What changed in this filing

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Item 1A. Risk Factors

2024-02-28 compared with 2023-03-01 · 177 added, 146 removed, 455 unchanged (42% of the section changed)

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Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time.

As discussed under "Acquisition of United Grocery Outlet" in "Item 1.

Business" on February 14, 2024, Grocery Outlet Inc., our wholly owned subsidiary, entered into a stock purchase agreement to acquire United Grocery Outlet.

The transaction is expected to close early in the second quarter of fiscal 2024 and is subject to customary closing conditions.

Unless otherwise stated, none of the disclosures in this Report reflect our pending acquisition of United Grocery Outlet.

The following is a summary of the principal risks that could adversely affect our business, operations and financial results:

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• failure to maintain or increase comparable store sales;

• failure to open, relocate or remodel stores on schedule and on budget;

• any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory;

• inflation and other changes affecting the market prices of the products we sell;

• risks associated with newly opened stores;

• failure to open, relocate or remodel stores on schedule and on budget;

• costs and successful implementation of marketing, advertising and promotions;

• failure to maintain our reputation and the value of our brand, including protecting our intellectual property;

• any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory;

• inability to maintain sufficient levels of cash flow from our operations;

• risks associated with leasing substantial amounts of space;

• failure to properly integrate any acquired businesses;

• natural or man-made disasters, climate change, power outages, major health epidemics, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of our business operations;

• failure to participate effectively in the growing online retail marketplace;

• natural or man-made disasters, unusual weather conditions (which may become more frequent due to climate change), power outages, major health epidemics, pandemic outbreaks, terrorist acts, global political events or other serious catastrophic events and the concentration of our business operations;

• unexpected costs and negative effects if we incur losses not covered by our insurance program;

• inability to attract, train and retain highly qualified employees;

• difficulties associated with labor relations and shortages;

• loss of our key personnel or inability to hire additional qualified personnel;

• inability to attract, train and retain highly qualified employees or the loss of key personnel;

• failure to remediate our material weakness in our internal control over financial reporting;

Risks Related to Our Business Environment

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• movement of consumer trends toward private labels and away from name-brand products;

risks associated with deploying our own private label brands;

Risks Related to Our IO Model

• inability to attract and retain qualified independent operators ("IOs");

• failure of our IOs to successfully manage their business;

• failure of our IOs to repay notes outstanding to us;

• inability to attract and retain qualified IOs;

• inability of our IOs to avoid excess inventory shrink;

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• risks associated with actions our IOs could take that could harm our business;

Risks Related to Data Protection, Cybersecurity and our Information Technology Systems

• failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers;

Risks Related to our Information Technology Systems, Data Protection and Cybersecurity

• material disruption to our information technology systems;

• failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers;

Risks Related to Legal and Regulatory Risks

• risks associated with products we and our independent operators ("IOs") sell;

• risks associated with products we and our IOs sell;

• risks associated with laws and regulations generally applicable to retailers;

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The loss of one or more of our existing significant suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to be materially adversely affected.

Our supply chain is subject to risks, including distribution and transportation, labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints and general economic and political conditions that could limit their ability to provide us with quality products.

As discussed in "Item 1.

Business" and elsewhere in these risk factors, these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all.

As discussed elsewhere in these risk factors, these risks have in the past delayed or precluded, and may in the future delay or preclude, delivery of product to us on a timely basis or at all.

We may not be able to successfully identify trends to meet consumer demand and maintain an appropriate level of opportunistic products.

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We may not successfully address consumer trends or be able to acquire desirable opportunistic products, and we expect competition for customers to increase as online shopping by customers continues to expand.

In response to recent macroeconomic conditions, many CPGs reduced SKU assortment, resulting in lower levels of opportunistic product.

We generally make individual purchase decisions for products that become available, and these purchases may be for large quantities that we may not be able to sell on a timely or cost-effective basis.

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To the extent that some of our suppliers are better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of over-stock and short-dated products available to us could also be materially reduced, making it difficult to deliver products to our customers at attractive prices.

Maintaining adequate inventory of quality, name-brand products requires significant attention and monitoring of market trends, local markets and developments with suppliers and our distribution network, and it is not certain that we or IOs will be effective in inventory management.

We base our purchases of inventory, in part, on our sales forecasts.

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Conversely, if our sales forecasts underestimate customer demand, we may have insufficient inventory to meet demand, leading to lost sales, either of which could materially adversely affect our financial performance.

In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local

preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.

Our long-term success depends in part on our ability and the ability of the IOs to maintain or increase comparable store sales, and if we are unable to achieve comparable store growth over the long-term, our profitability and performance could be materially adversely impacted.

In addition, a majority of the assortment in each Grocery Outlet store is selected by IOs based on local preference and shopping history, and the inability of the IOs to successfully identify trends in the local market could materially adversely affect our financial performance.

Our long-term success depends in part on our ability and the ability of the IOs to maintain or increase comparable store sales, and if we are unable to continue to achieve comparable store growth over the long-term, our profitability and performance could be materially adversely impacted.

The IOs are responsible for store operations.

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After many years of consecutive growth in comparable store net sales, we had year-over-year declines in fiscal 2021, primarily due to outsized financial performance in fiscal 2020 and continued impacts of the COVID-19 pandemic, including changes in consumer behavior, supplier issues and other related challenges.

While fiscal 2022 was a year of comparable positive sales growth, our comparable store sales growth in future years could be lower than our historical average or our future target for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.

