprimands, sanctions, probation, fines, suspension or revocation of operating or business permits, or that our ability to offer remote medicine services in that jurisdiction will not be challenged.

We also may be the subject of administrative complaints or actions in the future.

Our ability to recruit optometrists who are willing and able to provide telehealth services where permitted may be affected by their respective licensing authorities or state optometry boards or associations view on telehealth practice.

We must continuously monitor legislative and rulemaking activities for changes in the telehealth requirements and work with various stakeholders to educate lawmakers on how remote optometry services may be provided safely and effectively.

We cannot guarantee that our interpretation of existing or future requirements is aligned with how regulators may interpret such requirements, and we cannot assure that, if challenged, our current telehealth solution will be found to be in compliance with the law.