While fiscal 2022 and 2023 were years of comparable positive sales growth, our comparable store sales growth in future years could be lower than our historical average or our future target for many reasons, many of which we do not significantly control, including general economic conditions that may not favor our model, operational performance (including by the IOs), price inflation or deflation, or changes in response to competitive factors, changes in our existing supplier relationships or our inability to develop new supplier relationships, industry competition (e-commerce), new competitive entrants near our stores, price changes in response to competitive factors, any comparison year or quarter having above-average net sales results, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in our stores, our ability to provide product or service offerings that generate new and repeat visits to our stores and the level of customer engagement that we and the IOs provide in our stores.

In addition, we may not accurately model cannibalization by our new stores when we open new stores in established markets, which could reduce comparable store sales.

Significant disruption in our distribution network and our timely receipt of inventory has had in recent years, and could continue to have, an adverse impact on our operating performance.

We rely on our distribution, transportation and technology network and systems to provide goods to our distribution centers and stores in a timely and cost-effective manner.

Our stores are highly dependent on the successful operations of our distribution, transportation and technology networks, as IOs use these systems to order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods.

Deliveries to our stores occur from our distribution centers or directly from our suppliers.

We use three primary leased distribution centers that we operate and five primary distribution centers operated by third-parties.

Any disruption, unanticipated or unusual expense or operational failure related to these processes and systems could affect store operations negatively.

For example, during fiscal 2023 we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system.

The implementation of these system upgrades resulted in ordering and inventory disruptions beginning in late August 2023, which resulted in reduced net sales and gross margin.

Please also see the risk factor below entitled:

"Any material challenges or difficulties in maintaining or updating our existing technology, including developing or implementing new technology could have a material adverse effect on our business or results of operations."

We have also experienced ordering and inventory disruptions in recent years related to system issues at our third party distribution centers.

If similar circumstances were to occur and persist, they could have a material adverse impact on our operations and our ability to generate sales and earn profits.

In addition, events beyond our control, such as disruptions in operations due to fire, adverse weather conditions or other catastrophic events or labor disagreements, may result in delays in the delivery of merchandise to our stores.

While we maintain business interruption and cybersecurity insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient and any related insurance proceeds may not be timely paid to us, and our reputation and customer relationships could still be adversely impacted.

Furthermore, there can be no guarantee that we will be able to renew the leases or third-party distribution and transportation contracts, as applicable, on our distribution centers on attractive terms or at all, which may increase our expenses and cause temporary disruptions in our distribution network.

As we continue to implement our store growth strategy, our distribution centers may not have sufficient capacity to optimally support all of our stores and effectively managing our distribution network and distribution centers will become more complex.

Our new store locations receiving shipments may be further away from our distribution centers, which may increase transportation costs and may create transportation scheduling strains, or may require us to add additional facilities to the network.

Because we are an extreme value retailer and compete to a substantial degree on price, changes affecting the market prices of the products we sell, many of which we cannot control, including due to inflation or deflation, competition, supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.

A critical differentiator of our business is our ability to offer value to our customers, including offering prices that are substantially below those offered by some of our competitors.

We carefully monitor the market prices of our products in order to maintain our price advantage and reputation.

Over the past couple years, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.

Our IOs have experienced increased costs related to labor and utilities, among others.

If costs of goods continue to increase and our suppliers seek price increases from us, we may not be able to mitigate such increases and have sometimes, and may continue to, increase our prices, which could deter customer traffic and reduce the number and average basket size of customer transactions.

Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness.

If our competitors are more competitive on pricing relative to our pricing, we may lose customers and/or need to mark down prices.

Our gross margins and profitability also may be adversely impacted by higher supply costs that we cannot fully pass along or if we need to lower product prices due to competition.

As a result of our low-price model, the foregoing competitive pressures may reduce our profitability and materially adversely affect our business, financial condition and results of operations.

Our newly opened stores may negatively impact our financial results in the short-term and/or may not achieve sales and operating levels consistent with our more mature stores on a timely basis or at all.

We have actively pursued new store growth, including in new markets, and plan to continue doing so in the future.

Our new store openings may not be successful or reach the sales and profitability levels of our existing stores, and may impact our ability to attract and develop potential IOs.

Some new stores may be located in areas with different competitive and market conditions as well as different customer discretionary spending patterns than our existing markets.

Some new stores and future new store opportunities may be located in new geographic areas where we have limited or no meaningful experience or brand recognition.

We may experience a higher cost of entry in those markets as we build brand awareness and drive customers to incorporate us into their shopping habits.

New store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution to overall profitability during the initial period following opening.

New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, for approximately 4-5 years, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.

New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all.

This lack of performance may have a material adverse effect on our financial condition and operating results.

We may not anticipate all of the challenges imposed by the expansion of our operations into new geographic markets.

We may not manage our expansion effectively, and our failure to achieve or properly execute our expansion plans could limit our growth or have a material adverse effect on our business, financial condition and results of operations.

Our growth strategy is highly dependent on our ability to identify and open future store locations and relocate or remodel existing store locations in new and existing markets.

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Any or all of these factors and conditions could materially adversely affect our growth and profitability.

Our long-term goal is to expand our store base by approximately 10% annually over the next several years.

However, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve this level of new store growth and we were below that goal for fiscal 2022.

Over the last two years, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction.

These challenges impacted our new store growth in 2022 and are expected to continue to impact our new store growth in the first half of 2023 with fiscal 2023 store openings weighted towards the second half of the year.

Additionally, we may desire to or need to expand into neighboring states and regions in the United States and/or engage in acquisitions to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.

Our long-term goal is to expand our store base by approximately 10% annually on average over the next several years.

However, we cannot assure you that we will be able to consistently (on a year-over-year basis) achieve a high level of new store growth.

Over the last few years, planned construction and opening of new stores have been, and may continue to be, negatively impacted due to labor and materials shortages as well as longer lead times in lease execution, site permitting and construction.

These challenges impacted our organic new store growth in fiscal 2022 and 2023 and are

expected to impact organic growth in fiscal 2024 as well.

Additionally, we may expand into neighboring states and regions in the United States and/or engage in acquisitions (such as our pending acquisition of United Grocery Outlet) to meet our growth goals, and such expansion heightens the risks, challenges and uncertainties of development.

We may not have the level of cash flow or financing necessary to support our growth strategy.

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If we fail to successfully implement our growth strategy, including by opening new stores on a timely basis and on budget, our operations, financial condition and operating results would be materially and adversely affected.

supplier increases in freight, supply or other operating costs, including energy prices, or worsening economic conditions, could materially adversely affect our financial condition and operating results.

A critical differentiator of our business is our ability to offer value to our customers, including offering prices that are substantially below those offered by some of our competitors.

We carefully monitor the market prices of our products in order to maintain our price advantage and reputation.

Recently, we have experienced varying levels of inflation, resulting in part from various supply disruptions, increased shipping/transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions caused by the recent economic environment, which we have not been able to fully offset through price increases.

Our IOs have experienced increased costs related to labor and utilities, among others.

Some of our larger competitors are in a better position to absorb cost increases while maintaining price competitiveness.

If our competitors are more competitive on pricing relative to our pricing, we may lose customers and mark down prices.

Our gross margins and profitability also may be adversely impacted by higher supply costs that we cannot fully pass along or if we need to lower product prices due to competition.

As a result of our low-price model, the foregoing competitive pressures may reduce our profitability and materially adversely affect our business, financial condition and results of operations.

We have actively pursued new store growth, including in new markets, and plan to continue doing so in the future.

Our new store openings may not be successful or reach the sales and profitability levels of our existing stores, and may impact our ability to attract and develop potential IOs.

Some new stores may be located in areas with different competitive and market conditions as well as different customer discretionary spending patterns than our existing markets.

Some new stores and future new store opportunities may be located in new geographic areas where we have limited or no meaningful experience or brand recognition.

We may experience a higher cost of entry in those markets as we build brand awareness and drive customers to incorporate us into their shopping habits.

New stores, particularly those in new markets, build their sales volume, brand recognition and customer base over time and, as a result, generally have lower margins and higher operating expenses as a percentage of sales than our more mature stores.

New stores may not achieve sustained sales and operating levels consistent with our more mature store base on a timely basis or at all.

This lack of performance may have a material adverse effect on our financial condition and operating results.

We may not anticipate all of the challenges imposed by the expansion of our operations into new geographic markets.

Our success depends upon the successful implementation of our marketing, advertising and promotional efforts.

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If the efficacy of our marketing or promotional activities declines or if such activities of our competitors are more effective than ours, it could have a material adverse effect on our business, financial condition and results of operations.

While we recently began piloting a mobile personalization app, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.

While we have launched a mobile personalization app in some states and are increasing the rollout to additional states in fiscal 2024, which informs customers of new and top selling items, provides curated product recommendations and tracks savings, we do not maintain a traditional loyalty program for customers, and our competitors may be able to offer their customers promotions or loyalty program incentives that could result in fewer shopping trips to or purchases from our stores.

If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.

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If a significant amount of our goodwill and other intangible assets were deemed to be impaired, our financial condition and results of operations could be materially adversely affected.

Significant disruption in our distribution network and our timely receipt of inventory has had in recent years, and could continue to have, an adverse impact on our operating performance.

We rely on our distribution and transportation network to provide goods to our distribution centers and stores in a timely and cost-effective manner.

Our stores are highly dependent on the successful operations of our distribution network, including because IOs typically order multiple deliveries per week and many of our products have a limited shelf life from the time of purchase, particularly opportunistic buys and fresh foods.

Deliveries to our stores occur from our distribution centers or directly from our suppliers.

We use three primary leased distribution centers that we operate and five primary distribution centers operated by third-parties.

Any disruption, unanticipated or unusual expense or operational failure related to this process could affect store operations negatively.

For example, during fiscal 2021 labor shortages and supply chain disruptions caused logistical challenges for us and many other businesses in the retail industry, causing delay in product delivery to our distribution centers, stores and customers.

These logistical challenges caused increased costs to

deliver goods to our stores resulting from increased fuel costs, increased carrier rates and driver wages as a result of driver shortages, a decrease in transportation capacity, and slowdowns.

If similar circumstances were to occur and persist, they could have a material adverse impact on our operations and our ability to generate sales and earn profits.

While we maintain business interruption insurance, in the event our distribution centers are shut down for any reason, such insurance may not be sufficient, and any related insurance proceeds may not be timely paid to us.

We will require significant capital to fund our expanding business, including for investing in technology upgrades.

We will 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.

Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems (including our ongoing updates to our customized enterprise resource planning system), make loans to IOs and further invest in the business.

Our cash flow from operations may not provide sufficient capital to support our expanding business and execute our growth strategy, including to pay our lease obligations, build out new stores and distribution centers, remodel our stores, purchase opportunistic inventory, pay employees competitive wages and provide benefits, continue the ongoing modernization, enhancement and maintenance of our information systems, make loans to IOs and further invest in the business.

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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When we assign leases or sublease space to third parties, we may have to pay a portion of the rent and other expenses and we can remain liable on the lease obligations if the assignee or sublessee does not perform.

We have very limited experience competing in the growing online retail marketplace.

During fiscal 2021 and 2022, we entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores.

Certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.

Increased competition from online grocery retailers and our lack of a robust online retail presence may reduce our customers' desire to purchase products from us.

If we decide to expand our online shopping business, we will be exposed to new risks and challenges.

Furthermore, there can be no assurance that any investments that we make to expand our online shopping capabilities will result in a positive return on investment.

These factors could have a material adverse effect on our business, financial condition and results of operations.

Natural or man-made disasters, unusual weather conditions, power outages, major health epidemics, pandemics, terrorist acts, political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance.

Although historically we have not consummated material acquisitions, we recently entered into an agreement to purchase United Grocery Outlet and we periodically consider acquisitions and other transactions as part of our long-term business and real estate strategy.

If we consummate any such transaction, a failure to integrate such assets and business successfully, could have a material adverse effect on our business and financial statements.

Historically, we have rarely pursued or consummated material acquisitions, investments or joint ventures, although we periodically consider such opportunities as part of our growth strategy to complement our current business by enhancing our customer base, geographic penetration and scale.

On February 14, 2024 we entered into a stock purchase agreement to acquire United Grocery Outlet, which includes 40 stores in six adjacent states we do not operate in currently (Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia) and a company-operated distribution center.

We expect this transaction to close early in the second quarter of fiscal 2024.

Finding and assessing a potential growth opportunity and completing a transaction involves extensive due diligence, management time and expense, all of which diverts management's attention and liquidity that could be applied to our existing core business.

Furthermore, the success of any acquisition, including our pending acquisition of United Grocery Outlet, is dependent, in part, on our ability to realize the expected benefits from the integration of the acquired businesses or assets.

We may incur unexpected liabilities or make incorrect estimates regarding the planned accounting for acquisitions, such as the need to record non-recurring charges or write-off of significant amounts of goodwill or other assets that could adversely affect our results of operations, and we could have unexpected challenges due to the limitations of our due diligence process or contractual provisions.

Further, the integration of acquired businesses is a complex, costly and time-consuming process that requires significant management attention and resources.

It is possible that the integration process could result in the loss of key employees, the disruption of our operations, inconsistencies in and incompatibility of information technology and accounting systems, as well as other compliance standards, controls, procedures and policies, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition, additional litigation, compliance or regulatory risk (including post-closing disputes with the transaction parties), the diversion of management’s attention to integration matters and difficulties in the assimilation of employees and corporate cultures.

We also may be unable to maintain relationships with customers and partners of the acquired entities, or such transaction could harm our existing business relationships.

Further, the historical business model and strategy of the acquired business and the Company may be materially different, and therefore there may be heightened risks to operating the acquired business prior to integration, or to the extent certain operations and strategy are not integrated.

Given our limited history in consummating such transactions, the foregoing risks may be heightened due to our lack of experience in integrating similar businesses.

In addition, for significant transactions, we may expect to incur additional debt, assume contingent liabilities, issue equity and/or increase capital expenditures, which may increase leverage risks, result in dilution or reduce capital available for other investments in ongoing operations.

Further, we believe that our success depends, in substantial part, on our ability to continue to maintain and enhance our brand.

If any acquisition or investment dilutes or otherwise adversely affects our existing brand, causes brand confusion or impairs our ability to enhance our brand, our business, financial condition, and results of operations could be adversely impacted.

Natural or man-made disasters, climate change, power outages, major health epidemics, pandemics, terrorist acts, political events and other serious catastrophic events could disrupt our business, may expose us to unexpected costs and negatively affect our financial performance.

The current concentration of our stores creates an exposure to local or regional impacts of such events and local economic downturns.

Our business has been and could in the future be severely impacted by natural or man-made disasters and unusual weather conditions (which may become more frequent due to climate change), power outages, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events beyond our control.

In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on business operations.

In the event of a natural or man-made disaster, governments have and, in the future, may declare a state of emergency and impose regulations on

business operations.

These occurrences could adversely impact our business by causing direct asset or inventory losses or physical damage to our distribution centers or our stores, store closures, reduced customer traffic or changed shopping behaviors, disruptions to production, supply and delivery of products to our stores, staffing shortages, increased costs or disruptions to our information systems and other systems.

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As a result, our business is currently more susceptible to any unforeseen events or circumstances of the types described above that negatively affect these areas as well as regional conditions, economic downturns or disruptions, such as changes in demographics, population and employee bases, wage increases, property tax increases, and changes in economic conditions, than the operations of more geographically diversified competitors.

For example, there have been significant fires across the west coast of the United States from 2018 through 2022, causing a number of stores to be closed as well as suffer inventory losses related to power outages and evacuations.

For example, there have been significant fires across the west coast of the United States over the last several years, causing a number of stores to be closed as well as suffer inventory losses related to power outages and evacuations.

In 2018, our store in Paradise, California, burned down entirely.

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Epidemics, or the perception that such epidemics may occur, may cause people to avoid gathering in public places, which may adversely affect our customer traffic, our ability and that of our IOs to adequately staff our stores and operations, and our ability to transport product on a timely basis.

Any of these factors may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect.

Furthermore, the long-term impacts of climate change are expected to be widespread and unpredictable.

Climate change poses both physical risks (posed by extreme weather conditions, drought, and/or rising sea levels), and transition risks (posed by regulatory changes or reputational risks).

These factors could, among other negative consequences, increase our energy costs, damage our stores or distribution centers, disrupt our supply chain, negatively impact our workforce or reputation, and increase compliance and technology costs.

Any of these occurrences may disrupt our business and materially adversely affect our financial condition and results of operations and the occurrence of any of these events in a region where our stores or other operations are concentrated may increase the impact of such disruption and adverse effect.

We have very limited experience competing in the growing online retail marketplace.

During fiscal 2021 and 2022, we entered into partnerships with three third party grocery delivery companies to provide online shopping at our stores.

Certain of our competitors and a number of pure online retailers have established robust online operations and significantly increased their online sales and presence in recent years.

Increased competition from online grocery retailers and our lack of a robust online retail presence may reduce our customers' desire to purchase products from us.

If we decide to expand our online shopping business, we will be exposed to new risks and challenges.

Furthermore, there can be no assurance that any investments that we make to expand our online shopping capabilities will result in a positive return on investment.

These factors could have a material adverse effect on our business, financial condition and results of operations.

We may incur losses not covered by our insurance or claims may differ from our estimates.

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Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are reasonable based on our operations.

However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, actions based on

certain consumer protection laws and some natural and other disasters or similar events.

If we incur these losses and they are material, our business could suffer.

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We have experienced significant challenges in renewing the insurance policies for our stores and insurers have incurred substantial losses related to property claims from fires, floods and other catastrophic events and are significantly increasing policy premiums, increasing their requirements around building engineering standards or cutting back capacity for coverage offerings to layered/quota share.

For example, there have been significant fires across the west coast of the United States from 2018 through 2022.

For example, there have been significant fires across the west coast of the United States over the last several years.

In 2018, our store in Paradise, California, burned down entirely and we have also suffered inventory losses related to power outages and evacuations due to fires.

These risks may be exacerbated in the future due to climate change.

These risks may be exacerbated in the future due to

climate change.

To offset negative insurance market trends, we may elect to increase our self-insurance coverage, accept higher deductibles or reduce the amount of coverage.

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Unanticipated changes in any applicable actuarial assumptions and management estimates, could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition.

If we or our IOs are unable to attract, train and retain qualified employees, our financial performance may be negatively affected.

Our future growth, performance and positive customer experience depends on our and the IOs' ability to attract, train, retain and motivate qualified employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and customers.

We and the IOs face intense competition for management personnel and hourly employees.

If we and the IOs are unable to attract and retain adequate numbers of qualified employees, our operations, customer service levels and support functions could suffer.

There is no assurance that we and the IOs will be able to attract or retain highly qualified employees to operate our business.

Labor relation difficulties could materially adversely affect our business.

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If we or the IOs were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition and operating results.

Our success depends in part on our executive officers and other key personnel.

We believe that our success depends to a significant extent on the skills, experience and efforts of our executive officers and other key personnel.

If we or our IOs are unable to attract, train and retain qualified employees, our financial performance may be negatively affected.

Additionally, our success depends in part on our executive officers and other key personnel.

We and the IOs face intense competition for management personnel and hourly employees.

If we and the IOs are unable to attract and retain adequate numbers of qualified employees, our operations, customer service levels and support functions could suffer.

There is no assurance that we and the IOs will be able to attract or retain highly qualified employees to operate our business.

Additionally, we believe that our success depends to a significant extent on the skills, experience and efforts of our executive officers and other key personnel.

Due to the uniqueness of our model, the unexpected loss of services of any of our executive officers or other key personnel could have a material adverse effect on our business and operations.

We do not maintain key person insurance on any of our key personnel.

Effective January 1, 2023, Mr.

Sheedy was appointed President and Chief Executive Officer following the retirement of Mr.

Lindberg as Chief Executive Officer and his transition to Chairman of the Board.

In December 2022, our then Chief Executive Officer transitioned to the role of Chairman of the Board, and effective March 1, 2024, our Chief Financial Officer will be departing to pursue another opportunity.

There can be no assurance that our executive succession planning, retention or hiring efforts will be successful.

Competition for skilled and experienced management in our industry is intense, and we may not be successful in attracting and retaining qualified personnel.

We do not maintain key person insurance on any of our key personnel.

Difficulties associated with the replacement of components of our enterprise resource planning system caused a material weakness our internal control over financial reporting.

If we are unable to remediate the material weakness in our internal control over financial reporting or if we experience other material weaknesses, it may negatively impact our ability to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.

As disclosed in "Item 9A.

Controls and Procedures" of this Annual Report on Form 10-K, in connection with the preparation of financial statements for fiscal 2023, management determined that we had a material weakness in our internal control over financial reporting pertaining to certain information technology general computer controls that were insufficient during the replacement of components of our enterprise resource planning system in late August 2023, which led to a significant increase in the volume of transactions across user access, program change management, and IT operations for which our existing controls were not designed to address.

Our remediation efforts began during the fiscal quarter ended December 30, 2023 and are expected to be completed during the current fiscal year ending December 28, 2024.

We cannot assure that the measures we have taken to date and may take in the future will be sufficient to remediate the control deficiencies that led to our material weakness or that we will prevent or avoid potential future material weaknesses.

Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, our obligations under our debt instruments or result in material omissions or misstatements in our financial statements.

Any material weakness (including the material weakness referenced above) and our failure to remediate such material weakness could have a material adverse effect on our business and financial statements, as well as our reputation and reduce our stock price.

Additionally, material weaknesses could result in litigation

or regulatory actions by the SEC or other regulatory authorities or other disputes involving federal and state securities laws, loss of investor confidence, and diversion of financial and management resources from the operation of our business.

Risks Related to Our Business Environment

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While we have not previously been materially adversely affected by periods of decreased consumer spending, any factor that could materially adversely affect the disposable income of our customers could decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses.

These factors include but are not limited to unemployment, minimum wages, significant public health and safety events, inflation and deflation, the threat, outbreak or escalation of terrorism, military conflicts, or other hostilities and related international sanctions (such as the ongoing Russia-Ukraine conflict), trade wars and interest and tax rates.

Many of the factors identified above also affect commodity rates, costs of transportation, leasing, labor, insurance and healthcare, the strength of the U.S.

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If consumer trends move toward private label and away from name-brand products, our competitive position in the market may weaken.

Our business model has traditionally relied on the sale of name-brand products at meaningful discounts.

Additionally, our private label brands may not be successful and may increase certain risks that we face.

Our business model has traditionally relied on the sale of name-brand products at meaningful discounts to drive frequent store visits and net sales.

Consumer acceptance of, and even preference for, private label products has been increasing, however, and a trend away from name-brand products could weaken our competitive position in the market.

Private label products tend to be lower priced than name-brand products and, as a result, we may have more difficulty competing against private label products on the basis of price.

While we may invest more in the future in developing our own private labels, there can be no assurance that the performance of any such private label products would be sufficient to offset the potential decreased sales of name-brand products.

In addition, if we invest in expanding our private label products, we will need to make significant investments in developing effective quality control procedures.

While we have started to invest in developing and selling our own private labels, there can be no assurance that the performance of any such private label products would be sufficient to offset the potential decreased sales of name-brand products.

In addition, as we invest in and deploy our private label products, we are subjected to various new risks and regulations including product liability claims, claims related to product

labeling, claims related to rights of third parties and other risks associated with entities that source, sell and market exclusive private label offerings for retailers.

Any failure to appropriately address some or all of these risks could have a material adverse effect on our sales, business, results of operations and financial condition.

Risks Related to Our IO Model

If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.

Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who can effectively and efficiently run stores, understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.

A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs.

Our relationship with the IOs is an important part of our business.

To alleviate the disruption caused by our system upgrades, we elected to provide incremental commission support to IOs beginning in the third quarter of fiscal 2023 and extending into the first quarter of fiscal 2024.

While we use a variety of methods to attract and develop the IOs, including through our Aspiring Operators in Training ("AOT") program, there can be no assurance that we will continue to be able to recruit and retain a sufficient number of qualified AOTs and other candidates to open successful new locations in order to meet our growth targets.

Our ability to maintain our current performance and achieve future growth additionally depends on the IOs' ability to meet their labor needs while controlling wage and labor-related costs.

If the IOs are not successful in managing their business, our financial results and brand image could be negatively affected.

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This balance may continue to increase as we open new stores.

Further, during the COVID-19 pandemic we temporarily reduced interest rates on certain outstanding IO notes.

There were $37.5 million and $34.2 million of notes to IOs outstanding as of December 31, 2022 and January 1, 2022, respectively, with allowances of $13.2 million and $11.3 million as of December 31, 2022 and January 1, 2022, respectively.

If we are unable to attract and retain qualified IOs, our financial performance may be negatively affected.

Our future growth and performance depend on our ability to attract, develop and retain qualified IOs who understand and appreciate our culture and are able to represent our brand effectively, in particular because the vast majority of our IOs operate a single store.

A material decrease in profitability of the IOs may make it more difficult for us to attract and retain qualified IOs.

Our ability to maintain our current performance and achieve future growth additionally depends on the IOs' ability to meet their labor needs while controlling wage and labor-related costs.

There were $41.1 million and $37.5 million of notes to IOs outstanding as of December 30, 2023 and December 31, 2022, respectively, with allowances of $11.2 million and $13.2 million as of December 30, 2023 and December 31, 2022, respectively.

If the IOs are unable to avoid excess inventory shrink, our business and results of operations may be adversely affected.

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If any particular IO operates a store in a manner inconsistent with our brand standards, we cannot assure you that we will be able to terminate the Operator Agreement of that IO without disruptions to the operations and sales of that IO's store or other stores.

Risks Related to Data Protection, Cybersecurity and our Information Technology Systems

Risks Related to Our Information Technology Systems, Data Protection and Cybersecurity

Any material challenges or difficulties in maintaining or updating our existing technology, including developing or implementing new technology could have a material adverse effect on our business or results of operations.

We modify, update and replace our systems and infrastructure from time to time, including by adding new hardware, software and applications;

maintaining, updating or replacing legacy programs;

converting to global systems;

integrating new service providers;

and adding enhanced or new functionality, such as cloud computing technologies.

In late August 2023, we replaced components of our enterprise resource planning system, including our financial ledger, inventory management platform and product data warehouse system.

The implementation of these system upgrades resulted in more than anticipated ordering and inventory disruptions during the remainder of fiscal 2023.

These disruptions are estimated to have negatively impacted comparable store sales by approximately 90 basis points and gross margin by 50 basis points in fiscal 2023.

These implementation issues also contributed to our material weakness in our internal control over financial reporting, as discussed in "Item 9A.

Controls and Procedures" of this Annual Report on Form 10-K.

If we experience ongoing disruptions with these updates and/or are unable to remediate our material weakness in the future, such events could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

Further, the time and resources required to implement or optimize the benefits of new technology initiatives, or potential issues that arise in implementing such initiatives, could reduce the efficiency of our operations in the short term.

The efficient operation and successful growth of our business depends upon our information systems, including our ability to operate, maintain and develop them effectively.

A failure of those systems could disrupt our business, subject us to liability, damage our reputation, or otherwise impact our financial results.

Any failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could subject us to litigation, government enforcement actions and costly response measures, and could materially disrupt our operations and harm our reputation and sales.

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We and our customers could suffer harm if valuable business data or employee, customer and other proprietary information were corrupted, lost or accessed or misappropriated by third parties due to a security failure in our systems or those of our suppliers or service providers.

It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.

It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers and suppliers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.

In addition, as a result of recent security breaches and ransomware attacks at a number of prominent retailers, the media and public scrutiny of information security and privacy has become more intense and the regulatory environment has become increasingly uncertain, rigorous and complex.

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In November 2021, California voters passed Proposition 24, also known as the California Privacy Rights Act ("CPRA"), which amends and expands the CCPA.

The CCPA and CPRA provide new and enhanced data privacy rights to California residents, such as giving California consumers and employees the right to access and/or delete their personal information, affording consumers and employees the right to opt out of certain sales of personal information, as well as sharing for cross context behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.

behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.

The CPRA went into effect January 1, 2023 and added definitions for "sensitive information" as well as "contractors," and bolstered the requirements for agreements that cover the exchange of data.

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For example, we and the IOs are subject to Payment Card Industry Data Security Standards, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data.

In addition, if our internal systems are breached or compromised, we and the IOs may be liable for card re-issuance

costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our customers, and our business and operating results could be materially adversely affected.

In addition, if our internal systems are breached or compromised, we and the IOs may be liable for card re-issuance costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our customers, and our business and operating results could be materially adversely affected.

Security breaches and other disruptions to our information technology networks and systems, including a disruption related to cybersecurity, could interfere with our operations and the operations of the IOs and our suppliers, any of which could have a material adverse effect on our business and financial performance.

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Although we have taken steps designed to reduce the risk of these events occurring, there can be no guarantee that we or a third party on which we rely will not suffer one of these events.

While we maintain cyber risk insurance intended to provide coverage in the event of a breach or other data security incident, there can be no assurance that these policies will cover all incidents that might occur or that the coverage limits under such policies will be adequate for any incidents, claims or damages that we might experience.

we might experience.

Additionally, we are exposed to vulnerabilities with respect to our IO's information technology systems.

Any material challenges or difficulties in maintaining or updating our existing technology, including modernizing components of our existing system architecture, or developing or implementing new technology could have a material adverse effect on our business or results of operations.

We modify, update and replace our systems and infrastructure from time to time, including by adding new hardware, software and applications;

maintaining, updating or replacing legacy programs;

converting to global systems;

integrating new service providers;

and adding enhanced or new functionality, such as cloud computing technologies.

In addition, we have a customized enterprise resource planning system, components of which have already been replaced and additional components of which we are replacing over the next several years, including our financial ledger, inventory management platform and product data warehouse system.

The implementation, operation, and proper functionality of these improvements is anticipated to require a significant investment of financial, human, and technical resources.

It is possible that we could experience implementation, operational and functionality issues, delays, higher than expected costs and other issues during the course of implementing and utilizing these improvements.

With any update or replacement of our systems and infrastructure there is a risk of business disruption, liability and reputational damage associated with these actions, including from not accurately capturing and maintaining data, efficiently testing and implementing changes, realizing the expected benefit of the change and managing the potential disruption of the actions and diversion of internal teams' attention as the changes are implemented.

The efficient operation and successful growth of our business depends upon our information systems, including our ability to operate, maintain and develop them effectively.

A failure of those systems could disrupt our business, subject us to liability, damage our reputation, or otherwise impact our financial results.

Legal and Regulatory Risks

Real or perceived concerns that products we and the IOs sell could cause unexpected side effects, illness, injury or death could expose us to lawsuits and harm our reputation, which could result in unexpected costs.

As discussed under "Regulations" in Item I.

As discussed under "Regulations" in "Item 1.

Business", we and the IOs are subject to regulation by various federal agencies.

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In addition, we and the IOs are subject to environmental laws, including but not limited to hazardous waste laws, regulations related to refrigeration and stormwater, pursuant to which we and/or the IOs could be liable or to which we could be strictly and jointly and severally liable, regardless of our knowledge of or responsibility.

Approximately 13% of sales are in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP").

Approximately 11% of sales in fiscal 2023 were in the form of EBT payments and a substantial portion of these payments may be related to benefits associated with the Supplemental Nutritional Assistance Program ("SNAP").

Accordingly, changes in EBT regulations by the U.S.

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Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt and could divert our cash flow from operations for debt payments.

As of February 21, 2023, we entered into a new Credit Agreement (the "Credit Agreement") under which we had a significant amount of indebtedness comprised of total borrowings of $325.0 million.

The Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, which was fully drawn as of such date, and (ii) a senior secured revolving credit facility of $400.0 million, of which $25.0 million was drawn as of such date.

We entered into a new Credit Agreement on February 21, 2023 (the "2023 Credit Agreement") under which we have a significant amount of indebtedness.

The 2023 Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility of $300.0 million, of which $294.4 million was outstanding as of December 30, 2023, and (ii) a senior secured revolving credit facility of $400.0 million, under which we had $395.8 million of availability after giving effect to outstanding letters of credit.

In addition, subject to limited restrictions in our 2023 Credit Agreement, we may be able to incur substantial additional debt in the future.

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Furthermore, all of our debt under our 2023 Credit Agreement bears interest at variable rates.

If these rates were to increase significantly, whether because of an increase in market interest rates or otherwise, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.

If these rates were to increase significantly, as they did in fiscal 2022, whether because of an increase in market interest rates or otherwise, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.

Restrictive covenants in our 2023 Credit Agreement may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.

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• enter into certain transactions with our affiliates;

• designate our subsidiaries as unrestricted subsidiaries.

• designate our subsidiary as an unrestricted subsidiary.

A breach of any of these covenants could result in a default under our 2023 Credit Agreement.

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Further, the ultimate amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, or changes to existing accounting rules or regulations.

For example, the Inflation Reduction Act of 2022, enacted on August 16, 2022, imposes a one-percent non-deductible excise tax on repurchases of stock that are made by U.S.

publicly traded corporations on or after January 1, 2023, which may affect our share repurchase program.

In addition, as of January 1, 2023, the Tax Act requires research and experimental and software development expenditures attributable to research conducted in the United States to be capitalized and amortized ratably over a five-year period.

Accordingly, the determination of our overall provision for income tax and other taxes is inherently uncertain as it requires significant judgement around complex transactions and calculations.

As a result, fluctuations in our ultimate obligations may differ materially from amounts recorded in our financial statements and could adversely affect our business, financial condition and results of operations in the periods where such determination is made.

In addition, certain states and local jurisdictions have approved or proposed gross receipt and other tax measures.

For example, effective January 1, 2022, the City of Portland in Oregon enacted a 1% tax on net revenue greater than $5 million.

Should similar tax measures succeed in other jurisdictions in which we operate, we expect that our operating expenses would increase.

As of December 31, 2022, we had tax-effected Federal and State deferred tax assets of $45.3 million and $3.1 million, respectively.

In addition, an increasing number of states and local jurisdictions are considering or have adopted laws that impose new tax measures, including revenue-based taxes and other tax measures.

Should similar tax measures succeed in other jurisdictions in which we operate, we expect that our operating expenses will increase.

As of December 30, 2023, we had tax-effected Federal and State net operating loss deferred tax assets of $30.4 million and $1.4 million, respectively.

Our ability to use our deferred tax assets is dependent on our ability to generate future earnings within the operating loss carry-forward periods.

Of the $45.3 million tax effected Federal deferred tax asset, $11.3 million will expire beginning in 2032 and the remaining $34.0 million does not expire and will carryforward indefinitely.

The tax effected State deferred tax asset will expire beginning in 2025.

The $30.4 million tax effected Federal deferred tax asset does not expire and will carryforward indefinitely.

The tax effected State deferred tax assets of $1.4 million will expire beginning in 2029.

Some or all of our deferred tax asset could expire unused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our right to use it.

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However, we have concluded we are not such VIE's primary beneficiary and, accordingly, we do not consolidate the IO entities' financial information.

Changes in accounting rules or interpretations thereof, changes to the underlying Operator Agreements (as defined elsewhere in this report) as well as other factors that may impact the economic performance of the IO entities which may be relevant to our analysis of whether to consolidate the IO entities as VIEs could significantly impact our ability to issue our financial statements on a timely basis if, as a

result, we are determined to be the primary beneficiary of the IO entities and should consolidate such entities.

For example, collecting the requisite accounting data from certain of our IO entities in order to consolidate their financial information would involve substantial time, effort and cost.

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If we fail to control costs, appropriately adjust costs to actual results, increase our results over prior periods, achieve our projected results, or meet the expectations of securities analysts or investors, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance.

Since the beginning of our 2022 fiscal year through December 31, 2022 our common stock has traded at prices as low as $23.69 and as high as $46.37.

During fiscal 2023, our common stock has traded at prices as low as $25.71 and as high as $36.54.

The market price volatility of our common stock may continue due to fluctuations in our quarterly operating results or in response to other factors (regardless of our actual operating performance) included in this Risk Factors section and due to the following:

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Furthermore, we currently do not expect to declare any dividends on our common stock in the foreseeable future.

In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.

Your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.

Future sales of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock and might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

The market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them.

In addition, because we are a holding company, our ability to pay dividends on our common stock may be limited by restrictions on our ability to obtain sufficient funds through dividends from our subsidiary, including restrictions under our Credit Agreement, and may be further restricted by the terms of any future debt or preferred securities.

Your only opportunity to achieve a return on your investment currently is if the price of our common stock appreciates.

Future sales, or the perception of future sales, by us or our existing significant stockholders in the public market could cause the market price for our common stock to decline.

Future sales of shares of our common stock by our existing significant stockholders in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock and might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

In the future, we may also issue our securities in connection with investments or acquisitions.

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Provisions in our organizational documents could delay or prevent a change of control.

transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our common stock.

These provisions provide for, among other things:

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Alternatively, if a court were to find the choice of forum provisions that will be contained in our amended and restated bylaws to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors