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As filed with the Securities and Exchange Commission on December 22, 2021.

Registration Statement No. 333-                 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

S-Evergreen Holding LLC

to be converted as described herein to a corporation named

Savers Value Village, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

5900

 

83-4165683

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

11400 S.E. 6th Street, Suite 125

Bellevue, WA 98004

425-462-1515

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Mark Walsh

Chief Executive Officer

S-Evergreen Holding LLC

11400 S.E. 6th Street, Suite 125

Bellevue, WA 98004

425-462-1515

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Lawrence G. Wee, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
212-373-3000

 

Marc D. Jaffe, Esq.
Gregory P. Rodgers, Esq.
Brittany D. Ruiz, Esq.
Latham & Watkins LLP
1271 Avenue of the Americas
New York, NY 10020
212-906-1200

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer 

 

Accelerated Filer

  

Non-accelerated Filer                              

 

Smaller reporting company 

      

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act of 1933.  

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration Fee(3)

Common Stock, par value $0.001 per share

 

$100,000,000

 

$9,270

 

 

 

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase. See “Underwriting.”

(3)

To be paid in connection with the initial public filing of the registration statement.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


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This information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, and it is not soliciting an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated             , 2022

Prospectus

                 Shares

 

LOGO

Common Stock

This is an initial public offering of shares of common stock of Savers Value Village, Inc. We are offering                shares of common stock. Certain selling stockholders identified in this prospectus are selling an additional                shares of our common stock. Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price for our common stock will be between $                and $                per share.

We intend to apply to list our common stock on the New York Stock Exchange under the symbol “SVV.” After giving effect to this offering and the Corporate Conversion (as defined in this prospectus), certain funds, investment vehicles or accounts managed or advised by the Private Equity Group of Ares Management Corporation, will hold approximately                 % of our outstanding common stock. Accordingly, we expect to be a “controlled company” as defined in the corporate governance rules of the New York Stock Exchange and will be exempt from certain corporate governance requirements of those rules. We are also an “emerging growth company” as defined under the U.S. federal securities laws, and as such may elect to comply with reduced public company reporting requirements. Please see “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

     Per share      Total  

Price to the public

   $                    $                

Underwriting discounts and commissions

   $        $    

Proceeds, before expenses, to us(1)

   $        $    

Proceeds, before expenses, to the selling stockholders

   $        $    

 

(1)

See “Underwriting” for additional information regarding underwriting compensation.

We and the selling stockholders have granted the underwriters a 30-day option to purchase up to additional shares at the initial public offering price, less the underwriting discount. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders, including upon the sale of shares of our common by the selling stockholders if the underwriters exercise their option.

Investing in our common stock involves risks. See “Risk factors” beginning on page 34.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters expect to deliver the shares on or about                  , 2022.

 

 

J.P. Morgan    Goldman Sachs & Co. LLC    Jefferies    UBS Investment Bank

 

Baird    CIBC Capital Markets    Guggenheim Securities    Piper Sandler

                , 2022


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Explanatory note

S-Evergreen Holding LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Prior to the effectiveness of this registration statement, S-Evergreen Holding LLC intends to convert into a Delaware corporation pursuant to a statutory conversion and change its name to Savers Value Village, Inc. as described in the section “Corporate Conversion” of the accompanying prospectus. Except as disclosed in the prospectus, the Consolidated Financial Statements and selected historical consolidated financial data and other financial information included in this registration statement are those of S-Evergreen Holding LLC and its subsidiaries and do not give effect to the Corporate Conversion. Shares of common stock of Savers Value Village, Inc. are being offered by the prospectus.


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Prospectus

 

A LETTER FROM OUR CHIEF EXECUTIVE OFFICER

     1  

PROSPECTUS SUMMARY

     4  

THE OFFERING

     26  

RISK FACTORS

     34  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     76  

USE OF PROCEEDS

     78  

CORPORATE CONVERSION

     79  

DIVIDEND POLICY

     80  

CAPITALIZATION

     81  

DILUTION

     83  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     85  

SELECTED FINANCIAL DATA

     99  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     101  

BUSINESS

     138  

MANAGEMENT

     160  

EXECUTIVE COMPENSATION

     168  

DIRECTOR COMPENSATION

     176  

PRINCIPAL AND SELLING STOCKHOLDERS

     179  

DESCRIPTION OF CAPITAL STOCK

     181  

SHARES ELIGIBLE FOR FUTURE SALE

     188  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     191  

UNDERWRITING

     195  

VALIDITY OF COMMON STOCK

     205  

EXPERTS

     205  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     205  

S-EVERGREEN HOLDING LLC AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS

     F-1  

Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of common stock only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.

You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

For investors outside the United States: Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of common stock and the distribution of this prospectus outside the United States.

 

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Through and including                 , 2022 (the 25th day after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PRESENTATION OF FINANCIAL INFORMATION

March 2019 Transactions

On March 28, 2019, pursuant to a Restructuring Support Agreement, TCW/Crescent Mezzanine Partners V, L.P., TCW/Mezzanine Partners VB, L.P., TCW/Crescent Mezzanine Partners VC, L.P., Trust Company of the West (as Trustee for TCW Capital Trust), TCW/Crescent Mezzanine Partners VI, L.P., TCW/Crescent Mezzanine Partners VIB, L.P., and TCW/Crescent Mezzanine Partners VIC, L.P. (collectively, “Crescent”), certain other holders and certain of the Ares Funds (as defined below), effectuated various refinancing and recapitalization transactions (collectively, the “March 2019 Transactions”), including (among others):

 

   

through a series of transactions, our predecessor company, S-Evergreen Holding Corp., a Washington corporation (the “Predecessor”), became a subsidiary of S-Evergreen Holding LLC, a Delaware limited liability company (the “Successor”);

 

   

all of the outstanding capital stock of the Predecessor was cancelled and extinguished, and new equity in the Successor was issued in exchange;

 

   

Crescent and certain other existing lenders, as well as such Ares Funds, paid cash for new equity securities of the Successor, constituting 92.5% of the outstanding equity securities of the Successor, and other indebtedness of the Predecessor was settled for the remaining 7.5%; and

 

   

the existing indebtedness of the Predecessor was refinanced under new debt facilities of the Successor.

The March 2019 Transactions were accounted for as a business combination, and the total purchase price in the March 2019 Transactions was allocated to the assets acquired and liabilities assumed at their fair value as of March 28, 2019. As a result, our fiscal year ended December 28, 2019 consists of a Predecessor period from December 30, 2018 to March 27, 2019 and a Successor period from March 28, 2019 to December 28, 2019. See Note 3 to our Audited Consolidated Financial Statements included elsewhere in this prospectus for more information regarding the March 2019 Transactions.

On April 26, 2021, certain of the Ares Funds, pursuant to a Purchase and Sale Agreement with Crescent, purchased for cash all of the outstanding equity securities of the Successor held by Crescent (the “Ares Share Purchase Transaction”). As a result, the Ares Funds became the holders of all of our outstanding equity, prior to this offering. We did not elect to apply push down accounting for the Ares Share Purchase Transaction, as the transaction was entirely among the holders of the securities.

Fiscal Year End

We report on the basis of a 52- or 53-week fiscal year, which ends on the Saturday closest to the last day of December. Accordingly, references herein to “fiscal year 2019” relate to the 52-weeks ended December 28, 2019 and references herein to “fiscal year 2020” relate to the 53-weeks ended January 2,

 

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2021. References herein to “fiscal year 2021” relate to the 52 weeks ending January 1, 2022. Because of the March 2019 Transactions, our fiscal year 2019 consists of a Predecessor period from December 30, 2018 to March 27, 2019 and a Successor Period from March 28, 2019 to December 28, 2019. Both the nine month interim reporting period ended on October 2, 2021 and the nine month interim reporting period ended September 26, 2020 consisted of 39 weeks.

Rounding

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

CERTAIN TRADEMARKS

This prospectus includes trademarks and service marks owned by us, including “Savers Value Village,” “Savers®,” “Value Village,” “Village des Valeurs,” “Unique®,” “Super Savers Club®,” “Community Donation Center®,” “Thrift Proud®,” “2nd Ave®,” “2nd Ave Value Stores®,” and “GreenDrop®.” This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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LOGO

savers® | value villageTM


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LOGO

What if a business could revolutionize the relationship between people, planet and profit? Welcome to the Savers® family of thrift stores and the reuse economy. For nearly 70 years, we've run a proven, successful, triple bottom line company. This is a business model consumers demand, and it's already here. savers | value villageTM | village des valeursMD | unique® | Thrift Superstore


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LOGO

OUR MISSION Our mission is to champion reuse and inspire a future where secondhand is second nature. From the thrill of the hunt to the joy of decluttering, we help communities harness the power of reuse to keep clothing and household items around for years to come.


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LOGO

OUR BRAND At Savers® pre-loved becomes re-loved by our thrifting community. They celebrate and share their finds wherever they can. Why? Ask them and they will tell you: the excitement of a one-of-a-kind discovery at an exceptional price. Fashion statements become environmental ones, too. That's Thrift Proud®. @__reme_ @lifewithkails @justinhamm_ @amandadaises @lusfinds @soa.ma.eva @thriftedstylez @niftee_thrifteee @thevillagelook thrift proud®.


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LOGO

OUR IMPACT What's good for people, communities and the planet, is also good for business. Thrift is proof the reuse economy works and is the future of retail. 1. BUSINESS 2. PLANET 3. PEOPLE REVENUE ___ $859.3MM1 COMP STORE SALES ___ +16.3%2 vs. 2019 +77.4%2 vs. 2020 LOYALTY MEMBERS ___ 3.8MM active loyalty members drive 64.6% of total point-of-sale transaction value3 AVERAGE UNIT RETAIL PRICE ___ <$5 3.4B+ lbs. of goods diverted from North American landfills4 +38,000 reusable items merchandised per store every week5 Each year on average our thrifters purchase6: 82 Million tops & pants 6 million coats 13 Million accessories 25 million books 6 million dresses 12 Million pairs of shoes 13 Million pieces of kitchenware 90%+ of our supply is locally sourced7 $670MM+ paid to our non-profit partners for secondhand clothing and household goods8 25+ year average relationship with our top 10 non-profit partners 75% of open salaried management positions filled by internal promotions9 70% of management roles held by team members identifying as female10 50% of U.S. workforce is represented by diverse backgrounds and ethnicities10 1 YTD Q3 2021 • 2 U.S. comparable store sales growth (YTD Q3 2021 vs. YTD Q3 2019 and vs. YTD Q3 2020) • 3 U.S. & Canada 12 months ended October 2, 2021 • 4 2016 - 2020 • 5 2019 internal company data • 6 2015 to 2019 7 2015 to 2020 • 8 Average between 2015-2019 • 9 U.S. & Canada since January 2021 • 10 As of August 2021


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LOGO

A LETTER FROM OUR CHIEF EXECUTIVE OFFICER At Savers Value VillageTM, our mission is to champion reuse and inspire a future where secondhand is second nature. I believe in it today, and I see the immense potential ahead as more consumers come to believe in it too. If you are new to our company and the thrift industry, we are excited to welcome you. If you know us already, thank you for remaining with us on this incredible journey. The Savers(R) family of thrift stores is the largest for-profit thrift operator in the United States and Canada. We have over 300 stores in the United States, Canada and Australia and 20,000 team members who are engaged and committed to our mission. Our position is strong because our business model-vertically integrated across supply and processing, brick and mortar retail, and sales to wholesale reuse customers-differentiates us from others in the industry, and we believe our scale and capabilities cannot be easily replicated. We've made a promise to affect the world for the better as we grow: to benefit local communities by partnering with non-profits, to benefit the planet, and to benefit our shareholders. That is our triple bottom line. In 1954 we opened our first thrift shop in an old San Francisco movie theater, and since then, we've been innovating our stores and operations to redefine the modern thrift experience. Through economic and fashion cycles, and across generations, we've shown resiliency and remain Thrift Proud(R)-a mantra that has brought us to today: the most exciting time in our company's history. Whether you refer to us as "secondhand," "thrift" or "reuse," Savers is the place for anyone and everyone to buy necessities and to explore one-of-a-kind products-all with an average price tag of under $5. Our value proposition attracts customers from all walks of life who are embracing thrift for an authentic experience that creates shareable moments. For many, thrifting is about the thrill of the treasure hunt. You don't know you need it until you see it-that 70's daisy print salad bowl... a football jersey from your alma mater... a kid's toy that makes the perfect gift. While thrifting should always be fun, we take secondhand seriously, and we are committed to our local impact.


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LOGO

Here is how we work. Our typical store has a Community Donation Center(R) (CDC) to accept clothing and household items people no longer want or need on behalf of a local non-profit partner. In addition, our GreenDrop(R) locations provide communities surrounding our stores with further donation opportunities benefiting a local non-profit. We operate our CDCs and GreenDrop locations as a registered professional fundraiser (where required), paying our non-profit partners for these donated goods to create revenue they can use to help fund their missions. Our non-profit partners work to better our communities, fight disease, support youth at risk, and provide services for veterans, among many other important causes. These relationships are longstanding, with some spanning decades, which is a testament to our team members' dedication to delivering for our non-profit partners and to consumers who are committed to decluttering responsibly. Dropping off reusable goods for our non-profit partners at our Community Donation Centers and GreenDrop locations is a convenient, fast and friendly experience that encourages repeat donors and creates unlimited possibilities for our customers to access a huge range of brands, styles and products. We then sort through these items and select merchandise for our sales floors where thrifters come in search of style-defining discoveries across apparel, accessories and everyday housewares. This seamless experience is created by our team members who keep our inventory fresh by stocking thousands of pre-loved products on each of our stores' racks and shelves every day. Processing thrift is hard work. It requires sifting through drop-offs to separate items that can be placed on our sales floors from those our wholesale customers can reuse or repurpose. We're innovating to streamline item processing at Centralized Processing Centers (CPCs), powered by industry-leading technology exclusive to Savers. This initiative is a game changer for us. By moving processing from stores to CPCs, we now have the flexibility to expand into prime retail locations with smaller footprints in more densely populated areas. One of the best parts of what we do is divert millions of reusable items away from landfills every year. We recognize that shoppers today are discerning, engaged and more conscious consumers. They want a broad product selection, but not at the expense of the environment. It takes 700 gallons of water to produce just one new cotton t-shirt-that's as much as you'll drink in two and a half years. More than 26 billion pounds of textiles are thrown away every year in the United States alone, 95% of which could have been reused or repurposed. When people understand this impact, and recognize their own potential contribution, they want to participate in the reuse economy. And it is important to them that their favorite retailers are doing so, too, in a meaningful way.


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LOGO

As we look to the future, we are focused on and excited about our growth plan: First, grow the footprint. The things people love most about thrift are best executed in-store, and we have identified approximately 2,200 potential new stores, the vast majority of which is comprised of infilling the markets where we already exist. Both current and new markets are underpenetrated, particularly in the South and West of the United States and in Central Canada. Second, continue to drive consistent comparable store sales growth. Capitalizing on strong secular trends, this will continue to be a priority as we enhance our product offerings, improve the shopping experience, expand our loyal customer base and drive brand awareness. Third, keep innovation and operational excellence at the center. This has been a part of our culture since the beginning and a major differentiator of our for-profit model. We are directing investment to elevate the retail experience and leverage new technology like our innovative CPCs. Finally, pursue inorganic growth opportunities. The thrift sector is fragmented and ripe for consolidation. There are strong regional players that may benefit from our infrastructure and would offer us the opportunity to scale in new or underpenetrated markets. We are also looking at businesses that could add value on the operational side. To make this plan a reality, I am honored to work alongside our leadership team of thrift veterans and technology, manufacturing and supply chain experts. I'm also immensely grateful to our Savers team members who work tirelessly to deliver for our customers, non-profit partners, and the planet. Thank you for taking the time to learn more about our company. Our model is powerful, the thrift industry is resilient and poised for significant growth, and our future is bright. Sincerely, Mark Walsh, CEO savers® | value villageTM | village des valeursMD | unique®


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PROSPECTUS SUMMARY

The following summary contains selected information about us and about this offering. It does not contain all of the information that is important to you and your investment decision. Before you make an investment decision, you should review this prospectus in its entirety, including matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Consolidated Financial Statements and the related notes included elsewhere in this prospectus. Some of the statements in the following summary constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references in this prospectus to “Savers Value Village, Inc.,” “S-Evergreen Holding LLC,” the “company,” “we,” “us,” “our” or similar terms refer to S-Evergreen Holding LLC and its consolidated subsidiaries (including the accounting Predecessor with respect to periods prior to March 28, 2019), and after the Corporate Conversion, Savers Value Village, Inc. and its consolidated subsidiaries. On November 8, 2021, we acquired Thrift Intermediate Holdings I., Inc. (“2nd Ave.”) for purchase price consideration of $238.9 million in cash (the “2nd Ave. Acquisition”). Where we present information on a “pro forma basis,” it means that such information is presented giving pro forma effect to the “Transactions”, which include the April 2021 Refinancing, the 2nd Ave. Acquisition and the related financing, the November 2021 Dividend and the Initial Public Offering and the use of proceeds from the Initial Public Offering. For more information about the Transactions, please read the section of this prospectus under the heading, “Unaudited Pro Forma Condensed Combined Financial Information.”

Company Overview

Our mission

To champion reuse and inspire a future where secondhand is second nature.

From the thrill of the hunt to the joy of decluttering, we help communities harness the power of pre-loved stuff to keep reusable items around for years to come.

Who we are

We are the largest for-profit thrift operator in the United States and Canada. With over 20,000 team members, we operate a total of 306 stores under the Savers, Value Village, Village des Valeurs, Unique, and 2nd Ave banners. We are committed to redefining secondhand shopping by providing one-of-a-kind, low-priced merchandise ranging from quality clothing to home goods in an exciting treasure-hunt shopping environment. We purchase secondhand textiles (i.e., clothing, bedding and bath items), shoes, accessories, housewares, books and other goods from our non-profit partners (“NPPs”), either directly from them or via on-site donations (“OSDs”) at Community Donation Centers at our stores. We then process, select, price, merchandise and sell these items in our stores. Items that are not sold to our retail customers are marketed to wholesale customers, who reuse or repurpose the items they purchase from us. We believe our hyper-local and socially responsible procurement model, industry-leading and innovative operations, differentiated value proposition and deep relationships with our customers distinguish us from other secondhand and value-based retailers.

We offer a dynamic, ever-changing selection of items, with an average unit retail (“AUR”) under $5. We have a highly engaged customer base, with over 3.8 million active loyalty program members in the United States and Canada who shopped with us, driving 64.6% of point-of-sale transaction value in the 12 months ended October 2, 2021. Our business model is rooted in environmental, social and corporate governance (“ESG”) principles, with a mission to positively impact our stakeholders—

 

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thrifters, NPPs and their donors, our team members and our stockholders. As a leader and pioneer of the for-profit thrift category, we seek to positively impact the environment by reducing waste and extending the life of reusable goods. The vast majority of the clothing and textiles we source are sold to our retail or wholesale customers. In 2019, we processed over one billion pounds of secondhand goods. In 2020 and in the nine months ended October 2, 2021, periods that were affected by the COVID-19 pandemic, we processed 682 million and 624 million pounds, respectively. During fiscal year 2020, we generated $834.0 million of net sales, $63.5 million of net loss and $59.5 million of Adjusted EBITDA, resulting in a 7.6% net loss margin and a 7.1% Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures under the SEC’s rules because they exclude certain charges included in net (loss) income calculated in accordance with GAAP. For additional information on our use of non-GAAP financial measures and a reconciliation to the nearest GAAP measure, see “Prospectus Summary—Summary Financial and Other Data—Key business metrics and non-GAAP financial measures.”

The U.S. secondhand market, which is a subset of the broader retail market, is expected to reach $36 billion in 2021 and is expected to grow 21% annually to $77 billion by 2025. Thrift accounted for approximately 60% of the total secondhand market in 2021, and we believe we benefit from the powerful secular trends driving growth in the sector. We also believe consumers are increasingly concerned about the environmental impact of the clothes they wear. There is a growing awareness that the textile and clothing industry is one of the most environmentally damaging sectors of the economy.

Meanwhile, discarded clothing remains the largest source of textile waste in the world. Twenty-six billion pounds, or 81 pounds per capita, of clothing and textiles are thrown away annually in the United States alone, 95% of which could have been re-worn or repurposed; yet 85% of this material ends up in landfills. To put this another way, the Ellen MacArthur Foundation reports that one garbage truck of textiles is landfilled or incinerated every second. Thrift as a business model provides one of the most effective solutions in mitigating the environmental cost of clothing and extending its life.

Track record of consistent growth and recent performance

We have a proven track record of consistently delivering comparable store sales growth across the United States and Canada. Prior to the start of the COVID-19 pandemic in March 2020, we achieved over ten years of positive comparable store sales growth across the United States and Canada and our business has recovered strongly from COVID-19-related disruptions in 2021.

 

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LOGO

Powerful, Vertically Integrated Business Model

We have innovated and invested to develop significant operational expertise and integrate the three highly-complex parts of thrift operations—supply and processing, retail, and sales to wholesale markets. Our business model enables us to provide value to our NPPs and our customers, while driving attractive profitability and cash flow.

 

LOGO

 

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Supply and processing

We source our merchandise locally by purchasing secondhand items donated to our NPPs primarily through two distinct and strategic procurement models:

 

   

on-site donations, or “OSDs,” which are donations of items by individuals to our local NPPs made at the Community Donation Centers located at our stores; and

 

   

delivered supply, which includes items donated to and collected by NPPs through a variety of methods, such as neighborhood collections and donation drives, and delivered to our stores or Centralized Processing Centers, or “CPCs.”

Our business model is predicated on sourcing and selling quality secondhand items to our customers in local communities. We are able to meet our customer demand given our deep relationships with an extensive network of locally-based NPPs that is unmatched in the thrift industry. Our local sourcing strategy also reduces transportation costs and emissions typically associated with the production and distribution of new merchandise.

The quantity and quality of our supply of secondhand items has continued to evolve and improve, particularly as OSDs have grown as a percentage of the pounds of goods we process. While it is strategically important for us to maintain a diverse supply mix, items sourced through OSDs have a cost per pound that is on average one-third that of delivered supply from our NPPs. Because OSD volume is primarily driven by convenience, the more we are able to expand our footprint and geographic reach, the more we will be able to attract and procure additional OSD supply, which benefits our supply cost and yields. OSDs have grown at a 5.2% compound annual growth rate (“CAGR”) from the nine months ended September 30, 2017 to the nine months ended October 2, 2021, and its contribution to total pounds processed has expanded from 45.8% to 72.7% during the same period as a percentage of total supply. Our acquisition of 2nd Ave. in November 2021 included GreenDrop, which allows donors to drop off their items at attended donation stations that are movable and can be placed in attractive, high traffic areas that are convenient to donors. We are currently considering expanding the use of GreenDrop for our other locations. In addition, data analytics have played a critical role in elevating the quality of our delivered supply by enabling us to concentrate on supply sources with quality goods, which has been a significant driver of our gross product margin.

Nearly all of our retail stores have space dedicated to handle the processing of secondhand goods that provide the inventory to be sold on our retail sales floors. In 2019, we processed over one billion pounds of secondhand goods. In 2020 and in the nine months ended October 2, 2021, periods that were affected by the COVID-19 pandemic, we processed 682 million and 624 million pounds, respectively.

We are currently implementing our CPC strategy, having opened our first CPC in the third quarter of 2021. The CPC system is an offsite, semi-automated processing facility that mechanizes the flow of clothing, accessories and shoes through an integrated series of conveyor belts, robotics, sensors, and other technology. The CPC unlocks new store expansion by allowing for a more flexible store layout and loading configuration thereby improving access to more densely populated urban areas.

 

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LOGO

Retail

Our continued investment in our stores has both elevated and modernized the thrift shopping experience, transforming our stores into a destination for all generations with increasing traffic from younger generations.

Our store experience directly reflects our mission to make secondhand second nature. We deliver a well merchandised environment that maximizes customer engagement and supports a core tenet for any thrifter—the treasure hunt. Our stores offer a wide selection of quality items across clothing, home goods, books and other items at convenient locations. More than 38,000 items are merchandised per store every week. Our merchandise is also regularly rotated and refreshed, with inventory turns of roughly 15 times a year, providing our customers with an extensive, ever-changing selection at tremendous value.

We are enhancing our visual presentation with the roll out of our updated “Thrift Proud” sign package that has a great new look, while communicating who we are and what we do. In addition, we have enhanced the customer experience with the introduction of self-checkout kiosks that significantly shorten and, at most times of the day, eliminate payment lines.

 

LOGO

We have a continuous feedback loop on the customer experience. Our REactions surveys take the pulse of our customers on a weekly basis regarding the shopping experience and environment. This information is proactively shared with our leadership team and cascaded to store managers, who are measured on their ability to improve operations.

 

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Wholesale reuse and repurpose

Historically, we display approximately 50% of all textile items we receive on our retail sales floors, approximately 50% of which are sold to thrifters. In support of our efforts to extend the life of reusable goods and recover a portion of the cost of acquiring our supply of secondhand items, we sell the majority of textile items unsold at retail to our wholesale customers, predominately comprised of textile graders and small business owners, who supply local communities across the globe with gently-used, affordable items like clothing, housewares, toys, and shoes. Textiles not suitable for reuse as secondhand clothing can be repurposed into other textile items (e.g., wiping rags) and post-consumer fibers (e.g., insulation, carpet padding), further reducing waste.

LOGO

ESG impact

Environmental: Our business model is designed to maximize the life of reusable goods, and we found a reuse for over 3.4 billion pounds of secondhand items from 2016 to 2020.

 

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LOGO

The environmental impacts of textile manufacturing are well documented. The textile industry largely relies on non-renewable resources such as oil for synthetic fibers, fertilizer to grow cotton, and chemicals associated with the production, dyeing, and finishing of fibers and textiles. Between 2002 and 2017, the Ellen MacArthur Foundation (“EMF”) found that clothing production approximately doubled, while utilization decreased by 36%. In addition, textile production is both energy-intensive

and water-intensive. EMF estimates that the production of textiles resulted in 1.2 billion tons of carbon dioxide equivalent in 2015, which outpaced the year’s carbon dioxide emissions from all international flights and marine shipping, with additional impacts on local environments. With respect to water usage, which includes cotton farming, EMF also found that the textile industry used approximately 93 billion cubic meters of water each year, while contributing to water scarcity in many parts of the world. Since less than 1% of the material used to produce new clothing can be recycled into new clothing, the reuse of clothing, rather than the purchase of new clothing, is key to mitigating the environmental impacts of the textile industry. In order to achieve the 2030 Paris climate objectives, 20% of garments worldwide must be traded through circular business models.

In 2020, we purchased enough Renewable Energy Certificates to match our electricity usage with renewable energy at our three corporate offices and our largest U.S. and Canadian Wholesale Distribution and Reuse Centers. Additionally, we are committed to further reducing our emissions and energy consumption whenever feasible. We also recently completed a LED lighting retrofit for more than 90% of our U.S. and Canadian stores and warehouses.

Social: Our business model is predicated on sourcing our supply from local non-profit organizations in the communities where we do business. Our relationships with our top 10 NPPs average more than 25 years. Over the last five years, we have paid our NPPs approximately $670 million for secondhand goods, providing them with unrestricted revenue to support their community-focused missions. From 2015 to 2020, over 90% of our supply was locally sourced, delivering a broad and diverse selection to our customers and fostering a sense of community.

 

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Our leading “people” metric across our organization is team member engagement, which is scored across various areas, including overall job satisfaction, whether the team member would recommend us as a place to work, personal commitment, being energized at work and intent to remain employed. Our team member engagement is considered best-in-class, as measured by an external consultant, comparing our results to other companies in the retail sector. Team member engagement is crucial to customer satisfaction and the satisfaction of our NPPs and their donors.

We also invest in the training, development and advancement of our team members. Since January 2021, more than 75% of open salaried management positions in the United States and Canada were filled by internal promotions. As of August 2021, more than 70% of the management roles in our stores and corporate operations were held by team members identifying as female.

Governance: We are committed to ethical practices in every aspect of our business and have adopted a Savers Code of Conduct that outlines our expectations for internal interactions and helps us maintain compliance with local laws and regulations. Our five core values guide our strategic direction and how our team members interact with one another, our communities and our customers: (1) make service count; (2) celebrate uniqueness; (3) do the right thing; (4) find a better way; and (5) make an impact.

Our Market Opportunity

We operate within the large, fragmented and fast-growing secondhand market, which is a subset of the broader retail market. In addition to being recession-resilient, growth in the secondhand market is accelerating due to a number of powerful secular trends.

The emergence of conscious consumerism

Consumers are increasingly taking into consideration the ESG impacts of their shopping decisions and the brands with which they choose to interact. As of April 2021, 42% of all consumers and 53% of millennials and Gen Z consumers reported that they expect to spend more on secondhand items in the next five years.

Growing importance of value retail and treasure hunt experience

The relevance of value shopping and treasure hunting has grown stronger in recent years. Our thrift model provides a highly compelling, differentiated customer proposition and experience that gives us a competitive advantage over traditional retail and other existing secondhand options. Today’s consumers, and thrifters specifically, are seeking experiential shopping opportunities and compelling value propositions, combined with the multifaceted possibilities of brands and styles. They are drawn to the excitement of finding great value through a treasure hunt experience. That experience, combined with our low AUR, makes us more attractive to customers than traditional retail. Furthermore, our in-store experience and broad, ever-changing inventory cannot be replicated online. We believe that we operate leading brands within the thrift industry offering consumers this unique experience.

Fast-growing secondhand market across both demand and supply

Secondhand demand-side total addressable market: The secondhand market is rapidly growing and continues to gain share in the total retail market from a wide range of traditional retailers, including department stores, fast fashion brands and off-price retailers. The secondhand market consists of both resale (e.g., consignment) and thrift goods, with thrift accounting for approximately 60% of the total market during 2021. In the United States alone, the secondhand market is projected to increase from $36 billion in 2021 to more than $77 billion by 2025, representing a compounded annual growth rate over this period of 21%. Additionally over this period, the U.S. secondhand share of consumer spending as a percentage of the total U.S. apparel market is expected to increase from 14% in 2021 to over 25% in 2025.

 

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LOGO

Our total market opportunity continues to grow due to a general rise in demand for secondhand goods in part as consumers continue to expand the occasions for shopping for secondhand goods. In 2019, approximately 50% of every age demographic reported shopping in the secondhand market. As of October 2021, Salvation Army and Goodwill, the two leading non-profit thrift operators in the United States, operated approximately 8,000 locations and 3,300 retail locations, respectively, further indicating that there is a robust market for secondhand goods.

Secondhand supply-side total addressable market: There is an abundant and growing source of supply that facilitates the availability of secondhand and thrift goods. As this market continues to develop and expand with the opening of new points of collection, there is significant opportunity to unlock and drive further OSDs to our NPPs at our stores. OSDs are typically driven by a combination of location, convenience, ease of drop and a fast and friendly experience at our Community Donation Centers at our stores.

In 2019 alone, we processed over one billion pounds of secondhand goods. In 2020 and in the nine months ended October 2, 2021, periods that were affected by the COVID-19 pandemic, we processed 682 million and 624 million pounds, respectively. As donations continue to grow and awareness of secondhand shopping increases, we believe more consumers are likely to become thrift shoppers. As of January 2021, 84% of shoppers surveyed reported that they donate at thrift store locations more than once every six months, and 21% of shoppers cited plans to increase the frequency of their donations.

Competitive Strengths

We have been able to delight millions of customers each year and grow our business consistently through the following competitive strengths:

A leader in the industry with a powerful business model

We are the largest for-profit thrift operator in the United States and Canada. With 306 retail stores under our Savers, Value Village, Village des Valeurs, Unique and 2nd Ave banners, we are nine times

 

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larger than the next largest for-profit thrift operator. In Canada, our principal brand, Value Village, is the largest in thrift volume and has over 93% aided brand awareness as of January 2021. We believe our significant scale advantage allows us to deliver extreme value and a superior shopping experience to customers, while generating strong cash flow that can be reinvested in our business.

We have innovated and integrated three highly-complex parts of thrift operations—supply and processing, retail and sales to wholesale markets—through significant operational expertise and investments. This has created a compelling business model which is differentiated against online competition and traditional retail, based on our treasure-hunt experience and low AUR. Our AUR, which is under $5, is approximately 70% lower than that of our retail competitors. Further, our business has demonstrated resilience through economic cycles. Such advantages of our business model provide compelling value to customers, drive attractive profitability for the business, and underpin positive comparable store sales growth from 2009 to 2019. As interest in the secondhand market continues to grow, we will have the opportunity to elevate and define the thrift experience for decades to come.

LOGO

Unmatched value proposition driving exceptional customer engagement

We offer quality items at one of the deepest values across all of our product categories and an exciting, engaging treasure hunt experience in a contemporary in-store atmosphere, which underpins strong customer loyalty. Our most engaged customers are members of our Super Savers Club loyalty program. As of October 2, 2021, we had 3.8 million active members enrolled in our U.S. and Canadian loyalty programs who have made a purchase within the last 12 months compared to 3.1 million active members for the fiscal year ended January 2, 2021. Our members earn points or store credit, which further enhances the value shopping experience. Members in both the United States and Canada receive exclusive coupons and offers via email, as well as a special birthday coupon.

During the twelve months ended October 2, 2021, U.S. loyalty members spent approximately 41% more per shopping trip than non-members. During the same period, U.S. loyalty members shopped at our stores an average of 6.8 times annually. As of October 2, 2021, the top three loyalty segments, which represent approximately 50% of active members in the United States, shopped with us more than 12 times per year, and as of September 2021, 37% of our new members were under 35 years old

 

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compared to our total loyalty member base, of which 21% were under the age of 35, and 61% were aged between 35-64. In addition, as of September 2021, 35% of our loyalty members had annual household incomes of over $75,000, and 85% identified as female.

We have a particularly active presence on social media platforms, including Facebook, Instagram and Pinterest, to connect with our customers, and we also partner with a number of social media “influencers” who generate further awareness of our brands through sponsored content. At the core of our “Thrift Proud” movement, our customers and followers on social media serve as influential peer-to-peer brand ambassadors and are tagging our brand and banners in thousands of photos and videos weekly. We enjoy highly engaged communities on social media who are inspired by thrift hauls, shopping cart photos, do-it-yourself and upcycling, creating “new from used.” As of September 2021, Savers, Value Village, Village des Valeurs and Thrift Proud branded hashtags had more than 75 million organic views on TikTok alone.

Supply model with proven capacity to drive growth

Quality and volume of supply play a critical role in driving traffic and customer frequency and engagement. We have developed a proven strategy to continuously improve our supply model. In order to maximize supply quality, we periodically assess sales yield, which we define as revenues generated per pound processed, from each supply source to make informed decisions on supplier selection. This approach ultimately improves both our revenue and profitability. We have been strategically focused on increasing our OSDs, particularly in increasing convenience and proximity to potential donors. OSDs not only drive profitability but also enhance the consistency and reliability of supply to each of our stores. We expect our focus on increasing OSDs will contribute to further improvement and growth in our supply.

Culture of innovation and operational excellence

Our culture of innovation underpins our key decisions and the way we run our business. We continue to be an industry leader with innovation to improve the customer experience, while enhancing operational efficiency. We have continuously improved our thrift operations across sourcing, processing, and retailing. We have recently launched major initiatives that will further reinforce our competitive advantage and have a measurable impact on our financial profile:

 

   

Centralized Processing Centers (CPCs): The CPC system is an offsite, semi-automated processing facility that mechanizes the flow of clothing, accessories, and shoes through an integrated series of conveyor belts, robotics, sensors, and other technology. It significantly improves upon our traditional process by driving labor efficiencies and enabling grader specialization and pricing precision. CPCs also allow for a more flexible store layout and loading configuration.

 

   

Automated Book Processing (ABP): The ABP system is an integrated set of technologies that efficiently identify, price, and sort books based on their critical attributes (e.g., genre, author, market price). The system design consists of high-speed conveyors, optic recognition, robot tagging and an automated book distribution system working in concert to increase throughput over traditional, manual processes.

 

   

Self-checkout: We are rolling out self-checkout kiosks in many of our stores in order to enhance the customer experience, with shorter lines and more access points, while reducing labor costs.

 

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Attractive financial profile with proven track record of consistent growth

We achieved positive comparable store sales growth from 2009 through 2019, even throughout recessionary periods. We have also delivered steady and consistent gross product margin expansion over the last five years, from 46.4% in 2015 to 63.0% for the nine months ended October 2, 2021. We define gross product margin as net sales minus cost of merchandise sold, exclusive of depreciation and amortization, divided by net sales. We have utilized multiple levers that are unique to our business model to drive margin improvements, especially the growth of OSDs as part of our supply mix and sales yield improvement. As a result of our attractive financial profile, we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder and stakeholder value through various operating and financial strategies.

Highly experienced and strategic leadership

Our strategic vision and culture are directed by a leadership team that combines deep industry expertise and advanced operational capabilities to continuously innovate our business. Given the unique needs of the business, our leadership team has diverse backgrounds across not only retail but also technology, manufacturing, and supply chain. We are committed to ethical practices in every aspect of our business and are guided by people who fundamentally do the right thing.

How We Plan to Grow

Strategically grow our store base

Our goal is to expand our position as the leading for-profit thrift operator by expanding our store footprint. We have identified approximately 2,200 potential new locations across the United States and Canada based on a third-party analysis prepared for us by Transom Consulting Group LLC. We plan to open at least 10 net new stores during 2022 and more than 20 net new stores per year beginning in 2023.

 

   

In-fill opportunities: We will continue to identify attractive locations in our existing markets by leveraging our brand awareness and operational capabilities, and where we have the advantage of both attractive supply and demand. These in-fill opportunities will include both traditional and alternative format stores.

 

   

Adjacent store opportunities: We also will pursue opportunities to expand our regional footprint in adjacent areas where we can leverage our operational capabilities and regional market knowledge.

 

   

Greenfield store opportunities: We are currently underpenetrated in multiple important regional markets, including the South and West regions of the United States and in Central Canada.

 

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LOGO

            

Expansive new store opportunityLocational strategy based on demographic data and third-party analysis.Current stores 284 In-fill stores -1,400 Adjacent stores 500Greenfield stores 300Systematic, data-driven new store opening frameworkDeep understanding of supply and demand dynamics 13+ store leases signed in202220+ stores per year beginning in 2023Team with a track record of new store openingsTotal new store potential:-2,200

Our CPC strategy is designed to support more than half of our new and existing stores in the United States and Canada by 2026. As a result, we believe we can unlock significant new store potential given that a CPC-served store can have a more flexible store layout and size. In more densely populated areas specifically, CPCs enable in-fill opportunities in alternative store formats without the need for a full-scale processing facility in the back-of-store.

Driven by our disciplined real estate selection approach, we expect to deliver attractive return on investment and store-level profitability. We target most of our new stores to achieve a payback period of two and half years or less. Of the seven new stores opened since January 2019, two have already returned their initial investment despite the impacts of the pandemic. Our alternative store format is designed to capitalize on high real estate availability in in-fill markets through smaller formats.

Drive consistent comparable store sales growth

Our goal is to drive consistent growth in comparable store sales growth by maintaining a superior value proposition to our customers and continuing to offer a compelling selection of quality secondhand items. Benefitting from secular tailwinds, we expect to further drive comparable sales growth with the following strategies:

 

   

Quality product offerings: We will continue to procure ample supply of quality items to delight our customers. Our compelling selection of offerings enables us to drive both frequency with existing customers and the acquisition of new customers.

 

   

Improving shopping experience: We will continue to invest in the in-store shopping experience to facilitate the treasure hunt dynamics for our customers. We have invested in renovations to modernize our stores; new technologies to optimize store operations; and alternative store formats supported by CPCs.

 

   

Expanding engagement with our loyalty program members: Our loyalty program members have increased shopping frequencies, stronger retention, more transactions, and larger basket sizes. Our marketing efforts are designed to continue to increase our loyalty program member base.

 

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Conducting brand marketing: We will continue to increase our brand marketing spend to improve our brand awareness, bolstered by the broader adoption of thrift shopping overall to drive new customer acquisition.

Continue to implement strategic initiatives to drive efficiency and expand margin

Compared to our traditional retail competitors, we have multiple levers within our control that have been critical in driving our profitability and Free Cash Flow. For instance, our data analysis has improved our sales yield, defined as sales per pound processed, which has been a primary driver of comparable store profitability. Our deliberate strategy of increasing the penetration of OSDs as a percentage of total supply has had a significant impact on our gross product margin. In addition, our recent initiatives, including CPCs, ABPs and self-checkout, are expected to generate combined incremental savings of at least $200,000 per store per year, based on anticipated savings per store of approximately $125,000 for CPCs, $25,000 for ABPs, and $50,000 for self-checkout. These savings are based on management estimates of the average savings for each of our stores from these initiatives. Our CPC initiative, which we expect to be the greatest contributor towards these future savings, assumes significant cost reductions in labor and freight costs associated with the sorting, processing, and distribution of inventory. We also anticipate further labor cost reductions from our ABP and self-checkout initiatives. Our culture of innovation and data orientation has been critical to driving operational efficiencies, and we will continue to lead in terms of innovating the thrift business model.

Selectively pursue other growth opportunities

In addition to our organic growth initiatives, we will also take an opportunistic yet disciplined approach toward potential inorganic growth opportunities. Given the fragmented nature of the thrift category, we believe there are significant opportunities for growth. This can be conducted through the acquisition of well-operated regional players where we believe we can build upon our infrastructure and scale to accelerate the growth of a potential target and generate synergies. Our acquisition criteria include a significant regional presence; access to a robust flow of quality supply; strong brand awareness; and a complementary cultural fit for our company. For example, in November 2021, we completed the acquisition of 2nd Ave., which allowed us to add 12 stores in the Northeastern and Mid-Atlantic regions of the United States, representing a complementary store footprint for our existing store network and offering new store expansion opportunities. The 2nd Ave. Acquisition also included the GreenDrop system used to provide supply to 2nd Ave. stores, which allows donors to drop off their items at attended donation stations that are movable and can be placed in attractive, high traffic areas that are convenient to donors. We are currently considering expanding the use of the GreenDrop system to other geographies.

Recent Developments

Preliminary Estimated Unaudited Financial Results for the Three Months and the Fiscal Year Ended January 1, 2022

Our preliminary estimated unaudited net sales, net (loss) income, Adjusted EBITDA, net (loss) income margin, Adjusted EBITDA Margin, comparable store sales growth, comparable store daily sales, number of stores and pounds processed for the three months and the fiscal year ended January 1, 2022 (the “preliminary estimated financial results”) are set forth below. We have provided a range for these preliminary estimated financial results because our closing procedures for our fiscal quarter and year ended January 1, 2022 are not yet complete. Our preliminary estimates of the financial results set forth below are based solely on information available to us as of the date of this prospectus and are inherently uncertain and subject to change. Our preliminary estimated financial results contained in this prospectus are forward-looking statements. Our actual results remain subject to the completion of management’s final review and our other closing procedures, as well as the

 

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completion of the audit of our annual financial statements. These preliminary estimated financial results are not a comprehensive statement of our financial results for the three months and the fiscal year ended January 1, 2022 and should not be viewed as a substitute for financial statements prepared in accordance with GAAP. In addition, these preliminary estimated financial results for the three months and the fiscal year ended January 1, 2022 are not necessarily indicative of the results to be achieved in any future period. Accordingly, our preliminary estimated financial results are subject to change, and you should not place undue reliance on these preliminary estimated financial results. See “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of certain factors (many of which are beyond our control) that could result in differences between the preliminary estimated financial results reported below and the actual results. Our actual audited financial statements and related notes as of and for the fiscal year ended January 1, 2022 are not expected to be filed with the SEC until after this offering is completed.

The preliminary estimated financial results included in this prospectus have been prepared by, and are the responsibility of, our management. Our independent registered public accounting firm, KPMG LLP, has not audited, reviewed, compiled or performed any procedures with respect to the preliminary estimated financial results. Accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.

Our fiscal year ends on the Saturday nearest December 31. Our fiscal year 2020 consists of the 53 weeks ended January 2, 2021. Our fiscal year 2021 consists of the 52 weeks ended January 1, 2022.

 

     Three Months Ended                    
     January 1,
2022
    January 2,
2021
    Fiscal Year
2021
    Fiscal Year
2020
 
     Low     High           Low     High        
(Dollar amounts in thousands)    (estimated)     (actual)     (estimated)     (actual)  

Net sales

   $               $               $               $               $               $            

Net (loss) income

            

Adjusted EBITDA

            

Adjusted EBITDA margin

                                               

For the three months ended January 1, 2022, we estimate net sales in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated net sales range when compared to the three months ended January 2, 2021. This change resulted from                 .

For the three months ended January 1, 2022, we estimate net (loss) income in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated net (loss) income range when compared to the three months ended January 2, 2021. This change resulted from                 .

For the three months ended January 1, 2022, we estimate Adjusted EBITDA in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated Adjusted EBITDA range when compared to the three months ended January 2, 2021. This change resulted from                 .

For fiscal year 2021, we estimate net sales in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated net sales range when compared to fiscal year 2020. This change resulted from                 .

 

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For fiscal year 2021, we estimate net (loss) income in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated net (loss) income range when compared to fiscal year 2020. This change resulted from                 .

For fiscal year 2021, we estimate Adjusted EBITDA in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated Adjusted EBITDA range when compared to fiscal year 2021. This change resulted from                 .

As of January 1, 2022, we estimate cash and cash equivalents in the range of $         million to $         million, representing a change of $         million or     %, using the midpoint of the estimated cash and cash equivalents range in comparison to cash and cash equivalents as of January 2, 2021. Our net borrowings outstanding as of January 1, 2022 are estimated in the range of $         million and $         million, representing a change of $         million or     %, using the midpoint of the estimated borrowings outstanding range in comparison to borrowings outstanding as of January 2, 2021.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For more information about these non-GAAP financial measures, including their definitions, see “Summary Financial and Other Data—Non GAAP measures.” The following table presents a reconciliation of net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA and for each of the periods indicated:

 

     Three Months Ended                    
     January 1,
2022
    January 2,
2021
    Fiscal Year
2021
    Fiscal Year
2020
 
     Low     High           Low     High        
(Dollar amounts in thousands)    (estimated)     (actual)     (estimated)     (actual)  

Net (loss) income

   $         `     $               $               $               $               $            

Interest expense

            

Income tax expense (benefit)

            

Depreciation and amortization

            

Loss on extinguishment of debt(1)

            

Equity-based compensation expense(2)

            

Non-cash occupancy-related expenses(3)

            

Pre-opening expenses(4)

            

Store closing expenses(5)

            

Executive transition costs(6)

            

Shared service center transition costs(7)

            

COVID-related adjustments(8)

            

Transaction costs(9)

            

Other adjustments(10)

            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $       $       $       $       $       $    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

                                                      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Represents the loss on extinguishment of debt incurred in relation to the April 2021 Refinancing.

(2) 

Equity-based compensation expense represents non-cash compensation expenses related to stock options granted to certain of our employees and directors.

(3) 

Includes the difference between cash and straight-line rent for all periods.

(4) 

Pre-opening expenses include expenses incurred in the preparation and opening of new store and processing locations, such as payroll, training, travel, occupancy, and supplies.

 

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(5) 

Costs associated with the closing of certain retail locations, including lease termination costs, amounts paid to third parties for rent reduction negotiations, fees paid to landlords for store closings, and, in some instances, income associated with early lease terminations.

(6) 

Represents severance costs associated with executive leadership changes.

(7) 

Represents severance costs associated with the opening of our new shared service center in Boise, Idaho during fiscal year 2020.

(8) 

Represents benefits, net of costs in connection with the COVID-19 pandemic during fiscal year 2020, including wage subsidies and severance costs. During fiscal year 2020, we received $     million in wage subsidies and incurred $     million in severance costs. During fiscal year 2021, we received wage subsidies and incurred severance costs of $         million and $         million, respectively. During the three months ended January 1, 2022 and January 2, 2021, we received wage subsidies of $     million and $     million, respectively. Wage subsidies are reflected as a reduction to employee personnel costs in our Consolidated Statements of Operations and Comprehensive (Loss) Income.

(9) 

Adjustment represents transaction costs related to this offering and the 2nd Ave. Acquisition, including third-party advisor and consulting fees, legal costs, and other transaction-related expenses.

(10) 

Other adjustments include foreign exchange gains and losses.

The following table summarizes our preliminary estimated key business metrics for fiscal year 2021 and our actual key business metrics for fiscal year 2020.

 

     Three Months Ended              
     January 1,
2022
    January 2,
2021
    Fiscal Year
2021
    Fiscal Year
2020
 
(Dollar amounts in thousands)    (estimated)     (actual)     (estimated)     (actual)  

Comparable store sales growth(*)(1)

        

United States

                                         

Canada

                                                    

Total(3)

                                                    

Comparable store daily sales(*)(2)

        

United States

                                                    

Canada

                                                    

Total(3)

                                                    

Number of stores(4)

        

United States

        

Canada

        

Total(3)

        

Pounds processed (mm lbs)

        

 

(*) 

Excludes stores acquired in the 2nd Ave. Acquisition.

(1) 

Comparable store sales growth is the percentage change in comparable store sales over the prior year. Comparable store sales is calculated as net sales for the period by stores open during the entirety of both periods that are being compared. We considered any store temporarily closed due to the COVID-19 pandemic to be open and comparable during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Non-GAAP Financial Measures—Comparable store sales growth.”

(2) 

Comparable store daily sales for the period is the net sales by stores in the relevant geography that were or would have been open for the entirety of both periods if not for temporary closures due to the COVID-19 pandemic, divided by the aggregate number of days those stores were open. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Key Business Metrics and Non-GAAP Financial Measures—Comparable store daily sales.”

(3) 

Total number of stores, comparable store sales growth and comparable store daily sales includes our Australia retail locations, in addition to the United States and Canada.

(4) 

Number of Stores includes new stores not yet included in the comparable store sales growth and comparable store daily sales computations measured as of the last day of the fiscal year.

 

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Acquisition

On November 8, 2021, we acquired 2nd Ave. for purchase price consideration of $238.9 million in cash. We financed the 2nd Ave. Acquisition with cash on hand and $225.0 million of additional borrowings on our New Term Loan Facility. The additional borrowings are on substantially the same terms as our existing loans under the New Term Loan Facility. We have accounted for the 2nd Ave. Acquisition as a business combination under applicable accounting guidance. See “Unaudited Pro Forma Condensed Combined Financial Information” for more information regarding the 2nd Ave. Acquisition.

November 2021 Dividend

In November 2021, we paid a dividend of $75.0 million to our shareholders, the Ares Funds, using cash on hand. No executive officers or directors received dividend payments.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including, but not limited to, those highlighted in the section titled “Risk Factors” and summarized below. We have various categories of risks, including risks relating to our business and industry; risks relating to legal, regulatory, accounting and tax matters; risks relating to our indebtedness and liquidity; and risks relating to this public offering and ownership of our common stock, which are discussed more fully in the section titled “Risk Factors.” As a result, this risk factor summary does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth in the section titled “Risk Factors.” Additional risks, beyond those summarized below or discussed elsewhere in this prospectus, may apply to our business, activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. You should carefully consider these risks before making an investment. These risks include, but are not limited to, the following:

 

   

If we fail to obtain a sufficient quantity of new and recurring quality secondhand items at attractive prices by maintaining our strong relationships with existing NPPs, maintaining and growing OSDs and developing new relationships in the areas in which we operate, our business, results of operations, and financial condition could be harmed;

 

   

We are subject to risks associated with sourcing and processing of secondhand items, including processing costs and capacity, risks due to damage, loss or contamination of items, increased costs to maintain and/or develop sources of supply, and risks associated with itemizing, grading, storage, transportation and other logistics;

 

   

Our business depends on our ability to attract and retain suitable workers for our stores and processing facilities and to manage labor costs, particularly given recent disruptions in the supply and cost of labor;

 

   

Our continued growth depends on attracting new, and retaining existing, customers, including by increasing the acceptance of thrift among new and growing customer demographics;

 

   

Both supply of and demand for our products is influenced by general economic conditions, including trends in consumer spending;

 

   

We have experienced rapid growth, and those growth rates may not be indicative of our future growth. If we fail to manage our growth effectively, we may be unable to execute our business plan and our business, results of operations and financial condition could be harmed;

 

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We face risks related to integrating the 2nd Ave. operations, financial and other systems, team members and facilities into our business, as well as similar risks related to any future acquisitions or joint ventures we may pursue;

 

   

We may not be able to identify and obtain suitable locations for new stores as we grow our business. The success of each store location is dependent on a number of factors, including site suitability, our ability to negotiate appropriate store leases, customer traffic and convenience and proximity to NPPs and their donors, customers, suitable workers, and our processing facilities;

 

   

Some of our stores may have challenges achieving period-to-period comparable store sales growth targets due to, various factors outside our control, including availability of suitable workers, site suitability, lease terms and conditions, operational risks and regional growth and development patterns;

 

   

We have significant foreign operations, particularly in Canada, so we are subject to risks specific to operating in these jurisdictions and are also exposed to exchange rate risks, which we may not be able to fully hedge;

 

   

The global COVID-19 pandemic and the government’s responses in the jurisdictions in which we operate has had and may continue to have an unpredictable and adverse impact on our business, results of operations and financial condition, and similar events may have such effects in the future;

 

   

We may not be able to expand our CPC operations in geographic regions that enable us to effectively scale our operations;

 

   

If we are unable to successfully leverage technology to automate and drive efficiencies in our operations, our business, results of operations and financial condition could be harmed;

 

   

We are subject to various risks to our physical store and processing facility locations, which may adversely affect our business, results of operations, and financial condition;

 

   

A failure to retain key store and processing center management personnel and labor-related matters, including labor disputes, could materially and adversely affect our business;

 

   

Actions by wholesale customers could harm our brand and reputation, influence donor behavior and adversely affect our relationships with our NPPs and our customers;

 

   

Compromises of our data security could cause us to incur unexpected expenses and may materially harm our reputation and results of operations;

 

   

We may be unable to protect our intellectual property rights and we may be accused of infringing intellectual property or other proprietary rights of third parties;

 

   

Risks arising from the material weaknesses we have identified in our internal control over financial reporting and any failure to remediate these material weaknesses;

 

   

We may be unable to maintain an effective system of disclosure controls and procedures or internal control over financial reporting and produce timely and accurate financial statements or comply with applicable regulations;

 

   

We will incur increased expenses associated with being a public company;

 

   

Changes in Canadian, Australian or U.S. national or local regulations, including those relating to the sale of secondhand items, or our actual or alleged failure to comply with such regulations may have a material adverse effect on our reputation, business financial condition, and results of operations;

 

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There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price;

 

   

The continuing control after this offering of our company, including the right to designate individuals to be included in the slate of nominees for election to our board of directors, by the Ares Funds, whose interests may conflict with our interests and those of other stockholders. As such, the Ares Funds may be able to influence or control our affairs and policies following the completion of this offering; and

 

   

Certain provisions in our certificate of incorporation and our bylaws that may delay or prevent a change of control.

If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition and prospects may be harmed.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data;

 

   

an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

   

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements, and registration statements; and

 

   

exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these reduced reporting burdens.

 

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Ares

Ares Management Corporation (NYSE: ARES) (“Ares”) is a leading global alternative investment manager offering clients complementary primary and secondary investment solutions across the credit, private equity, real estate and infrastructure asset classes. Ares seeks to provide flexible capital to support businesses and create value for its stakeholders and within its communities. By collaborating across its investment groups, Ares aims to generate consistent and attractive investment returns throughout market cycles. As of June 30, 2021, including the acquisition of Black Creek Group which closed July 1, 2021, Ares’ global platform had approximately $262 billion of assets under management, with approximately 2,000 employees operating across the United States, Canada, Europe, Asia Pacific and the Middle East.

Prior to this offering, the Ares Funds indirectly owned all of our limited liability company interests. Following the Corporate Conversion, the Ares Funds will receive a number of shares of our common stock in direct proportion to its interests in S-Evergreen Holding LLC. The economic interests of the Ares Funds will not be altered as a result of the Corporate Conversion. After giving effect to this offering and the Corporate Conversion, the Ares Funds will hold                shares of our common stock. After giving effect to this offering and the Corporate Conversion, the Ares Funds will hold approximately                % of our outstanding common stock. We use the term “Ares Funds” to describe certain funds, investment vehicles or accounts managed or advised by the Private Equity Group of Ares who own our securities.

The Ares Funds will have significant power to control our affairs and policies, including with respect to the election of directors (and through the election of directors, the appointment of management). For a description of certain potential conflicts between the Ares Funds and our other stockholders, see “Risk Factors—The continuing control after this offering of our company, including the right to designate individuals to be included in the slate of nominees for election to our board of directors, by the Ares Funds, whose interests may conflict with our interests and those of other stockholders. As such, the Ares Funds may be able to influence or control our affairs and policies following the completion of this offering.” For a description of the Ares Funds’ ownership interests in us and their rights with respect to such ownership interests, including the right to designate individuals to be included in the slate of nominees for election to our board of directors, see “Certain Relationships and Related Party Transactions,” “Principal and Selling Stockholders” and “Description of Capital Stock.”

Corporate Conversion

We currently operate as a Delaware limited liability company under the name S-Evergreen Holding LLC. S-Evergreen Holding LLC is a holding company which holds all of the equity interests S-Evergreen Holding Corp., the entity which directly and indirectly holds all of the equity interests in our operating subsidiaries. Prior to the effectiveness of the registration statement of which this prospectus forms a part, S-Evergreen Holding LLC will convert into a Delaware corporation pursuant to a statutory conversion and will change its name to Savers Value Village, Inc.

The purpose of the Corporate Conversion is to reorganize our structure so that the entity that is offering our common stock to the public in this offering is a corporation rather than a limited liability company and so that our existing investors will own our common stock rather than equity interests in a limited liability company. For more information, see “Corporate Conversion.”

 

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Corporate Information

S-Evergreen Holding LLC was formed March 22, 2019. Upon completion of this offering, we will be a Delaware corporation, and we will change our name to Savers Value Village, Inc. See “Corporate Conversion.” Our principal executive offices are located at 11400 S.E. 6th Street., Suite 125, Bellevue, WA 98004, and our telephone number is 425-462-1515. Our website address is www.savers.com. Information contained on, or that can be accessed through, our website is not part of and is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

 

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THE OFFERING

 

Common stock offered by us

                     shares.

 

Common stock offered by the
selling stockholders

                     shares.

 

 

Common stock to be outstanding
after this offering

                     shares (                if the underwriters exercise their option to purchase additional shares in full).

 

Option to purchase additional
shares of common stock

We and the selling stockholders have granted the underwriters the right to purchase an additional                  shares of common stock within 30 days from the date of this prospectus.

 

Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately $                million (or approximately $                million if the underwriters exercise their option to purchase additional shares of common stock from us in full), based on an assumed initial public offering price of $                per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

 

  The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our common stock. We intend to use net proceeds received by us from this offering to repay approximately $             million of indebtedness plus accrued and unpaid interest and premium under the New Term Loan Facility and any remainder for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of any net proceeds we receive from this offering for acquisitions or other strategic investments, although we do not currently have any specific plans to do so. We will have broad discretion over the uses of any net proceeds in this offering to be used for general corporate purposes. We will not receive any proceeds from the sale of shares in this offering by the selling stockholders, including upon the sale of shares if the underwriters exercise their option to purchase additional shares. See “Use of Proceeds.”

 

Voting rights

One vote per share.

 

  The Ares Funds, which immediately after this offering will control approximately             % of the voting power of our outstanding common stock, will, acting alone, be able to exercise significant influence over all matters submitted to our stockholders for approval, including the election of our board of directors. See “Risk Factors—Risks relating to this offering and ownership of our common stock.”

 

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Dividend policy

We currently do not anticipate paying any cash dividends after this offering and for the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our current and future debt instruments, our future earnings, capital requirements, financial condition, future prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits. See “Dividend Policy.”

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Controlled company

Following this offering, the Ares Funds will continue to control a majority of the voting power of our outstanding voting stock, and as a result we will be a controlled company within the meaning of the New York Stock Exchange corporate governance standards.

 

Proposed ticker symbol

“SVV.”

The number of shares of our common stock to be outstanding after this offering is based on                shares of our common stock outstanding as of                , after giving effect to the Corporate Conversion, and excludes:

 

   

                 shares of our common stock reserved for future issuance under our equity incentive plans, consisting of                  shares subject to options outstanding under our 2019 Management Incentive Plan and                  shares reserved under our Omnibus Incentive Plan which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of our common stock reserved for issuance under the Omnibus Incentive Plan; and

 

   

                 shares of our common stock that will become available for issuance under our Employee Stock Purchase Plan, which we expect to be adopted in connection with this offering, as well as any future increases in the number of shares of our common stock available for issuance under our Employee Stock Purchase Plan.

In addition, unless otherwise expressly stated or the context otherwise requires, the information in this prospectus assumes:

 

   

the completion of the Corporate Conversion;

 

   

no exercise of the underwriters’ option to purchase additional                shares of our common stock; and

 

   

the effectiveness of our certificate of incorporation and bylaws in connection with the completion of this offering.

 

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Summary Financial and Other Data

The summary consolidated statement of operations data for fiscal year 2020, for the period from March 28, 2019 to December 28, 2019 (Successor), and for the period from December 30, 2018 to March 27, 2019 (Predecessor) are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statement of operations data for the nine months ending October 2, 2021 and September 26, 2020 and summary consolidated balance sheet data as of October 2, 2021 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the following summary financial and other data in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Financial Information” and our financial statements and related notes appearing elsewhere in this prospectus.

Consolidated statement of operations data

 

    Successor     Predecessor     Successor  
(In thousands, except unit/
share and per unit/share
data)
  Fiscal Year
2020
    March 28,
2019 to
December 28,
2019
    December 30,
2018 to
March 27,
2019
    Nine

months
ended
October 2,
2021
    Nine

months
ended
September 26,
2020
 

Net sales

  $ 834,010     $ 945,527     $ 259,972     $ 859,291     $ 564,328  

Operating expenses:

         

Cost of merchandise sold, exclusive of depreciation and amortization

    353,455       460,169       133,595       317,620       233,202  

Salaries, wages, and benefits

    184,392       195,066       60,193       168,314       124,243  

Selling, general, and administrative

    229,886       187,727       71,537       186,858       168,847  

Depreciation and amortization

    59,432       32,391       18,837       33,972       43,434  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    827,165       875,353       284,162       706,764       569,726  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    6,845       70,174       (24,190     152,527       (5,398

Other (expense) income:

         

Interest expense

    (69,678     (58,003     (20,784     (40,591     (51,454

Other income (expense), net

    3,410       (6,353     6,605       (399     2,137  

Gain (loss) on extinguishment of debt

    —         —         283,241       (47,541     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income, net

    (66,268     (64,356     269,062       (88,531     (49,317
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

    (59,423     5,818       244,872       63,996       (54,715

Income tax expense

    4,060       4,437       5,256       8,340       (13,398
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (63,483   $ 1,381     $ 239,616     $ 55,656     $ (41,317
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Successor     Predecessor      Successor  
(In thousands, except unit/
share and per unit/share
data)
  Fiscal Year
2020
    March 28,
2019 to
December 28,
2019
    December 30,
2018 to
March 27,
2019
     Nine

months
ended
October 2,
2021
    Nine

months
ended
September 26,
2020
 

Net (loss) earnings per unit, basic

  $ (0.34   $ 0.01        $ 0.28     $ (0.22

Net (loss) earnings per unit, diluted

  $ (0.34   $ 0.01        $ 0. 28     $ (0.22

Pro forma net loss per share, basic and diluted

  $                         

Weighted average number of units outstanding used to compute net (loss) earnings per unit, basic

    188,757,245       178,378,867          198,378,867       185,290,632  

Weighted average number of units outstanding used to compute net (loss) earnings per unit, diluted

    188,757,245       178,609,336          201,821,886       185,290,632  

Weighted average number of shares outstanding used to compute pro forma loss per share, basic and diluted

                                            

Consolidated balance sheet data

 

     As of
October 2,
2021
     Pro
Forma(1)(2)
 
(In thousands)              

Cash and cash equivalents

   $ 160,252      $                

Total assets

     1,008,834     

Total liabilities

     777,992     

Total members’ / stockholders’ equity

     230,842     

 

(1)

The pro forma column reflects the effects of the Transactions, including the Corporate Conversion, the 2nd Ave. Acquisition, the additional borrowings of $225.0 million on our New Term Loan Facility to finance the 2nd Ave. Acquisition, the November 2021 Dividend and gives effect to the sale and issuance by us of shares of our common stock in this offering, based upon the assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us upon completion of our initial public offering. See “Unaudited Pro Forma Condensed Combined Financial Information.”

(2)

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the amount of our pro forma cash and cash equivalents,

 

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  total assets and total stockholders’ equity by $                 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma cash and cash equivalents, total assets and total stockholders’ equity by $                 million assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

Key business metrics and non-GAAP financial measures

We use the following key business metrics and non-GAAP financial measures to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions. We believe that these key business metrics and non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.

We present Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow, which are non-GAAP financial measures. These measures are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe the presentation of Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow is helpful in highlighting trends in our operating results, because it excludes the impact of items that are outside the control of management or not reflective of our ongoing operations and performance.

Key business metrics

The following table summarizes our key business metrics for the periods indicated (in thousands):

 

    Fiscal Year 2020     Fiscal Year 2019     Nine months ended
October 2,
2021
    Nine months ended
September 26,
2020
 

Comparable store sales growth(1)

       

United States

    (27.8 )%      7.8     77.4     (34.4 )% 

Canada

    (29.3 )%      3.4     22.7     (32.2 )% 

Total(3)

    (28.6 )%      5.7     49.7     (33.3 )% 

Comparable store daily sales(2)

       

United States

    (7.7 )%      7.8     25.1     (7.0 )% 

Canada

    (12.5 )%      3.4     18.5     (10.4 )% 

Total(3)

    (10.3 )%      5.7     24.2     (9.3 )% 

Number of Stores(4)

       

United States

    137       145       136       138  

Canada

    147       147       148       148  

Total(3)

    294       302       294       296  
Other Metrics        

Pounds processed (mm lbs)

    682       1,029       624       462  

 

(1)

Comparable store sales growth is the percentage change in comparable store sales over the prior year. Comparable store sales is calculated as net sales for the period by stores open during the entirety of both periods that are being compared. We considered any store temporarily closed due to the COVID-19 pandemic to be open and comparable during the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Non-GAAP Financial Measures—Comparable store sales growth.”

 

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(2)

Comparable store daily sales for the period is the net sales by stores in the relevant geography that were or would have been open for the entirety of both periods if not for temporary closures due to the COVID-19 pandemic, divided by the aggregate number of days those stores were open. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics and Non-GAAP Financial Measures—Comparable store daily sales.”

(3)

Total number of stores, comparable store sales growth and comparable store daily sales includes our Australia retail locations, in addition to the United States and Canada.

(4)

Number of Stores includes new stores not yet included in the comparable store sales growth and comparable store daily sales computations measured as of the last day of the fiscal year.

Non-GAAP measures

Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are non-GAAP financial measures. Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that amounts presented in accordance with our definitions of Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow in the same manner. Because of these limitations, you should consider Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow alongside other financial performance measures, including, as applicable, net (loss) income and net cash provided by (used in) operating activities, and our other GAAP results. We present Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow because we consider these metrics to be important supplemental measures of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

The following table presents our Adjusted EBITDA and Free Cash Flow amounts.

 

    Successor     Predecessor     Successor  
    Fiscal
Year 2020
    Period from
March 28,
2019 to
December 28,
2019
    Period from
December 30,
2018 to
March 27,
2019
    Nine months
ended
October 2,
2021
    Nine months
ended
September 26,
2020
 

(Dollar amounts in thousands)

         

Adjusted EBITDA

  $ 59,496     $   118,170     $   13,989     $   166,334     $   36,463  

Adjusted EBITDA margin

    7.1     12.5     5.4     19.4     6.5

Free Cash Flow

  $   10,741     $ 37,859     $ (23,263   $ 122,559     $ (9,767)  

Adjusted EBITDA and Adjusted EBITDA margin

We define Adjusted EBITDA as net (loss) income before interest expense, income tax expense, and depreciation and amortization, adjusted to exclude gain on extinguishment of debt, equity-based compensation expense, non-cash occupancy-related costs, pre-opening expenses, store closing expenses, executive transition costs, shared service center transition costs, certain COVID-19 related costs and benefits, transaction costs, and certain other adjustments. We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures under the SEC’s rules and regulations because they exclude certain charges included in net (loss) income calculated in accordance with GAAP.

 

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Management believes that Adjusted EBITDA and Adjusted EBITDA margin are meaningful measures to share with investors because they best allow comparison of the performance of one period with that of another period. In addition, Adjusted EBITDA and Adjusted EBITDA margin afford investors a view of what management considers its operating performance to be and the ability to make a more informed assessment of such operating performance as compared with that of the prior period.

The following table provides a reconciliation of net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA and Adjusted EBITDA margin:

 

    Successor      Predecessor     Successor  
    Fiscal
Year 2020
    Period from
March 28,
2019 to
December 28,
2019
     Period from
December 30,
2018 to
March 27,
2019
    Nine months
ended
October 2,
2021
    Nine months
ended
September 26,
2020
 

(In thousands)

                                                                                                      

Net (loss) income

  $ (63,483   $ 1,381      $ 239,616     $ 55,656     $ (41,317

Interest expense

    69,678       58,003        20,784       40,591       51,454  

Income tax expense (benefit)

    4,060       4,437        5,256       8,340       (13,398

Depreciation and amortization

    59,432       32,391        18,837       33,972       43,434  

(Gain) loss on extinguishment of debt(1)

    —         —          (283,241     47,541       —    

Equity-based compensation expense(2)

    354       211        315       594       267  

Non-cash occupancy-related costs(3)

    11,778       1,756        (91     (389     10,876  

Pre-opening expenses(4)

    1,458       1,222        —         210       290  

Store closing expenses(5)

    10,315       6,400        5,272       (751     7,749  

Executive transition costs(6)

    655       —          —         —         655  

Shared service center transition costs(7)

    358       —          —         181       —    

COVID-related adjustments(8)

    (31,820     —          —         (21,359     (21,549

Transaction costs(9)

    —         3,890        9,443       4,507       —    

Other adjustments(10)

    (3,289     8,479        (2,202     (2,758     (1,998
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 59,496     $ 118,170      $ 13,989     $ 166,334     $ 36,463  
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net (loss) income margin

    (7.6 )%      0.1      92.2     6.5     (7.3 )% 
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

    7.1     12.5      5.4     19.4     6.5
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Represents gain on debt extinguishment in relation to the March 2019 Transactions and the loss on extinguishment of debt incurred in relation to the April 2021 Refinancing.

(2)

Equity-based compensation expense represents non-cash compensation expenses related to stock options granted to certain of our employees and directors.

(3)

Includes the difference between cash and straight-line rent for all periods. The increase in non-cash occupancy-related costs in fiscal year 2020 relates to operating leases renegotiated during the pandemic, which allowed us to defer payment toward future periods.

(4)

Pre-opening expenses include expenses incurred in the preparation and opening of new store and processing locations, such as payroll, training, travel, occupancy, and supplies.

(5)

Costs associated with the closing of certain retail locations, including lease termination costs, amounts paid to third parties for rent reduction negotiations, fees paid to landlords for store closings, and, in some instances, income associated with early lease terminations.

(6)

Represents severance costs associated with executive leadership changes.

 

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(7)

Represents severance costs associated with the opening of our new shared service center in Boise, Idaho during fiscal year 2020.

(8)

Represents benefits, net of costs in connection with the COVID-19 pandemic during fiscal year 2020, including wage subsidies and severance costs. During fiscal year 2020, we received $32.6 million in wage subsidies and incurred $0.8 million in severance costs. During the nine months ended October 2, 2021 and September 26, 2020, we received wage subsidies of $21.7 million and $22.3 million, respectively. Wage subsidies are reflected as a reduction to employee personnel costs in our Consolidated Statements of Operations and Comprehensive (Loss) Income.

(9)

Adjustments to the period from March 28, 2019 to December 28, 2019 and the period from December 30, 2018 to March 27, 2019 represent costs associated with the March 2019 Transactions, including employee bonuses, third-party advisor and consulting fees, and other transaction-related expenses, which are partially offset by accrued interest forgiven by certain of our former lenders. The benefit from accrued interest forgiven by certain of our former lenders is reflected as a reduction in Adjusted EBITDA in the period from December 30, 2018 to March 27, 2019.

Adjustment to the nine months ended October 2, 2021 represents transaction costs related to this offering and the 2nd Ave. Acquisition, including third-party advisor and consulting fees, legal costs, and other transaction-related expenses.

 

(10)

Other adjustments include foreign exchange gains and losses.

Free Cash Flow

We define Free Cash Flow as net cash provided by (used in) operating activities less purchases of property and equipment. Free Cash Flow is considered a non-GAAP financial measure under the SEC’s rules and regulations because it excludes purchases of property and equipment calculated in accordance with GAAP. Management believes that Free Cash Flow, which measures the ability to generate additional cash from business operations, is an important financial measure for use in evaluating the company’s financial performance and ability to reduce debt, fund acquisitions and fund growth initiatives.

The following table provides a reconciliation of net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure, to Free Cash Flow:

 

    Successor     Predecessor     Successor  
    Fiscal
Year 2020
    Period from
March 28,
2019 to
December 28,
2019
    Period from
December 30,
2018 to
March 27,
2019
    Nine
months
ended
October 2,
2021
    Nine
months
ended
September 26,
2020
 

(In thousands)

         

Net cash provided by (used in) operating activities

  $ 29,913     $ 61,985     $ (18,039   $ 145,886     $ 4,449  

Purchases of property and equipment(1)

    (19,172     (24,126     (5,224     (23,327     (14,216
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow

  $ 10,741     $ 37,859     $ (23,263   $ 122,559     $ (9,767
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Purchases of property and equipment include capital expenditures on our retail stores and facilities, including leasehold improvements and information technology equipment.

 

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RISK FACTORS

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe to be material. If any of the risks actually occur, our business, results of operations, financial condition and prospects could be harmed. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Relating to Our Business and Industry

If we fail to obtain a sufficient quantity of new and recurring quality secondhand items at attractive prices, our business, results of operations and financial condition could be harmed.

The quality and quantity of the supply of our secondhand items are critically important drivers of our sales generated per pound of goods processed, which we internally refer to as “sales yield.” If we are unable to achieve a favorable sales yield with a sufficient quantity of goods obtained at attractive prices, our profitability will suffer. Our business model is based on sourcing from and selling to the local community, so our business is dependent on our ability to obtain quality secondhand items at attractive prices from sources in each community we operate in.

To the extent we are required to pay higher prices to our NPPs for secondhand items, our profitability will be directly negatively affected. The pricing of secondhand items may be dependent on factors such as the volume of items donated to our NPPs (which may fluctuate due to factors outside of our control), our ability to negotiate, maintain and grow our relationships with our NPPs and competition for secondhand items from other potential purchasers of secondhand items. As a result, if we are required to pay higher prices for secondhand items, our profitability will be reduced.

Furthermore, the quality of items we receive (either directly from our NPPs or through OSDs) is critical to our sales yield and profitability. To the extent the items supplied to us are lower in quality or are worse in condition, fewer of those items may be graded in our processing centers as saleable at retail; the price points they will be able to obtain may be lower; and fewer of those items may be seen as desirable by our customers and actually be sold at retail. Lower item quality could result in markdowns and other promotions in our retail stores and a greater proportion of items sold at wholesale. The sales prices we receive for items sold to our wholesale customers for reuse and repurposing are lower than those we receive for items sold at retail. As a result, lower item quality could have a material and adverse effect on our ability to generate revenue from retail sales.

Finally, to the extent we do not obtain a sufficient quantity of quality secondhand items, we will not be able to provide our customers with a sufficient quantity of items they perceive as desirable. Because many of our customers desire a treasure hunt experience at our stores, a decline in the amount of desirable items could have a negative effect on their shopping experience and could have a negative impact on the number of store visits and purchase volumes of our existing customers as well as on our ability to attract new customers.

As a result, the failure to obtain a sufficient quantity of quality items at attractive prices could negatively impact our sales yield, revenues and profitability and could have a material, adverse effect on our business, financial condition and results of operations.

 

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Our ability to obtain a sufficient quantity of quality secondhand items at attractive prices is dependent on maintaining our strong relationships with existing NPPs, maintaining and growing OSDs and developing new relationships in the areas in which we operate.

Our ability to cost-effectively obtain quality secondhand items is dependent on maintaining strong relationships with our existing NPPs, maintaining and growing OSDs and developing relationships with new NPPs and their donors. Numerous factors, however, may impede our ability to maintain and develop relationships with NPPs and their donors with quality secondhand items. To expand our base of secondhand items for sale and our base of NPPs, we must appeal to and engage NPPs new to selling secondhand items and individuals new to donating secondhand items to our NPPs through OSDs. We cannot be certain that these efforts will result in more supply of quality secondhand items or that these efforts will be cost-effective.

In addition, as we expand our operations, because our business model is focused locally, we will be required to expand or develop relationships with NPPs and donors who make OSDs in and around those locations. If we are unable to develop and maintain those new relationships, our ability to grow our business will be negatively impacted.

Our efforts to appeal to NPPs and donors may not result in more supply of quality secondhand items, and these efforts may not be cost-effective. Our ability to obtain new and recurring quality secondhand items from new and existing NPPs and their donors depends on a number of factors, such as our ability to enhance and improve our Community Donation Centers, NPPs’ perceptions of whether payouts they are receiving are adequate and timely compensation for their items. Our ability to increase OSDs is dependent in large part on the convenience to donors of making a donation at one of our stores (which can be driven in large part by store location) and the quality of the donors’ donation experience, including the quality and selection of the NPPs to which they can donate their items. If we are unable to meet the expectations of our NPPs and their donors and drive repeat supply, the quality and volume of the secondhand items we receive could be adversely affected.

In addition, due to economic uncertainties, governmental orders, the ongoing COVID-19 pandemic, other similar events or other challenges, our NPPs may be unable to obtain donated items for delivered supply or may be unable or unwilling to continue supplying secondhand items on terms or in quantities desirable to us. Furthermore, such uncertainties, restrictions or events could have a negative impact on donors’ ability or willingness to make OSDs.

If we are unable to obtain a sufficient volume of quality secondhand items, our sales revenue from secondhand items would be materially and adversely affected, which would have a material, adverse effect on our business, growth prospects, results of operations and financial condition.

We are subject to risks associated with sourcing and processing of secondhand items, including processing costs and capacity, risks due to damage, loss or contamination of items, increased costs to maintain and/or develop sources of supply, and risks associated with itemizing, grading, storage, transportation and other logistics.

The secondhand items we offer at retail through our stores and at wholesale in domestic and global resale markets are initially sourced through our NPPs either directly or through OSDs at our stores. As a result, we are subject to fluctuations in the price we pay for secondhand items. In addition, the cost of merchandise sold may increase due to increases in labor costs and costs of storage, which may be driven by market forces outside our control. Furthermore, to the extent that the volume of secondhand items we obtain in a particular locality exceeds our capacity to process or store them, our ability to generate revenue in that locality will be limited by that capacity constraint. Our business, financial condition and results of operations could be negatively impacted by these cost and capacity issues.

 

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Furthermore, the secondhand items we receive may not be of sufficient quality or free from damage, and such secondhand items may be damaged during shipping or processing. While we conduct inspections of secondhand items in our inventory, we cannot control items while they are out of our possession or prevent all damage while in our processing facilities. For example, we may experience contamination from various sources, such as mold, bacteria, insects and other pests, in certain secondhand items provided to us. If we are unable to detect, quarantine and properly deal with such contaminants at the time such secondhand items are initially received in our stores or in our processing facilities, some or all of the other secondhand items in such facilities could be contaminated. We may incur additional expenses and our reputation could be harmed if the secondhand items we offer are damaged or contain contaminants.

We may also experience increased costs to attract, retain and grow relationships with our NPPs. If we are unsuccessful in establishing or maintaining our relationships with our NPPs, or if they partner with our competitors and devote greater resources to implement and support the platforms or retail items of our competitors, our ability to compete in the marketplace, or to grow our revenue, could be impaired, and our results of operations may suffer.

Our business depends on our ability to attract and retain suitable workers for our stores and processing facilities and to manage labor costs, particularly given recent disruptions in the supply and cost of labor.

Our future growth and performance, positive customer experience and legal and regulatory compliance depends on our ability to attract, develop, retain and motivate a large number of highly qualified store management personnel, processing employees and team members. Our team members in our processing facilities must efficiently and accurately sort and price many of our secondhand items for sale in our stores.

Our ability to meet our labor needs, while controlling labor costs in a labor market challenged by historically high rates of employee turnover, labor shortages and rising wage rates, is subject to many external factors, including competition for and availability of qualified personnel particularly during the ongoing COVID-19 pandemic, unemployment levels, governmental regulatory bodies such as the Equal Employment Opportunity Commission and the National Labor Relations Board, prevailing wage rates in the jurisdictions in which we operate (including the heightened possibility of increased applicable minimum wage rules and regulations), health and other insurance costs, changes in employment and labor laws or other workplace regulations (including those relating to employee benefit programs such as health insurance and paid leave programs), our ability to maintain good relations with our team members, employee activism, and our reputation and relevance within the labor market. In addition, to the extent unemployment assistance and other similar benefits are enhanced or extended by governmental agencies in the jurisdictions in which we operate (including in connection with the COVID-19 pandemic), such enhancements or extensions could have a negative effect on the supply of qualified workers.

We compete with other retail businesses for many of our store management personnel and sales team members in hourly and part-time positions. These positions have had historically high turnover rates, which can lead to increased training and retention costs. In addition, we compete with retail business and warehouse operations for employees in our processing facilities, which are growing quickly and competing aggressively for additional labor. If we are unable to attract and retain quality employees and other management personnel, or fail to comply with the regulations and laws impacting personnel, our operations, processing efficiency, customer service levels, legal and regulatory compliance, and support functions could suffer, resulting in a material adverse effect on our business, financial condition and results of operations.

 

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In addition, to the extent a significant portion of our employee base unionizes, or attempts to unionize, our labor and other related costs could increase. Our ability to pass along labor and other related costs to our customers is constrained by our everyday low-price model, and we may not be able to offset such increased costs elsewhere in our business.

Our continued growth depends on attracting new, and retaining existing, customers, including by increasing the acceptance of thrift among new and growing customer demographics.

To expand our customer base, we must appeal to and attract customers who do not typically purchase secondhand items, who have historically purchased only new retail items or who used other means to purchase secondhand items, such as other consignment and thrift stores or the websites of secondary marketplaces. We reach new customers through paid search, social media, influencers, advertising, other paid marketing, press coverage, retail locations, referral programs, organic word of mouth and other methods of discovery, such as converting our NPPs’ donors to customers. We expect to continue investing in these and other marketing channels in the future and cannot be certain that these efforts will enable us to attract and retain more customers, result in increased purchase frequency or increased basket sizes from our customers or be cost-effective. In addition, successful growth requires us to find appropriate store locations tailored to consumer demographics in our targeted market areas. Our ability to attract and retain customers also depends on our ability to offer a broad selection of desirable and quality secondhand items in our stores, our ability to consistently provide high-quality customer experiences and our ability to promote and position our brands and stores. Our investments in marketing may not effectively reach potential customers and existing customers, potential customers or existing customers may decide not to buy through us or the spend of customers that purchase from us may not yield the intended return on investment, any of which could negatively affect our results of operations. Moreover, consumer preferences may change, and customers may not purchase through our stores as frequently or spend as much with us as historically has been the case. As a result, the revenue generated from customer transactions in the future may not be as high as the revenue generated from transactions historically. Consequently, failure to attract new customers and to retain existing customers could harm our business, results of operations and financial condition.

Both supply of and demand for our products is influenced by general economic conditions, including trends in consumer spending.

Our business and results of operations are subject to global economic conditions, conditions in the markets in which we operate and their impact on consumer discretionary spending, particularly in the retail market. Some of the factors that may negatively influence consumer spending on retail items include high levels of unemployment, high consumer debt levels, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment. Economic conditions in particular regions may also be affected by natural disasters, such as earthquakes, hurricanes and wildfires; unforeseen public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; political crises, such as terrorist attacks, war and other incidents of political or social instability or other catastrophic events, whether occurring in the United States, Canada or internationally. The presence or absence of government stimulus funding programs has had and may continue to have an impact on consumer discretionary spending and, consequently, purchases at our stores.

Traditionally, consumer purchases of new retail items have declined and secondhand markets have grown during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Nevertheless, we cannot guarantee that our customers will continue to visit our stores and buy our items if economic conditions worsen. On the other hand, economic upswings could increase the rate of new retail purchases in the primary market and slow the rate at which individuals choose to shop in the secondhand market, thereby decreasing our revenue.

 

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Furthermore, fluctuations in economic and other conditions could also negatively impact the rate at which individuals choose to donate their secondhand items to our NPPs. To the extent that donors have lower actual or perceived wealth or economic security, donors may be less willing or able to donate items to our NPPs (either directly or through OSDs). The constriction of supply of secondhand items could increase the price we must pay for items and could also reduce the quality and quantity of items we are able to purchase for sale in our stores, which would adversely affect our revenues, profitability and sales yields.

As a result, general economic and other conditions could have a material and adverse effect on our business, results of operation and financial condition.

We have experienced rapid growth, and those growth rates may not be indicative of our future growth. If we fail to manage our growth effectively, we may be unable to execute our business plan and our business, results of operations and financial condition could be harmed.

We have experienced rapid growth in certain recent periods, and may continue to experience rapid growth in future periods, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. We have also experienced significant growth in the number of customers using our stores in certain periods, despite a reduction in total days our stores were open during 2020 and growth rates that were impacted by the COVID-19 pandemic. Additionally, our organizational structure is becoming more complex as we scale our operational, financial and management controls as well as our reporting systems and procedures.

To manage growth in our operations and the growth in our number of customers, we will need to continue to grow and improve our operational, financial and management controls and our reporting systems and procedures. We will also need to actively and carefully manage the expansion of our store footprint through a targeted real estate strategy. We will need to maintain or increase the automation of our processing facilities (including our CPCs) and continue to improve how we apply data science to our operations. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our management, marketing, operations, administrative, legal, financial, customer support, engineering and other resources. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, our employee morale, productivity and retention could suffer, which could negatively affect our brands and reputation and harm our ability to attract new customers and to grow our business. In addition, future growth, such as the potential further expansion of our operations internationally or expansion into new categories of offerings, either organically or through acquisitions, would require significant capital expenditures, which could adversely affect our results of operations, and the allocation of valuable management resources to grow and change in these areas.

In future periods, we may not be able to sustain or increase revenue growth rates consistent with recent history, or at all. We believe our success and revenue growth depends on a number of factors, including, but not limited to, our ability to:

 

   

generate a sufficient amount of new and recurring quality secondhand items at an attractive price by maintaining our strong relationships with existing NPPs, maintaining and growing OSDs and developing new relationships in the areas in which we operate;

 

   

attract and retain suitable workers for our stores and processing facilities and manage labor costs;

 

   

attract new, and retain existing, customers, including by increasing the acceptance of thrift among new and growing customer demographics;

 

   

increase awareness of our brands;

 

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maintain a high level of customer service and satisfaction;

 

   

anticipate and respond to changing market preferences;

 

   

anticipate and respond to macroeconomic changes generally, including changes in the markets for both new and secondhand retail items;

 

   

identify and obtain suitable locations for new stores and facilities;

 

   

adapt to changing conditions in our industry and related to the COVID-19 pandemic and measures implemented to contain its spread;

 

   

improve, expand and further automate our CPC operations, information systems and stores;

 

   

effectively scale our operations while maintaining high-quality service and customer satisfaction;

 

   

successfully compete against established companies and new market entrants, including national retailers and brands, other consignment and thrift stores and online resale platforms;

 

   

avoid or manage interruptions in our business from information technology downtime, cybersecurity breaches and other factors that could affect our physical and digital infrastructure; and

 

   

comply with regulations applicable to our business.

If we are unable to accomplish any of these tasks, our revenue growth may be harmed. We also expect our operating expenses to increase in future periods, and if our revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, results of operations and financial condition will be harmed, and we may not be able to maintain profitability.

We may not be able to identify and obtain suitable locations for new stores as we grow our business. The success of each store location is dependent on a number of factors, including site suitability, our ability to negotiate appropriate store leases, customer traffic and convenience and proximity to NPPs and their donors, customers, suitable workers and our processing facilities.

Our business strategy requires us to find appropriate store and processing facility sites in our targeted market areas. We compete with other retailers and businesses for acceptable locations for our stores and other facilities. For the purpose of identifying suitable locations we rely, in part, on information regarding the demographics of the local areas, both with respect to potential customers and potential donors. While we believe demographics are helpful indicators of favorable locations, we recognize that this information cannot predict future consumer preferences and buying trends with complete accuracy. We also rely on other factors such as proximity to potential and existing NPPs and their donors, our CPCs and suitable workers. Time frames for negotiations and store development vary from location to location and can be subject to unforeseen delays or unexpected cancellations.

We lease all of our locations. While locations that source product through a CPC do not require on-site production facilities, currently, most of our locations have processing facilities on-site. To the extent a location requires an on-site processing facility, the location will have specific requirements as to size, layout and physical facilities that may not be available widely in the local area. To the extent suitable store and other locations are unavailable, whether due to large scale redevelopment of shopping centers or otherwise, we may experience difficulties entering into new leases on favorable terms. The failure to secure new locations for our stores and other facilities could have a material and adverse effect on our ability to grow and maintain our business.

Our leases are generally for extended terms with a typical initial term of 10 years, and we had an average remaining term of obligation of 65 months as of January 2, 2021. The majority of our leases

 

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contain provisions for base rent and a small number of our leases contain provisions for base rent plus percentage rent based on sales in excess of an agreed upon minimum annual sales level. We may not be able to terminate a particular lease if or when we would like to do so, which could prevent us from closing or relocating certain underperforming locations. If we decide to close locations, we generally are required to continue paying rent and operating expenses for the balance of the lease term, and the performance of any of these obligations may be expensive. When we assign or sublease vacated locations, we may remain liable on the lease obligations for the rent differential or if the assignee or sub-lessee does not perform. Accordingly, we are subject to the risks associated with leasing locations, which can have a material and adverse effect on us.

If we are unable to renew, renegotiate or replace our leases or enter into leases for new locations on favorable terms, our growth and profitability could be harmed, which could have a material and adverse effect on our business, financial condition and results of operations.

We are also required to make significant lease payments for our existing leases, which may strain our cash flow. We depend on net cash provided by operating activities to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash provided by operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facilities or from other sources, we may not be able to service our lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business.

Some of our stores may have challenges achieving period-to-period comparable store sales growth targets due to various factors outside our control, including availability of quality secondhand items, availability of suitable workers, site suitability, lease terms and conditions, operational risks and regional growth and development patterns.

Because each store seeks to sell secondhand goods that are sourced locally to customers in its local area, each store’s results may fluctuate from one period to the next. While we seek to grow comparable store sales, various factors (many of which are outside our control) may negatively impact each store’s ability to meet our comparable store sales targets. These factors include (among others):

 

   

COVID-related or other government-imposed operational restrictions;

 

   

changes in the availability of quality secondhand items;

 

   

changes in the availability of suitable workers;

 

   

changes in or termination of store and facility leases;

 

   

changes in the economy or demographics of the local area or region;

 

   

changes in weather or climate;

 

   

the impact of natural disasters, cyber-attacks, social unrest or terrorist incidents;

 

   

changes in our relationships with local NPPs and the local community of donors;

 

   

changes in the timing and extent of promotional and advertising efforts; and

 

   

holidays or seasonal periods.

If our future year to year store sales growth fails to meet expectations, then our cash flow and profitability could decline substantially, which could have a material adverse effect on our business, financial condition and results of operations.

 

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We have significant foreign operations, particularly in Canada, so we are subject to risks specific to operating in these jurisdictions and are also exposed to exchange rate risks, which we may not be able to fully hedge.

As of January 2, 2021, we operated 147 stores in Canada and 10 stores in Australia. Our operations in these non-U.S. jurisdictions require us to understand the retail climate and trends, customs and cultures, seasonal differences, business practices and competitive conditions in those jurisdictions. We are also required to familiarize ourselves with the laws, rules, regulations and government of each of those jurisdictions. Operations in each jurisdiction also require us to develop the appropriate in-country infrastructure, identify suitable partners for local operations and successfully integrate operations in that jurisdiction with our overall operations while effectively communicating and implementing company policies and practices. There are also financial, regulatory and other risks associated with international operations, including currency exchange fluctuations, potentially adverse tax and transfer pricing considerations, limitations on the repatriation and investment of funds outside of the country where earned, trade regulations, the risk of sudden policy or regulatory changes, the risk of political, economic and civil instability and labor unrest and uncertainties regarding interpretation, application and enforceability of laws and agreements. Any of these risks could adversely impact our operations, profitability or liquidity.

With respect to our Canadian operations, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information and report certain data breaches. In addition, Canada’s Anti-Spam Legislation (“CASL”) or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards.

In addition our Canadian and Australian operations use a functional currency other than the U.S. dollar. In fiscal year 2020, 48.8% of our net sales were derived from markets outside the United States. We are exposed to currency translation risk because the results of our international businesses in some countries are generally reported in local currency, which we then translate to U.S. dollars we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.

The global COVID-19 pandemic and the government’s responses in the jurisdictions in which we operate has had and may continue to have an unpredictable and adverse impact on our business, results of operations and financial condition, and similar events may have such effects in the future.

In March 2020, the World Health Organization declared COVID-19 a global pandemic, and this contagious disease outbreak has continued to spread. The related public health measures, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally, leading to an economic downturn and increased market volatility. The fear associated with COVID-19, or any pandemic, and the reactions of governments around the world in response to COVID-19, or any pandemic, to regulate the flow of labor and sales and impede the travel of individuals, have and may continue to impact our ability to conduct normal business operations, which could adversely affect our results of operations and liquidity. For example, in March 2020, due to the progression of COVID-19 in areas where we operate and have corporate offices, we temporarily closed our corporate offices and all of our locations in the United States and Canada for a period of time to slow the spread of COVID-19, protect our team members and comply with certain local regulations. Later in 2020, all of our stores in Australia and stores elsewhere in our network were closed for similar reasons.

 

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The presence or absence of government stimulus funding programs, however, has had and may continue to have an impact on consumer discretionary spending and, consequently, purchases at our stores. Without timely and robust government stimulus funding programs, consumers would have less money to spend on secondhand items, which could harm our business, results of operations and financial condition. We are also impacted by the overall decrease in spending during the pandemic, as many jurisdictions required closures or reduced capacity in our stores. In particular, in connection with this reduced social activity, the shift to wear-at-home clothing has also meant that many popular secondhand apparel categories sold at our stores, such as formal wear, office wear and shoes, have been less in-demand than pre-COVID-19 pandemic levels, which affects our business, results of operations and financial condition.

Further, disruptions to our business operations have included and could include personnel absences, temporary closures of our stores, offices and processing facilities, further or ongoing reduced capacity at those locations, decreased foot traffic at and/or closure of our stores and a decrease or volatile patterns in spending on retail in general.

Further, developing various responses to the challenges caused by COVID-19 and its effects has and may continue to divert the attention of our management team. In the future, we may need to temporarily close some or all of our offices, processing facilities or stores. If a critical number of our employees become too ill to work or are unable to work due to personal reasons related to the effects of COVID-19, our ability to process and sell merchandise could be significantly slowed or halted.

Similarly, COVID-19 has led to a broader economic slowdown that may heighten other risks disclosed in this prospectus. Public health concerns, such as COVID-19, could also result in social, economic and labor instability in the localities in which we or our customers and NPPs and their donors reside. Such instability and concerns could negatively impact the amount and quality of donations to our NPPs (whether directly provided to us by NPPs or through OSDs) and could also negatively impact our customers’ willingness to shop at our stores, which would negatively impact our revenues and sales yields.

The COVID-19 pandemic had a significant negative impact on our net sales and pounds processed. Our net sales were $834.0 million during fiscal year 2020, compared to $945.5 million during the period from March 28, 2019 to December 28, 2019 and $260.0 million during the period from December 30, 2018 to March 27, 2019. The decrease in net sales resulted primarily from the effects of the COVID-19 pandemic and related public health restrictions enacted during the year. Our retail stores were closed for a substantial portion of 2020 due to public health restrictions enacted during the pandemic, which resulted in lower store traffic and retail sales volume. During fiscal year 2020, our percentage open store days was 77.3%, compared to 100% during the Successor and Predecessor periods of fiscal year 2019. We define percentage open store days as the total number of days during which each of our stores generated revenue during a fiscal period, divided by the total number of days in the fiscal period, excluding planned holiday closures.

In addition, due to the closure of our retail locations during the pandemic, we accepted fewer donations made to our NPPs at our Community Donation Centers. Total pounds processed by us decreased to 682 million pounds during fiscal year 2020, compared to 791 million pounds during the period from March 28, 2019 to December 28, 2019 and 238 million pounds during the period from December 30, 2018 to March 27, 2019. Our operating income was $6.8 million during fiscal year 2020, compared to operating income of $70.1 million during the period from March 28, 2019 to December 28, 2019 and operating loss of $24.2 million during the period from December 30, 2018 to March 27, 2019.

Any of these uncertainties and actions we take to mitigate the effects of COVID-19 and uncertainties related to COVID-19 could harm our business, results of operations and financial condition. We face similar risks with respect to any worsening of the COVID-19 pandemic, the spread

 

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of any variants of COVID-19, including the Omicron variant, and any future outbreaks of disease. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Impact” for additional information about the impact of COVID-19 on our business.

We may not be able to expand our CPC operations in geographic regions that enable us to effectively scale our operations.

To grow our business, we must continue to improve and expand our CPC operations, proprietary systems, equipment and related technology. We must also staff our CPCs with suitable workers in each of the localities we wish to service. Our CPC operations are complex and require the coordination of multiple functions that are highly dependent on numerous qualified employees and personnel working as a team. Each item that we process requires multiple touch points, including categorization, inspection, grading, pricing and delivery to our store locations. This process is complex and, from time to time, we may have more secondhand items arriving from our NPPs and their donors than we can timely process.

As we grow our CPC operations, we expect that the number of employees in our CPCs will increase significantly in the near term, particularly as and when concerns and restrictions due to COVID-19 abate. The market for these employees is increasingly competitive and is highly dependent on geographic location. We could be required to raise wages or introduce other compensation incentives to remain competitive, which could increase our costs and harm our results of operations. If we fail to effectively locate, hire and retain such personnel, our ability to continue to implement our CPC strategy could be negatively impacted, which could harm our growth prospects and our business, results of operations and financial condition.

Further, the success of our business depends on our ability to secure additional locations for our CPCs that are able to serve our stores. Space meeting our physical requirements in well-positioned geographic locations is becoming increasingly scarce, and where it is available, the lease terms offered by landlords are increasingly competitive, particularly in geographic locations with access to the large, qualified talent pools required for us to run our logistics infrastructure. Companies who have more financial resources and negotiating leverage than us may be more attractive tenants and, as a result, may outbid us for the facilities we seek. Due to the competitive nature of the real estate market in the locations where we currently operate, we may be unable to renew our existing leases or renew them on satisfactory terms. Failure to identify and secure suitable new CPCs or to maintain our current CPCs could harm our business, results of operations and financial condition.

If we are unable to successfully leverage technology to automate and drive efficiencies in our operations, our business, results of operations and financial condition could be harmed.

We are continuing to build automation, machine learning and other capabilities to drive efficiencies in our stores, our CPC operations, our ABP capabilities and other automated processing functions. As we continue to enhance automation and add capabilities, our operations may become increasingly complex. While we expect these technologies to improve productivity in many of our merchandising operations, including processing, itemizing and selling, any flaws, bugs or failures of such technologies could cause interruptions in and delays to our operations, which may harm our business. We are increasing our investment in technology, software and systems to support these efforts, but such investments may not increase productivity, maintain or improve the experience for customers or result in more efficient operations. While we have created our own proprietary technology to operate our business, we also rely on technology from third parties, particularly in our CPCs. If we are no longer able to rely on such third parties, we would be required to either seek licenses to technologies or services from other third parties and redesign aspects of business and operations to function with such technologies or services or develop such technologies ourselves, either of which would result in increased costs and could result in operational delays until equivalent technologies can be licensed or developed and integrated into our business and operations.

 

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We are subject to various risks to our physical store and processing facility locations, which may adversely affect our business, results of operations and financial condition.

Our business model is predicated on sourcing from local NPPs and their donors and selling to local customers. As a result, our stores and processing facilities are critical to our operations, and disruptions to those facilities (as well as to our headquarters) could disrupt our business and overall operations.

Our various facilities including our CPCs, may be affected by natural disasters, disease outbreaks, severe weather events or man-made events such as terrorism, labor unrest, social unrest, riots, looting and arson. Our facilities may also be affected by construction defects, damage to the physical structure that requires repair or disruptions in utility service. Any of the above events could severely disrupt our operations, cause harm to our team members and result in damage to or loss of inventory (in a location or regionally).

Additionally, given the nature of the unique selection of secondhand items we offer in our stores, our ability to restore such secondhand items in our stores would take time, and to the extent any events affecting our stores or other facilities also affect our NPPs or their donors, the supply of goods to our stores may also suffer. As a result, any of these events could result in a limitation and delay of available supply for customers, which would negatively impact our revenue and results of operations. For example, in March 2020 due to the progression of COVID-19 in areas where we operate and have corporate offices, we temporarily closed our corporate offices and all of our locations in the United States and Canada for a period of time to slow the spread of COVID-19, protect our team members and comply with certain local regulations. Later in 2020, all of our stores in Australia and stores elsewhere in our network were closed for similar reasons. Such reductions in operations and closures have slowed and may in the future slow or temporarily halt our operations and adversely affect our business, results of operations and financial condition.

We are also subject to shrinkage of inventory at our stores and facilities, and if we are unable to control such shrinkage, our sales yields will be negatively affected.

Further, while our property insurance covers certain of our inventory and losses, insurance coverage has become more expensive, which has resulted in increased premiums and deductibles. The insurance we do carry may not continue to be available on commercially reasonable terms and, in any event, may not be adequate to cover all possible losses that our business could suffer. In the event that we suffer a catastrophic loss of any or all of our facilities or the secondhand items in such facilities, our liabilities may exceed the maximum insurance coverage amount, which could adversely affect our business and results of operations.

A failure to retain key store and processing center management personnel could materially and adversely affect our business.

Our performance also depends on recruiting, hiring, developing, training, and retaining talented key management personnel for our stores and processing facilities. Similar to other retailers, we face challenges in securing and retaining sufficient talent in key management for many reasons, including competition for talent in the retail industry and in various geographic markets. In addition, because of the distinctive nature of our business model, which emphasizes promotion from within, we must provide significant internal training and development for key management personnel across the company and must effectively manage succession planning. If we do not effectively attract qualified individuals, train them in our business model and operating procedures, support their development, engage them in our business, and retain them in sufficient numbers and at appropriate levels of the organization, our growth could be limited, and the successful execution of our business model could be adversely affected.

 

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Labor-related matters, including labor disputes, may adversely affect our operations.

None of our employees are currently represented by a union. If our employees decide to form or affiliate with a union, we cannot predict the effects such future organizational activities will have on our business and operations. If we were to become subject to work stoppages, we could experience disruption in our operations, including increases in our labor costs, which could harm our business, results of operations and financial condition.

In addition, we have in the past and could face in the future a variety of employee claims against us, including but not limited to general discrimination, privacy, wage and hour, labor and employment, Employee Retirement Income Security Act, or ERISA, and disability claims. Any claims could also result in litigation against us or regulatory proceedings being brought against us by various federal and state agencies that regulate our business, including the U.S. Equal Employment Opportunity Commission. Often these cases raise complex factual and legal issues and create risks and uncertainties.

Acquisitions could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our results of operations and expansion prospects.

We have in the past and may in the future make acquisitions of other companies or technologies. Competition within our industry for acquisitions of businesses (such as the 2nd Ave. Acquisition) may become intense, and we have limited experience in acquisitions. As such, even if we are able to identify a target for acquisition, we may not be able to complete the acquisition on commercially reasonable terms, or such target may be acquired by another company including, potentially, one of our competitors. Negotiations for such potential acquisitions may result in diversion of management time and significant out-of-pocket costs. If we do complete acquisitions, we may not ultimately strengthen our competitive position, realize the benefits from the acquired business or otherwise achieve our goals, and any acquisitions we complete could be viewed negatively by customers, team members, or investors or result in the incurrence of significant other liabilities. We may also not be able to successfully integrate the acquired operations, systems (including financial, inventory, customer and other systems), team members and facilities into our company, and the time and resources spent on such integration could be greater than expected. We may expend significant cash or incur substantial debt to finance such acquisitions, which indebtedness may restrict our business or require the use of available cash to make interest and principal payments. In addition, we may finance or otherwise complete acquisitions by issuing equity or convertible debt securities, which may result in further dilution of our existing stockholders. For example, we spent significant time and resources and incurred a significant amount of debt to finance the 2nd Ave. Acquisition, and expect to spend significant additional resources on integrating the 2nd Ave. operations, including 12 new stores, into our business. Doing so may take more time or use more resources than we expect, and we may not be successful at all in realizing our goals in the transaction. Additionally, the time and resources we spend toward integrating 2nd Ave. operations, systems (including financial, inventory, customer and other systems), team members and facilities may be a significant distraction to successfully growing the rest of our business. If we fail to evaluate and execute acquisitions successfully or fail to successfully address any of these risks, our results of operations and expansion prospects may be harmed.

We face risks related to acquisitions or joint ventures we may pursue.

We may in the future seek to acquire businesses, products or technologies that we believe could complement our business, extend our store footprint into new localities, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not

 

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be able to successfully integrate the acquired personnel, operations, systems and technologies, or effectively manage the combined business following the acquisition. Specifically, we may not successfully evaluate or utilize the acquired business, operations, systems, technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown risks or liabilities.

We may not be able to find and identify desirable acquisition targets or we may not be successful in entering into an agreement with any one target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could harm our results of operations. In addition, if an acquired business fails to meet our expectations, our business, results of operations and financial condition may suffer.

Actions by wholesale customers could harm our brands and reputation, influence donor behavior and adversely affect our relationships with our NPPs and our customers.

We believe that our brands and reputation have significantly contributed to the success of our business. Our reputation, brands and ability to build trust with existing and new customers, donors and NPPs may be adversely affected by complaints and negative publicity about us and our merchandise, even if factually incorrect or based on isolated incidents. Our ability to attract and retain customers and maintain or enhance our relationships with NPPs and their donors is highly dependent upon external perceptions of our company, and damage to our brands and reputation may be caused by wholesale customers that improperly use or dispose of the items we sell to them. These and other events that may harm our brands and reputation could diminish the confidence of our customers in our products and shopping experience and could negatively impact the acceptance by our NPPs and their donors of our company and our business model. These risks could have an adverse effect on our business, financial condition and results of operations. Such events could also cause our stockholders to sell or otherwise dispose of a significant number of shares of our common stock, which may have a significant adverse effect on the trading price of our common stock.

Disruptions in the wholesale markets due to market conditions, conditions in the countries where our wholesale goods are sold or other factors may adversely affect our business.

Much of the merchandise we purchase from our NPPs is not sold in our stores, but instead is sold into the global wholesale secondhand goods market. We have in the past, and may in the future, experience fluctuations and disruptions in this market. These fluctuations and disruptions could be caused by an influx of inexpensive textiles or other replacement goods that could compete with the secondhand goods we offer. In addition, a change in the end markets in which these goods are sold could affect demand for secondhand goods in the wholesale market. These end markets may be affected negatively by natural disasters, civil unrest, economic conditions or other localized or regional events. Further, changes in laws, rules and regulations in the end markets could also negatively affect demand for or price of secondhand items. If we are unable to sell a sufficient amount of secondhand goods into the wholesale market, our business, our reputation and our revenues, profitability, results of operations and financial condition could be materially and adversely affected.

Our business could be negatively impacted by a failure to live up to our commitments to, or our failure to appropriately address existing and emerging matters relating to, sustainability and good corporate citizenship and diversity.

Our company is premised on a focus on sustainability and the reduction of waste in our local communities and in the textile and other industries through thrift, reuse and repurposing. We also seek to maintain good corporate citizenship and continuously strive for a more inclusive and diverse workplace. Our mission is to promote a more sustainable future by making secondhand second nature

 

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and positively impacting the communities we operate in. Our company is committed to a focus on sustainability and the reduction of waste in our local communities through thrift, reuse and repurposing. We also seek to maintain good corporate citizenship and continuously strive for a more inclusive and diverse workplace. Our commitment to such matters may require us to devote additional resources in our review of prospective investments and our operations and could increase the amount of expenses we are required to bear, which could lead to reduced profitability. In addition, if incidents occur in which we fail, or are perceived to have failed, to live up to our commitments to sustainability, good corporate citizenship or diversity, or if we fail to accurately report our progress toward such commitments, negative publicity with respect to any such incident could discourage our customers from shopping at our stores, causing our net sales to decrease, and could negatively impact our relationships with our NPPs and their donors, causing the quantity and quality of secondhand goods we receive to decrease (and thus negatively impacting our revenues and sales yields). We could also be criticized for the scope of our sustainability, good corporate citizenship or diversity commitments and engagement; or for a perceived lack of sustainability, good corporate citizenship or diversity commitments and engagement; or for any perceived lack of transparency about such matters, which in turn could have a negative impact on stakeholder perception and stakeholder engagement with our business. This may also impact our ability to attract and retain talent to compete in the marketplace. These risks could therefore have a material and adverse effect on our business, results of operations and financial condition.

The market in which we participate is competitive and rapidly changing, and if we do not compete effectively with established companies as well as new market entrants or maintain and develop strategic relationships with NPPs, our business, results of operations and financial condition could be harmed.

The markets for resale and secondhand items are highly competitive. We compete with vendors of new and secondhand items, including branded goods stores, local, national and global department stores, consignment and thrift stores (including non-profit operators), specialty retailers, direct-to-consumer, retailers, discount chains, independent retail stores, the offerings of other retail competitors, resale players focused on niche or single categories, as well as internet-based secondhand retailers and other technology-enabled marketplaces. We believe our ability to compete depends on many factors, many of which are beyond our control, including:

 

   

maintaining favorable brand recognition;

 

   

identifying and delivering quality secondhand items;

 

   

maintaining and increasing the amount, diversity and quality of secondhand items that we offer;

 

   

our ability to expand the means through which we acquire and offer secondhand items for resale;

 

   

attracting and retaining suitable workers for our stores and processing facilities and managing labor costs;

 

   

attracting donors and retaining relationships with NPPs;

 

   

the ease with which our customers and NPPs and their donors can supply, purchase and return secondhand items;

 

   

the price at which secondhand items are offered;

 

   

the speed and cost at which we can process and make available secondhand items to our customers; and

 

   

attracting and retaining customers and increasing the volume of secondhand items they buy.

As our market evolves and we begin to compete with new market entrants, we expect competition to intensify in the future. Established companies may not only develop their own platforms and competing lines of business, but also acquire or establish cooperative relationships with our current

 

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competitors or provide meaningful incentives to third parties to favor their offerings over our stores. The performance of our competitors as well as changes in their pricing and promotional policies, marketing activities, new location openings, merchandising and operational strategies could negatively impact our sales and profitability.

Many of our existing competitors have, and some of our potential competitors or potential alliances among competitors could have, substantial competitive advantages such as greater brand name recognition and longer operating histories; larger fulfillment infrastructures; greater technical capabilities; internet-based marketplaces; broader supply; established relationships with a larger existing customer and/or NPP and donor base; better access to merchandise; superior or more desirable secondhand items for sale or resale; greater customer service resources; greater financial, marketing, institutional and other resources; greater resources to make acquisitions; lower labor and development costs; larger and more mature intellectual property portfolios; and better access to capital markets than we do. Such competitors with greater financial and operating resources may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and derive greater revenue and profits from their existing customer bases, adopt more aggressive pricing policies to build larger customer or NPP bases, or respond more quickly than we can to new or emerging technologies and changes in consumer shopping behavior.

If we are unsuccessful in establishing or maintaining our relationships with our NPPs, or if they partner with our competitors and devote greater resources to implement and support the platforms or retail items of our competitors, our ability to compete in the marketplace, or to grow our revenue, could be impaired, and the results of our operations may suffer. Even if these partnerships and any future partnerships we undertake are successful, these relationships may not result in increased buying and selling through our stores or increased revenue.

Conditions in our market could also change rapidly and significantly as a result of technological advancements, partnering by our competitors or continuing market consolidation or strategic changes we or our competitors make in response to the COVID-19 pandemic, and it is uncertain how our market will evolve. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer customers and NPPs, reduced revenue, reduced profitability, increased net losses, and loss of market share. Any failure to meet and address these factors could harm our business, results of operations and financial condition.

National retailers and brands set their own retail prices and promotional discounts on new items, which could adversely affect our value proposition to customers and harm our business, results of operations and financial condition.

National retailers and brands set pricing for their own new retail items, which can include promotional discounts. For example, there may be reductions in the price of new retail items in light of the economic downturn caused by the COVID-19 pandemic. Promotional pricing by these parties may adversely affect the relative value of secondhand items offered for resale with us. In order to attract customers to our stores, the prices for the secondhand items sold through our stores may need to be lowered in order to compete with pricing strategies employed by national retailers and brands for their own new retail items. These pricing changes and promotional discounts could, as a result, adversely affect our business, revenue, growth, results of operations and financial condition.

Natural disasters, pandemics, geo-political events and other highly disruptive events could materially and adversely affect our business, financial condition and results of operations.

The occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes, geo-political events or terrorist or military activities disrupting transportation, communication or utility systems or other highly disruptive events, such as nuclear accidents, public health epidemics or pandemics (such as the ongoing COVID-19 outbreak), unusual weather conditions

 

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or cyberattacks, could adversely affect our operations and financial performance. Such events could result in physical damage to or destruction or disruption of one or more of our properties (including our corporate offices, Centralized Processing Centers, other processing facilities and stores) or properties used by NPPs in connection with the supply of secondhand items to us, negative impacts on our team members in parts or all of our operations, supply chain disruptions, data, utility and communications disruptions, fewer customers visiting our stores, including due to quarantines or public health crises and the inability of our customers to reach or have transportation to our stores directly affected by such events. These events could also negatively impact the willingness of donors to donate items to our NPPs (either directly to our NPPs or through OSDs), which would adversely affect the price, quantity and quality of secondhand items we are able to purchase. In addition, these events could cause a temporary reduction in consumer sales or the ability to sell our items or could indirectly result in increases in the costs of our insurance if they result in significant loss of property or other insurable damage. These factors could also cause consumer confidence and spending to decrease or result in increased volatility in the United States, Canada and global financial markets and economies. Any of these developments could have a material and adverse effect on our business, financial condition and results of operations.

Our advertising activity may fail to efficiently drive growth in customers, which could harm our business, results of operations and financial condition.

Our future growth and potential profitability will depend in large part upon the effectiveness and efficiency of our advertising, promotion, public relations and marketing programs, and we are investing in these activities. Our advertising activities may not yield increased revenue and the efficacy of these activities will depend on a number of factors, including our ability to:

 

   

determine the effective creative message and media mix for advertising, marketing and promotional expenditures;

 

   

select the right markets, media and specific media vehicles in which to advertise;

 

   

identify the most effective and efficient level of spending in each market, media and specific media vehicle; and

 

   

effectively manage marketing costs, including creative and media expenses, to maintain acceptable customer acquisition costs.

We closely monitor the effectiveness of our advertising campaigns and changes in the advertising market, and adjust or re-allocate our advertising spend across channels, customer segments and geographic markets in real-time to optimize the effectiveness of these activities. We expect to increase advertising spend in future periods to continue driving our growth. Increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause us to choose less expensive but possibly less effective marketing and advertising channels. If we implement new marketing and advertising strategies, we may incur significantly higher costs than our current channels, which, in turn, could adversely affect our results of operations.

Implementing new marketing and advertising strategies also could increase the risk of devoting significant capital and other resources to endeavors that do not prove to be cost effective. We also may incur marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses and our marketing and advertising expenditures may not generate sufficient levels of brand awareness or result in increased revenue. Even if our marketing and advertising expenses result in increased sales (or donations made to our NPPs), the increase might not offset our related expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our customer base could be adversely affected, our brands could suffer and our business, results of operations and financial condition could be harmed.

 

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We may not succeed in promoting and maintaining our reputation, which could harm our business and future growth.

We believe that maintaining our reputation is critical to driving customer and NPP and donor engagement. An important goal of our brand promotion strategy is establishing trust with our customers and NPPs and their donors.

For customers, maintaining our reputation requires that we foster trust through responsive and effective customer service and a broad supply of desirable brands and secondhand items. For NPPs and their donors, maintaining our brands and reputation requires that we foster convenience with service that is convenient, consistent and timely. We must also maintain trust through consistent receiving and payment processes for secondhand items supplied to us. Our payments must also be perceived by our NPPs to be adequate compensation for the items they collect.

If we fail to maintain our reputation with our customers, our revenues could be materially and adversely affected. If we fail to maintain our reputation with our NPPs and their donors, the quantity and quality of goods supplied to us could be materially and adversely affected. As a result, a failure to maintain our reputation could have a material, adverse effect on our business, growth, results of operations and financial condition.

Certain estimates of market opportunity and our customer and NPP and donor metrics included in this prospectus may prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.

This prospectus includes our estimates, based on research, surveys and internally generated data, of the addressable market for our company and metrics related to our customers and NPPs and their donors. Market opportunity estimates, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this prospectus relating to the size of our target market, market demand, capacity to address this demand, and pricing may prove to be inaccurate. The addressable market we estimate may not materialize for many years, if ever.

We may not be able to address fully the markets that we believe we can address, and we cannot be sure that these markets will grow at historical rates or the rates we expect for the future. Even if we are able to address the markets that we believe represent our market opportunity and even if these markets experience the growth we expect, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the estimates and forecasts of market size and opportunity and of market growth included in this prospectus may not be indicative of our future growth.

Certain metrics presented in this prospectus, including the numbers of customers and NPPs and their donors, are based on market research, internally generated data, assumptions and estimates, and we use these numbers in managing our business. To the extent the metrics are inaccurate, our business decisions based on such metrics may prove to be incorrect. If investors or analysts do not perceive our metrics to be accurate representations of our business, or if we discover material inaccuracies in our metrics or the underlying information, our reputation, business, results of operations and financial condition would be harmed.

Risks Relating to Information Technology, Intellectual Property, Data Security and Privacy

Compromises of our data security could cause us to incur unexpected expenses and may materially harm our reputation and results of operations.

In the ordinary course of our business, we collect, process and store certain personal information and other data relating to individuals, such as our customers and employees. We also maintain other

 

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information, such as financial information, operating statistics and metrics, trade secrets and confidential business information and certain confidential information of third parties, that is sensitive and that we seek to protect.

We rely substantially on commercially available systems, software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information. We have been in the past and could be in the future the subject of hacking, phishing attacks, data breaches, ransomware attacks or other attacks. For example, in July 2020, we suffered a ransomware attack that caused the loss of some of our data and caused some temporary operational disruptions. These incidents have allowed, and may in the future continue to allow, hackers or other unauthorized parties to gain access to personal information or other data, including payment card data or confidential business information, and we might not discover such issues for an extended period. The techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our employees, NPPs or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information or other data, or may inadvertently release or compromise such data. We expect to incur ongoing costs associated with the detection and prevention of security breaches and other security-related incidents. In addition, we provide the audit committee of our board of directors regular reports on such breaches or incidents, including the July 2020 incident, and on our efforts to implement more robust security measures. We may incur additional costs in the event of a security breach or other security-related incident. Any actual or perceived compromise of our systems or data security measures or those of third parties with whom we do business, or any failure to prevent or mitigate the loss of personal or other confidential information and delays in detecting or providing notice of any such compromise or loss could disrupt our operations, harm the perception of our security measures, damage our reputation, cause some participants to decrease or stop their visiting of our stores and subject us to litigation, government action, increased transaction fees, regulatory fines or penalties or other additional costs and liabilities that could adversely affect our business, results of operations and financial condition.

Our insurance coverage may not be adequate for data handling or data security liabilities, and that insurance may not continue to be available to us on economically reasonable terms, or at all. An insurer may also deny coverage as to a future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could harm our business, results of operations, financial condition and reputation.

In addition, the changes in our work environment as a result of the COVID-19 pandemic could impact the security of our systems, as well as our ability to protect against attacks and detect and respond to them quickly. Any rapid adoption by us of third-party services designed to enable the transition to a remote workforce also may introduce security risk that is not fully mitigated prior to the use of these services. We may also be subject to increased cyber-attacks, such as phishing attacks by threat actors using the attention placed on the COVID-19 pandemic as a method for targeting our personnel.

Our use and other processing of personal information and other data is subject to laws and regulations relating to privacy, data protection and information security. Changes in such laws or regulations, or any actual or perceived failure by us to comply with such laws and regulations, our privacy policies and/or contractual obligations, could adversely affect our business, results of operations and financial condition.

We collect, maintain and otherwise process significant amounts of personal information and other data relating to our customers and employees. Numerous state, federal and international laws, rules and regulations govern the collection, use and protection of personal information and other types of

 

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data we collect, use, disclose and otherwise process. Such requirements are constantly evolving, and we expect that there will continue to be new proposed requirements relating to privacy, data protection and information security in the United States, Canada and other jurisdictions, or changes in the interpretation of existing privacy requirements. For example, the California Consumer Privacy Act, or CCPA, took effect on January 1, 2020 and broadly defines personal information, imposes stringent consumer data protection requirements, gives California residents expanded privacy rights, provides for civil penalties for violations and introduces a private right of action for data breaches. Additionally, on November 3, 2020, Proposition 24 was approved in California which creates a new privacy law, the California Privacy Rights Act, or CPRA. The CPRA creates additional obligations relating to personal information that will take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). The CPRA’s implementing regulations are expected on or before July 1, 2022, and enforcement is scheduled to begin July 1, 2023. We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance. Additionally, the CCPA has prompted other states to propose and enact similar laws and regulations relating to privacy. For example, in March 2021, Virginia enacted the Virginia Consumer Data Protection Act, or CDPA, which becomes effective on January 1, 2023, and on June 8, 2021, Colorado enacted the Colorado Privacy Act, or CPA, which takes effect on July 1, 2023. The CDPA and CPA share similarities with the CCPA, the CPRA, and legislation proposed in other states. Aspects of the CCPA, CPRA, CDPA, and CPA, and their interpretation, remain unclear, and we cannot yet fully predict the impact of these laws or regulations on our business or operations.

We have significant operations in Canada and Australia, and must comply with data privacy laws in both jurisdictions. In Canada, our collection, use, disclosure, and management of personal information must comply with both federal and provincial privacy laws, which impose separate requirements, but may overlap in some instances. The Personal Information Protection and Electronic Documents Act, or PIPEDA, applies in all Canadian provinces except Alberta, British Columbia and Québec, as well as to the transfer of consumer data across provincial borders. PIPEDA imposes stringent consumer data protection obligations, requires privacy breach reporting, and limits the purposes for which organizations may collect, use, and disclose consumer data. The provinces of Alberta, British Columbia, and Québec have enacted separate data privacy laws that are substantially similar to PIPEDA, but all three additionally apply to our handling of our own employees’ personal data within their respective provinces. We may incur additional costs and expenses related to compliance with these laws. We are also subject to Canada’s anti-spam legislation, or CASL, which includes rules governing commercial electronic messages, which include marketing emails, text messages, and social media advertisements. Under these rules, we must follow certain standards when sending marketing communications, are prohibited from sending them to customers without their consent, and can be held liable for violations. In Australia, the Privacy Act 1988 and the Australian Privacy Principles regulate the handling of personal information, which is defined in similar terms to the CCPA. The Privacy Act and the APPs set out data protection principles for how personal information should be collected, used, stored and disclosed, and when an entity must provide notice if personal information has been lost or accessed without authorization. The Privacy Act also gives the Australian Information Commissioner the power to conduct investigations, and contains civil penalties for breach. The Privacy Act is currently under review and may be amended to include more stringent requirements, including mandating the destruction or de-identification of personal information in certain circumstances. We may also be subject to the Spam Act 2003 and the Do Not Call Register Act 2006 which regulate the sending of commercial electronic messages and telemarketing activities. To the extent our operations further expand internationally, we may become subject to additional laws and regulations relating to privacy and data protection. We are subject to analogous laws applicable to our operations in Australia.

Future requirements, or changes in the interpretation of existing requirements relating to privacy, data protection and information security may require us to implement privacy and security policies, provide certain types of notices, grant certain rights to individuals, inform individuals of security

 

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breaches and, in some cases, obtain individuals’ consent to use personal data for certain purposes. These requirements may be inconsistent from one jurisdiction to another, subject to differing interpretations and may be interpreted to conflict with our practices. We cannot yet fully determine the impact that such future requirements may have on our business or operations. Additionally, we are subject to the terms of our privacy policies and notices and may be bound by contractual requirements applicable to our collection, use, processing, security and disclosure of personal information, and may be bound by or alleged to be subject to, or voluntarily comply with, self-regulatory or other industry standards relating to these matters.

Any failure or perceived failure by us or any third parties with which we do business to comply with these privacy requirements, with our posted privacy policies or with other obligations to which we or such third parties are or may become subject relating to privacy, data protection or information security, may result in investigations or enforcement actions against us by governmental entities, private claims, public statements against us by consumer advocacy groups or others and fines, penalties or other liabilities. For example, California consumers whose information has been subject to a security incident may bring civil suits under the CCPA for statutory damages between $100 and $750 per consumer. In Canada, we may be subject to regulatory investigations, fines, or class action suits stemming from violations of either PIPEDA or CASL. Any such action would be expensive to defend, likely would damage our reputation and market position, could result in substantial liability and could adversely affect our business and results of operations.

We may be unable to protect our intellectual property rights.

We rely on a combination of intellectual property rights, contractual protections and other practices to protect our brands, proprietary information, technologies and processes. We primarily rely on copyright and trade secret laws and exclusive licenses-in to protect our proprietary technologies and processes, including the automated operations systems and machine learning technology we use throughout our business. Others may independently develop the same or similar technologies and processes or may improperly acquire and use information about our technologies and processes, which may allow them to provide a service similar to ours, which could harm our competitive position. Our principal trademark assets include the registered and common law trademarks “Savers Value Village,” “Savers,” “Value Village,” “Village des Valeurs,” “Unique,” :2nd Ave,” “GreenDrop,” “Super Savers Club,” “Community Donation Center” and “Thrift Proud” and our logos and taglines. Our trademarks are valuable assets that support our brands and customers’ perception of our services and merchandise. We have registered trademarks in Australia, Canada and the United States. We also hold the rights to the “savers.com” Internet domain name and various related domain names, which are subject to Internet regulatory bodies and trademark and other related laws of each applicable jurisdiction. If we are unable to protect our trademarks or domain names, our brand recognition and reputation would suffer, we would incur significant expense establishing new brands and our results of operations would be adversely impacted. Further, to the extent we pursue patent protection for our innovations, patents we may apply for may not issue, and patents that do issue or that we acquire may not provide us with any competitive advantages or may be challenged by third parties. There can be no assurance that any patents we obtain will adequately protect our inventions or survive a legal challenge, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We may be required to spend significant resources to monitor and protect our intellectual property rights, and the efforts we take to protect our proprietary rights may not be sufficient.

We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships, partnerships and business alliances, no assurance can be given that these agreements will be effective in controlling access to and distribution of our

 

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proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our automation technologies or technologies related to our operations or services.

To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights, and we may or may not be able to detect infringement by third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay the implementation of our platform, impair the functionality of our platform, delay introductions of new capabilities, result in our substituting inferior or more costly technologies into our business, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new capabilities, and we cannot assure you that we could license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.

We may be accused of infringing intellectual property or other proprietary rights of third parties.

We have been in the past and may be accused in the future of infringing intellectual property or other proprietary rights of third parties. We are also at risk of claims by others that we have infringed their copyrights, trademarks or patents, or improperly used or disclosed their trade secrets or otherwise infringed or violated their proprietary rights, such as the right of publicity. For example, although we require our employees to not use the proprietary information or know-how of others in their work for us, we may become subject to claims that these employees have divulged, or we have used, proprietary information of these employees’ former employers. The costs of supporting any litigation or disputes related to these claims can be considerable, and we cannot assure you that we will achieve a favorable outcome of any such claim. If any such claim is valid, we may be compelled to cease our use of such intellectual property or other proprietary rights and pay damages, which could adversely affect our business. In addition, if such claims are valid, we may lose valuable intellectual property rights or personnel, which could harm our business. Even if such claims were not valid, defending them could be expensive and distracting, adversely affecting our results of operations.

We rely on software, technology and services from other parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the quality of our products.

We rely on software, technologies and services sourced or licensed from third parties to operate critical functions of our business, including payment processing services, certain aspects of CPC automation and customer relationship management services. We also use Microsoft services for our business emails, file storage and communications. Our business would be disrupted if any of the third-party software or services we utilize, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices. In each case, we would be required to either seek licenses to software or services from other parties and redesign our business and operations to function with such software or services or develop these components ourselves, which would result in increased costs.

 

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Risks Relating to Legal, Regulatory, Accounting and Tax Matters

Risks arising from the material weaknesses we have identified in our internal control over financial reporting and any failure to remediate these material weaknesses.

As a public company, we will be required to maintain internal control over financial reporting in accordance with applicable rules and guidance and to report any material weaknesses in such internal control over financial reporting. Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. In connection with this filing, we identified deficiencies in our internal control over financial reporting, which in the aggregate, constitute material weaknesses related to (i) the sufficiency of technical accounting and SEC reporting expertise within our accounting and financial reporting function, (ii) the establishment and documentation of clearly defined roles within our finance and accounting functions and (iii) our ability to evidence the design and implementation of effective information technology general controls (“ITGCs”) for information systems and applications that are relevant to the preparation of our financial statements.

If our steps are insufficient to successfully remediate the material weaknesses and otherwise establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us, and the value of our common stock could be materially and adversely affected. We may not be able to remediate the identified material weaknesses, and additional material weaknesses or significant deficiencies in our internal control over financial reporting may be identified in the future. Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Our failure to implement and maintain effective internal control over financial reporting, to remedy identified material weaknesses or significant deficiencies or to implement required new or improved controls could result in errors in our financial statements that could result in a restatement of our financial statements or cause us to fail to timely meet our financial and other reporting obligations.

We may be unable to maintain an effective system of disclosure controls and procedures or internal control over financial reporting and produce timely and accurate financial statements or comply with applicable regulations.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and, if approved for listing, the rules and regulations and the listing standards of the New York Stock Exchange, or the NYSE.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and

 

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procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

In addition to the material weaknesses in our internal control over financial reporting that we have identified, we may discover weaknesses in our disclosure controls and procedures and internal control over financial reporting in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could cause delays in our ability to comply with public company reporting requirements (including under the Exchange Act or stock exchange rules) and could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material adverse effect on our business and operating results and could cause a decline in the price of our common stock.

We will incur increased expenses associated with being a public company.

As a public company, we will incur significant legal, accounting, investor relations and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that the requirements of operating as a public company will increase our legal and financial compliance and investor relations costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will also need to establish an investor relations function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of those costs.

 

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Public company reporting and disclosure obligations and a broader shareholder base as a result of our status as a public company may expose us to a greater risk of claims by shareholders, and we may experience threatened or actual litigation from time to time. If claims asserted in such litigation are successful, our business and operating results could be adversely affected, and, even if claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them and the diversion of management resources, could adversely affect our business and operating results.

Changes in Canadian, Australian or U.S. national or local regulations, including those relating to the sale of secondhand items, or our actual or alleged failure to comply with such regulations may have a material adverse effect on our reputation, business financial condition, and results of operations.

Our business and financial condition could be adversely affected by unfavorable changes in or interpretations of existing laws, rules and regulations or the promulgation of new laws, rules and regulations applicable to us and our business, including those relating to consumer protection, anti-corruption, antitrust and competition, economic and trade sanctions, tax, banking, environmental protection, waste management, sustainability, data security, network and information systems security, data protection and privacy. As a result, regulatory authorities could prevent or temporarily suspend us from conducting some or all of our activities or otherwise penalize us if our practices were found not to comply with applicable regulatory or licensing requirements or any binding interpretation of such requirements. Unfavorable changes or interpretations could decrease demand for our merchandise, limit marketing methods and capabilities, affect our growth, increase costs or subject us to additional liabilities. In addition, if we were to further expand internationally, we could be subject to additional regulation.

The resale of secondhand items is subject to regulation, including by regulatory bodies such as the U.S. Consumer Product Safety Commission, the Federal Trade Commission, the U.S. Fish and Wildlife Service and other international, federal, state and local governments and regulatory authorities. These laws and regulations are complex, vary from jurisdiction to jurisdiction and change often. We monitor these laws and regulations and adjust our business practices as warranted to comply. We receive our supply of secondhand items from numerous NPPs and their donors located in approximately 27 U.S. states, and the items we receive from our NPPs and their donors may contain materials such as ivory, fur, snakeskin and other exotic animal product components, that are subject to regulation in the United States and overseas. In Canada, we follow the Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act, which restricts the sale of ivory and other protected species. In Australia, we are prohibited from trading in certain animal products because Australia is a signatory to the Convention on International Trade in Endangered Species of Wild Fauna and Flora. Failure of our employees to identify prohibited items and remove them from the sale process could lead to violations of regulations or other claims against us, resulting in increased legal expenses and costs. Moreover, in connection with our marketing and advertisement practices, we have in the past, and may in the future, be the target of claims relating to false or deceptive advertising, including under the auspices of the FTC and the consumer protection statutes of some states. Failure by us to effectively monitor the application of these laws and regulations to our business, and to comply with such laws and regulations, may negatively affect our brands and subject us to penalties and fines.

Numerous jurisdictions, including the States of California and New York, Canada, and Australia, have regulations regarding the handling of secondhand items and licensing requirements of secondhand dealers. In Canada, we follow the Canada Consumer Product Safety Act Health Canada’s “Industry Guide to Second-Hand Products (Including Children’s Products) which guides businesses selling second-hand products ensure all appropriate steps are taken to ensure consumer product

 

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safety, including with regard to product recalls. In Australia, product safety regulation is a shared responsibility between the Australian Competition and Consumer Commission and the product regulators in each of the Australian States and Territories. In Australia, all consumer products, regardless of whether they are secondhand or new, must be safe and meet the consumer guarantees under the Australian Consumer Law which include that products are of acceptable quality, match their description and are fit for purpose, and that any express warranties will be met. We must ensure that we meet mandatory reporting requirements if there is a risk that a product is not safe, and that we do not sell banned or recalled products. In addition, some products such as aquatic toys and certain goods designed for use by babies and children are regulated by mandatory product safety standards. There are serious penalties for selling non-compliant products. We must also be registered with the regulatory bodies in each of the Australian States and Territories to sell secondhand goods. Such government regulations could require us to change the way we conduct business in the applicable jurisdictions, such as prohibiting or otherwise restricting the sale or shipment of certain items in some locations. These regulations could result in increased costs or reduced revenue. We could also be subject to fines or other penalties that could harm our business.

Additionally, supplied secondhand items could be subject to recalls and other remedial actions and product safety, labeling and licensing concerns may require us to voluntarily remove certain secondhand items from our stores. Such recalls or voluntary removal of items can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could have an adverse effect on our results of operations. Some of the secondhand items sold at our stores may expose us to product liability claims and litigation or regulatory action relating to personal injury, environmental or property damage. We cannot be certain that our insurance coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms or at all.

Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud, or our failure to control any such fraud, could damage our reputation and brands and could harm our business, results of operations and financial condition.

We have in the past incurred and may in the future incur losses from various types of fraudulent transactions, including the use of stolen credit card numbers, and claims that a customer did not authorize a purchase. In addition, as part of the payment processing process, our customers’ credit and debit card information is transmitted to our third-party payment processors, and we may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers’ credit or debit card information if the security of our third-party credit card payment processors are breached.

We and our third-party credit card payment processors are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we or our third-party credit card payment processors fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers. Further, we could violate or be alleged to have violated applicable laws, regulations, contractual obligations or other obligations, including those regulating to privacy, data protection and data security as outlined above, and including harm to our reputation and market position. Any of these could have an adverse impact on our business, results of operations, financial condition and prospects. Our failure to adequately prevent fraudulent transactions could damage our reputation and market position, result in claims, litigation or regulatory investigations and proceedings or lead to expenses that could harm our business, results of operations and financial condition.

 

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We and our directors and executive officers may be subject to litigation for a variety of claims, which could harm our reputation and adversely affect our business, results of operations and financial condition.

In the ordinary course of business, we have in the past and may in the future be involved in and subject to litigation for a variety of claims or disputes and receive regulatory inquiries. These claims, lawsuits and proceedings could include labor and employment, wage and hour, commercial, consumer protection, regulatory, antitrust, alleged securities law violations or other investor claims, claims that our employees have wrongfully disclosed or we have wrongfully used proprietary information of our employees’ former employers and other matters. The number and significance of these potential claims and disputes may increase as our business expands. Further, our general liability insurance may not cover all potential claims made against us or be sufficient to indemnify us for all liability that may be imposed. Any claim against us, regardless of its merit, could be costly, divert management’s attention and operational resources, and harm our reputation.

Our directors and executive officers may also be subject to litigation. The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation, our amended and restated bylaws and indemnification agreements that we entered into with our directors and executive officers provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law and may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. Such provisions may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against our directors and executive officers as required by these indemnification provisions. We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law. These insurance policies may not cover all potential claims made against our directors and executive officers, may not be available to us in the future at a reasonable rate and may not be adequate to indemnify us for all liability that may be imposed. See the section titled “Certain Relationships and Related Party Transactions—Indemnification of officers and directors.”

As litigation is inherently unpredictable, we cannot assure you that any potential claims or disputes will not harm our business, results of operations and financial condition.

Subjective estimates and judgments used by management in the preparation of our financial statements, including estimates and judgments that may be required by new or changed accounting standards, may impact our financial condition and results of operations.

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Due to the inherent uncertainty in making estimates, results reported in future periods may be affected by changes in estimates reflected in our financial statements for earlier periods. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. From time to time, there may be changes in the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retrospectively. If the estimates and judgments we use in preparing our financial statements

 

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are subsequently found to be incorrect or if we are required to restate prior financial statements, our financial condition or results of operations could be significantly affected.

Tax legislation could adversely affect our business, financial condition and results of operations.

The Tax Cuts and Jobs Act, (the “Tax Act”), among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of “adjusted earnings” (roughly defined as earnings before interest, taxes, depreciation and amortization in the case of taxable years beginning before January 1, 2022 and earnings before interest and taxes thereafter), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. The most significant impacts of the Tax Act on our financial results to date have included lowering of the U.S. federal corporate income tax rate and remeasurement of our net deferred tax liabilities. We continue to examine the impact that the Tax Act may have on our business in the longer term. The U.S. government may enact significant new changes to the taxation of business entities, including, among others, an increase in the U.S. taxation of international business operations. Accordingly, the impact of the Tax Act and any future tax legislation on us is uncertain.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset taxable income or taxes may be limited.

As of January 2, 2021, we had U.S. federal and state net operating loss carryforwards of $70.6 million and $99.0 million, respectively. The federal net operating loss carryforwards will expire at various dates beginning in 2028. State net operating loss carryforwards began expiring at various dates starting in 2020. Portions of these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”), U.S. federal net operating losses incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal net operating losses in taxable years beginning after December 31, 2020, is limited. It is uncertain how various states will respond to the Tax Act and the CARES Act. For state income tax purposes, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its postchange income or taxes may be limited. We have experienced such ownership changes in the past, and may experience such ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future results of operations by effectively increasing our future tax obligations.

 

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We are subject to various anti-corruption laws and regulations and laws and regulations relating to export controls and economic sanctions. Violations of these laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments of cash (or anything else of value) to government officials and other persons in order to obtain or retain business. Our business operations also must be conducted in compliance with applicable export control and economic sanctions laws and regulations, including rules administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, and other relevant authorities.

We strive to conduct our business activities in compliance with relevant anti-corruption and trade control laws and regulations, and we are not aware of issues of historical noncompliance. However, full compliance cannot be guaranteed. Further expansion of our retail or wholesale footprint outside the United States would likely increase our future legal exposure. Violations of anti-corruption or trade control laws and regulations, or even allegations of such violations, could result in civil or criminal penalties, as well as disrupt our business, operations, financial condition and results of operations. Further, changes to the applicable laws and regulations, and/or significant business growth, may result in the need for increased compliance-related resources and costs.

Risks Relating to Our Indebtedness and Liquidity

Our indebtedness could materially adversely affect our financial condition.

We have, and after this offering will continue to have, a significant amount of indebtedness. As of October 2, 2021, on a pro forma basis, our total indebtedness would have been $             million, including $             million aggregate principal amount outstanding under our Credit Agreement, dated as of April 26, 2021, by and among Evergreen AcqCo 1 LP and Value Village Canada Inc., as borrowers, the guarantors party thereto, KKR Loan Administration Services LLC, as administrative agent and collateral agent and the lenders party thereto (the “Secured Credit Agreement”). Under the Secured Credit Agreement, we have a term loan facility (the “New Term Loan Facility”) and a super-priority revolving credit facility (the “New Revolving Credit Facility”). As of October 2, 2021, giving effect to the 2nd Ave. Acquisition, the related financing and the November 2021 Dividend, we would have had $825.0 million principal amount of loans outstanding under the New Term Loan Facility and $                 million principal amount of loans and $                 million of letters of credit outstanding under the New Revolving Credit Facility.

Our substantial indebtedness could have important consequences to the holders of our common stock, including the following:

 

   

making it more difficult for us to satisfy our obligations with respect to our other debt;

 

   

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

   

requiring us to dedicate a substantial portion of our cash flows to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

   

increasing our vulnerability to general adverse economic and industry conditions;

 

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exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the Secured Credit Agreement, are at variable rates of interest;

 

   

limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

 

   

placing us at a disadvantage compared to other, less leveraged competitors; and

 

   

increasing our cost of borrowing.

In addition, the Secured Credit Agreement contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities.”

The New Term Loan Facility will mature on April 26, 2028. The New Revolving Credit Facility will mature on April 26, 2026. We may need to refinance all or a portion of our indebtedness on or before the maturity thereof. We may not be able to obtain such financing on commercially reasonable terms or at all. Failure to refinance our indebtedness could have a material adverse effect on us.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors, some of which are beyond our control. We cannot be sure that our business will generate sufficient cash flows from operating activities, or that future borrowings will be available, to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to implement any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Secured Credit Agreement restricts our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would have a material adverse effect on our financial condition and results of operations.

If we cannot make scheduled payments on our debt, we will be in default, and the lenders under the Secured Credit Agreement could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. Any of these events could result in you losing all or a portion of your investment in the common stock.

 

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Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described herein.

We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the Secured Credit Agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. As of October 2, 2021, giving effect to the 2nd Ave. Acquisition, the related financing and the November 2021 Dividend, we would have had $825.0 million of borrowings outstanding under the New Revolving Credit Facility, with $             million of outstanding letters of credit, leaving $             million available for borrowing. The Secured Credit Agreement provides for additional uncommitted incremental loans of up to the greater of $136 million and 100% of EBITDA for the most recent four fiscal quarters, plus certain other amounts, with additional incremental loans available if certain leverage ratios are maintained. Of the incremental loans, $15.0 million can be incremental loans under the New Revolving Credit Facility. All of those borrowings would be secured by first-priority liens on our property.

The terms of the Secured Credit Agreement restrict our current and future operations, including our ability to respond to changes or to take certain actions.

The Secured Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities.” The indebtedness under the Secured Credit Agreement will continue to be outstanding following completion of this offering. The restrictive covenants under the Secured Credit Agreement include restrictions on our ability to:

 

   

incur additional indebtedness and guarantee indebtedness;

 

   

pay dividends or make other distributions or repurchase or redeem our capital stock;

 

   

prepay, redeem or repurchase junior debt;

 

   

issue certain preferred stock or similar equity securities;

 

   

make loans and investments;

 

   

sell assets or property, except in certain circumstances;

 

   

incur liens;

 

   

enter into transactions with affiliates;

 

   

modify or waive certain material agreements in a manner that is adverse in any material respect to the lenders;

 

   

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

 

   

make fundamental changes in our business, corporate structure or capital structure, including, among other things, entering into mergers, acquisitions, consolidations and other business combinations.

As a result of these restrictions, we may be:

 

   

limited in how we conduct our business;

 

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unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

   

unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect our ability to grow in accordance with our strategy.

A breach of the covenants or restrictions under the Secured Credit Agreement could result in a default or an event of default. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the Secured Credit Agreement would permit the lenders under the New Revolving Credit Facility to terminate all commitments to extend further credit under such facility. Furthermore, if we were unable to repay the amounts due and payable under the Secured Credit Agreement, those lenders under each facility could proceed against the collateral granted to them to secure that indebtedness. In exacerbated or prolonged circumstances, one or more of these events could result in our bankruptcy or liquidation.

We rely on available borrowings under the New Revolving Credit Facility for liquidity, and the availability of credit under the New Revolving Credit Facility may be subject to significant fluctuation.

In addition to cash we generate from our business, our principal existing source of liquidity is borrowings available under the New Revolving Credit Facility. As of October 2, 2021, giving effect to the 2nd Ave. Acquisition, the related financing and the November 2021 Dividend, we would have had $             million of borrowings outstanding under the New Revolving Credit Facility, with $             million of letters of credit outstanding, leaving $             million available for borrowing. We also have the option to increase the commitments under the New Revolving Credit Facility by up to $15.0 million, subject to certain conditions. The inability to borrow under the New Revolving Credit Facility may adversely affect our liquidity, financial position and results of operations.

We are subject to risks associated with our indebtedness and debt service, including risks related to changes in interest rates.

Borrowings under the Secured Credit Agreement are at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Based on amounts outstanding as of January 2, 2021, each 100 basis point change in interest rates would result in a $6.3 million change, in annual interest expense on our indebtedness under the Secured Credit Agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk.” We enter into interest rate swaps, which act as economic hedges against changes in interest rates under the Secured Credit Agreement. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments or other instruments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps or other instruments we enter into may not fully mitigate our interest rate risk.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR in the future may adversely affect our financing costs.

Currently, the Secured Credit Agreement utilizes LIBOR (as defined below) or various alternative methods set forth in the Secured Credit Agreement to calculate interest on any borrowings. National

 

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and international regulators and law enforcement agencies have conducted investigations into a number of rates or indices known as “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain reference rates are determined, their discontinuance or the establishment of alternative reference rates. In particular, on July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, or the FCA, which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. As a result, it appears highly likely that LIBOR will be discontinued or modified by 2021.

At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or any other reference rate, or the establishment of alternative reference rates may have on LIBOR, other benchmarks or LIBOR-based debt instruments. Uncertainty as to the nature of such potential discontinuance, modification, alternative reference rates or other reforms could cause the interest rate calculated for the Secured Credit Agreement to be materially different than expected, which could have a material adverse effect on our financing costs.

A lowering or withdrawal of the ratings assigned to our debt by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.

Risks Relating to This Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no prior public market for our common stock prior to our initial public offering. The initial public offering price for our common stock will be determined through negotiations among the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. The market price of our common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including:

 

   

actual or anticipated fluctuations in our revenues or other operating results;

 

   

variations between our actual operating results and the expectations of securities analysts, investors and the financial community;

 

   

any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information;

 

   

actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors;

 

   

additional shares of common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales, including if existing stockholders sell shares into the market when the applicable “lock-up” periods end;

 

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announcements by us or our competitors of significant products or features, innovations, acquisitions, strategic partnerships, joint ventures, capital commitments, divestitures or other dispositions;

 

   

loss of relationships with significant suppliers or customers;

 

   

changes in operating performance and stock market valuations of companies in our industry, including our competitors;

 

   

difficulties in integrating any new acquisitions we may make;

 

   

loss of services from members of management or employees or difficulty in recruiting additional employees;

 

   

worsening of economic conditions in the United States or Canada and reduction in demand for our products;

 

   

price and volume fluctuations in the overall stock market, including as a result of general economic trends;

 

   

lawsuits threatened or filed against us, or events that negatively impact our reputation; and

 

   

developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies.

In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect the stock prices of many companies. Often, their stock prices have fluctuated in ways unrelated or disproportionate to their operating performance. In the past, stockholders have filed securities class action litigation against companies following periods of market volatility. Such securities litigation, if instituted against us, could subject us to substantial costs, divert resources and the attention of management from our business and seriously harm our business.

An active trading market for our common stock may never develop or be sustained.

We intend to apply to list our common stock on the NYSE under the symbol “SVV.” However, we cannot be certain that an active trading market for our common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Furthermore, even if we are approved to list our common stock on the NYSE, we cannot be certain that we will continue to satisfy the continued listing standards of the NYSE. If we fail to satisfy the continued listing standards, we could be de-listed, which would have a material adverse effect on the liquidity and price of our common stock.

Future sales of our common stock and other actions by existing stockholders could cause our stock price to decline.

If our existing stockholders, including employees, who have or obtain equity, sell or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares outstanding as of                 , upon the completion of this offering, we will have outstanding a total of                  shares of common stock (assuming the underwriters exercise their option to purchase additional shares in full).

Subject to certain exceptions described under “Underwriting,” we and all of our stockholders have entered into or will enter into agreements with the underwriters under which we and they have agreed or will agree, subject to certain exceptions, not to dispose of any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into or exchangeable for or that represent the right to receive shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus.

 

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When the lock up period in these agreements expires, we and our stockholders will be able to sell shares in the public market. In addition, J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC and Jefferies LLC may release all or some portion of the shares subject to the lock up agreements prior to the expiration of the lock-up period. See “Shares Eligible for Future Sale.” Sales of a substantial number of such shares, or the perception that such sales may occur, upon the expiration or early release of the securities subject to the lock up agreements could cause the price of our common stock to decline or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

In addition, the Ares Funds have demand and “piggy-back” registration rights with respect to our common stock that they will retain following this offering. See “Shares Eligible for Future Sale” for a discussion of the shares of our common stock that may be sold into the public market in the future, including our common stock held by the Ares Funds.

We currently do not intend to pay dividends on our common stock, and our indebtedness could limit our ability to pay dividends on our common stock.

After completion of this offering, we currently do not anticipate paying any cash dividends for the foreseeable future. In addition, the terms of our indebtedness limit our ability to pay dividends or make other distributions on, or to repurchase or redeem, shares of our capital stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market after this offering will ever exceed the price that you pay. For more information, see “Dividend Policy.” We cannot be sure that we will pay dividends in the future or continue to pay dividends if we do commence paying dividends.

If securities or industry analysts either do not publish research about us or publish inaccurate or unfavorable research about us, our business or our market, if they adversely change their recommendations regarding our common stock, or if our operating results do not meet their expectations or any financial guidance we may provide, the trading price or trading volume of our common stock could decline.

The trading market for our common stock will be influenced in part by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade our common stock, provide a more favorable recommendation regarding our competitors or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more analysts who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our common stock to decline.

In addition, if we do not meet any financial guidance that we may provide to the public or if we do not meet expectations of securities analysts or investors, the trading price of our common stock could decline significantly. Our operating results may fluctuate significantly from period to period as a result of changes in a variety of factors affecting us or our industry, many of which are difficult to predict. As a result, we may experience challenges in forecasting our operating results for future periods.

Future issuances of our common stock could result in significant dilution to our stockholders, dilute the voting power of our common stock and depress the market price of our common stock.

Future issuances of our common stock could result in dilution to existing holders of our common stock. Such issuances, or the perception that such issuances may occur, could depress the market

 

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price of our common stock. We may issue additional equity securities from time to time, including equity securities that could have rights senior to those of our common stock. As a result, purchasers of shares of common stock in this offering bear the risk that future issuances of equity securities may reduce the value of their shares and dilute their ownership interests. Also, to the extent outstanding stock-based awards are issued or become vested, there will be further dilution to the holders of our common stock.

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, under the JOBS Act, emerging growth companies can delay the adoption of certain new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We may take advantage of these reporting exemptions until we are no longer an emerging growth company or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in net tangible book value per share.

The assumed initial public offering price of $                per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. If you purchase shares of common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $                per share as of                , based on the assumed initial public offering price of $                per share. That is because the price that you pay will be substantially greater than the pro forma net tangible book value per share of common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution to the extent that new securities are issued under our equity incentive plans or we issue additional shares of common stock or common stock in the future. See “Dilution.”

 

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Risks Relating to Our Organizational Structure

Our reliance on dividends, distributions and other payments from our subsidiaries to meet our obligations.

We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash distributions and other transfers from our direct and indirect subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could impair their ability to make distributions to us.

The continuing control after this offering of our company, including the right to designate individuals to be included in the slate of nominees for election to our board of directors, by the Ares Funds, whose interests may conflict with our interests and those of other stockholders. As such, the Ares Funds may be able to influence or control our affairs and policies following the completion of this offering.

Following this offering, the Ares Funds will beneficially own                 % of our common stock (or                 % if the underwriters exercise their option to purchase additional shares in full). Pursuant to the Stockholders Agreement that will be entered into between the Ares Funds and us in connection with this offering, the Ares Funds will have the right to designate a number of individuals to be included in the slate of nominees for election to our board of directors equal to the greater of up to directors and the number of directors comprising a majority of our board of directors for so long as the Ares Funds own 50% or more of the outstanding shares of our common stock. The Stockholders Agreement will provide that the Ares Funds will be able to nominate a specified number of directors to our board based on its beneficial ownership of our common stock.

Because our board of directors will be divided into three staggered classes, the Ares Funds may be able to influence or control our affairs and policies even after they cease to own a majority of our outstanding common stock during the period in which the Ares Funds’ nominees finish their terms as members of our board, but in any event no longer than would be permitted under applicable law and the NYSE listing requirements. Therefore, following the completion of this offering and for so long as the Ares Funds continue to own 50% or more of our common stock, individuals affiliated with the Ares Funds will have the power to elect a majority of our directors and will have effective control over the outcome of votes on all matters requiring approval by our board of directors or our stockholders regardless of whether other stockholders believe such matter is in our best interests.

In addition, following the completion of this offering, the Stockholders Agreement will provide that, for so long as the Ares Funds own at least                 % of the outstanding shares of our common stock, certain significant corporate actions will require the prior written consent of the Ares Funds, subject to certain exceptions. The Stockholders Agreement is currently being formulated and will be filed as an exhibit to future amendments to this Registration Statement. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

The interests of Ares, its affiliates and managed accounts could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by the Ares Funds could delay, defer or prevent a change in control of our company or impede a

 

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merger, takeover or other business combination which may otherwise be favorable for us. Additionally, Ares, its affiliates and managed accounts are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, or are suppliers or customers of ours. Any such investment may increase the potential for the conflicts of interest discussed in this risk factor. So long as funds, investment vehicles or accounts managed or advised by the Private Equity Group of Ares continue to directly or indirectly own a significant amount of our equity, even if such amount is less than 50%, Ares will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.

Our status as a “Controlled Company” within the meaning of the NYSE rules, and our exemption from certain corporate governance requirements.

Following this offering, funds, investment vehicles or accounts managed or advised by the Private Equity Group of Ares will continue to control a majority of the voting power of our outstanding voting stock, and as a result we will be a controlled company within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:

 

   

a majority of the board of directors consist of independent directors;

 

   

the nominating, corporate governance and sustainability committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

We intend to utilize these exemptions as long as we remain a controlled company. As a result, we will not have a majority of independent directors and our nominating, corporate governance and sustainability committee and compensation committee will not consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Pursuant to Rule 10C-1 under the Exchange Act, the NYSE has adopted amendments to its listing standards that require, among other things, that:

 

   

compensation committees be composed of fully independent directors, as determined pursuant to new independence requirements;

 

   

compensation committees be explicitly charged with hiring and overseeing compensation consultants, legal counsel, and other committee advisors; and

 

   

compensation committees be required to consider, when engaging compensation consultants, legal counsel, or other advisors, certain independence factors, including factors that examine the relationship between the consultant or advisor’s employer and us.

As a “controlled company,” we will not be subject to these compensation committee independence requirements.

Certain provisions in our certificate of incorporation and our bylaws that may delay or prevent a change of control.

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discourage, delay or prevent a change of control of our company or changes in our management that our stockholders may deem advantageous. In particular, our certificate of incorporation and bylaws:

 

   

establish a classified board of directors so that not all members are elected at one time, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

permit our board of directors to establish the number of directors and fill any vacancies (including vacancies resulting from an expansion in the size of our board of directors), except in the case of the vacancy of an Ares Funds-designated director (in which case the Ares Funds will be able to fill the vacancy);

 

   

establish limitations on the removal of directors;

 

   

authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

 

   

provide that our board of directors is expressly authorized to make, alter or repeal our bylaws;

 

   

restrict the forum for certain litigation against us to Delaware;

 

   

provide that stockholders may not act by written consent following the time when the Ares Funds cease to beneficially own at least a majority of the shares of our outstanding common stock, which time we refer to as the Trigger Date, which would require stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

prohibit stockholders from calling special meetings following the Trigger Date, which would delay the ability of our stockholders to force consideration of a proposal or to take action, including with respect to the removal of directors; and

 

   

establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

Section 203 of the Delaware General Corporation Law, or the DGCL, prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person, individually or together with any other interested stockholder, who owns or within the last three years has owned 15% of our voting stock, unless the business combination is approved in a prescribed manner. We have elected to opt out of Section 203 of the DGCL. However, our certificate of incorporation will contain a provision that is of similar effect, except that it will exempt from its scope the Ares Funds, any of their affiliates and certain of their respective direct or indirect transferees as described under “Description of Capital Stock—Anti-Takeover Provisions.”

Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock and could also affect the price that some investors are willing to pay for our common stock. See “Description of Capital Stock—Anti-Takeover Provisions.”

 

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Our certificate of incorporation, which will be in effect upon the completion of this offering, will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for a wide range of disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation, which will be in effect upon the completion of this offering, will provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a breach of fiduciary duty;

 

   

any action asserting a claim against us arising under the DGCL, our certificate of incorporation or our bylaws; and

 

   

any action asserting a claim against us that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the exclusive-forum provisions in our certificate of incorporation.

The exclusive-forum provisions will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive-forum provision. However, there is substantial uncertainty as to whether a court would enforce the exclusive-forum provisions relating to causes of action arising under the Securities Act. For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. This decision may be reviewed and ultimately overturned by the Delaware Supreme Court. If a court were to find any of the exclusive-forum provisions in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage lawsuits against us and our directors, officers and employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

Our certificate of incorporation will contain a provision renouncing our interest and expectancy in certain corporate opportunities.

Under our certificate of incorporation, neither the Ares Funds nor any of their affiliates or their respective portfolio companies or affiliated funds, nor any of their respective officers, directors, employees, agents, stockholders, members or partners will have any duty to refrain from engaging, directly or indirectly, in the same business activities, similar business activities, or lines of business in which we operate. In addition, our certificate of incorporation provides that, to the fullest extent permitted by law, no officer or director of ours who is also an officer, director, employee, agent,

 

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stockholder, member, partner or affiliate of the Ares Funds or their affiliates will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to the Ares Funds or their affiliates, instead of to us, or does not communicate information regarding a corporate opportunity to us that the officer, director, employee, agent, stockholder, member, partner or affiliate has directed to the Ares Funds or their affiliates. For example, a director of our company who also serves as an officer, director, employee, agent, stockholder, member, partner or affiliate of the Ares Funds or their affiliates, or any of their respective portfolio companies or affiliated funds may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by an Ares Fund to itself or their affiliates or their respective portfolio companies or affiliated funds instead of to us. A description of our obligations related to corporate opportunities under our certificate of incorporation are more fully described in “Description of Capital Stock—Corporate Opportunity.”

General Risks

We depend on our executive officers and other key technical, operational and sales employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.

Our success depends largely upon the continued services of our executive officers and other key technical, operational and sales employees. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. Our employment agreements with our executive officers or other key personnel do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers, especially our Chief Executive Officer, or other executive officers or key technical, operational and sales employees could harm our business.

Volatility or lack of appreciation in the stock price of our common stock may also affect our ability to attract and retain our executive officers and key technical, operational and sales employees. Many of our senior personnel and other key technical, operational and sales employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise price of the options that they hold are significantly above the market price of our common stock. If we do not maintain and continue to develop our corporate culture as we grow and evolve, it could harm our ability to foster the innovation, craftsmanship, teamwork, curiosity and diversity that we believe we need to support our continued growth.

Use of social media, emails and text messages may adversely impact our reputation or subject us to fines or other penalties.

We use social media, emails, push notifications and text messages as part of our omni-channel approach to marketing. As laws and regulations evolve to govern the use of these channels, the failure by us, our employees or third parties acting at our direction to comply with applicable laws and regulations in the use of these channels could adversely affect our reputation or subject us to fines or other penalties. In addition, our employees or third parties acting at our direction may knowingly or inadvertently make use of social media in ways that could lead to the loss or infringement of intellectual

 

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property, as well as the public disclosure of proprietary, confidential or sensitive personal information of our business, employees, customers or others. Information concerning us, our customers and the brands available at our stores, whether accurate or not, may be posted on social media platforms at any time and may have an adverse impact on our brands, reputation or business. Any such harm may be immediate without affording us an opportunity for redress or correction and could have an adverse effect on our reputation, business, results of operations, financial condition and prospects.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, results of operations and financial condition.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the listing standards of the NYSE and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we will need to hire more employees in the future or engage outside consultants, which will increase our operating expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being a public company and being subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These

 

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factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition are more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, results of operations and financial condition could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, results of operations and financial condition.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Many statements included in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets and growth in the use of engineered products, statements about potential new products and product innovation and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this prospectus under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” are forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

   

our market opportunity and the potential growth of that market;

 

   

our strategy, outcomes and growth prospects;

 

   

trends in our industry and markets; and

 

   

the competitive environment in which we operate.

Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

 

   

both supply of and demand for our products is influenced by general economic conditions and trends in consumer spending on clothing and household items;

 

   

our ability to source a sufficient quantity of quality secondhand items at attractive prices on a recurring basis;

 

   

our ability to effectively manage our growth and execute our business plan;

 

   

risks related to attracting new, and retaining existing customers, including by increasing acceptance of secondhand items among new and growing customer demographics;

 

   

risks associated with sourcing and processing secondhand items on a continued basis, including processing costs and capacity; risk of damage, loss, or contamination of items, and increased costs to maintain or develop sources of supply;

 

   

risks that certain stores may experience challenges achieving period-to-period comparable sales growth targets due to factors out of our control;

 

   

our ability to identify and secure suitable locations for new stores as we grow our business;

 

   

our ability to expand our CPC operations in geographic regions that enable us to effectively scale our operations;

 

   

various risks to our physical store and processing center locations;

 

   

risks associated with our significant foreign operations, including regulatory risks in foreign jurisdictions (particularly in Canada, where we maintain extensive operations) and exchange rate risks, which we may not be able to fully hedge;

 

   

risks related to our ability to attract and retain suitable workers for our stores and processing facilities and to manage labor costs;

 

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our ability to retain key store and facility management personnel, who are crucial to our business;

 

   

risks related to acquisitions or joint ventures we may pursue;

 

   

our ability to protect our intellectual property rights;

 

   

risks arising from the material weaknesses we have identified in our internal control over financial reporting and any failure to remediate these material weaknesses;

 

   

risks arising from compromises of our data security, which may materially harm our reputation and results of operations;

 

   

our ability to maintain an effective system of internal controls and produce timely and accurate financial statements or comply with applicable regulations;

 

   

our ability to maintain normal operations and retain customers in the context of the global COVID-19 pandemic and related public health regulations in the jurisdictions in which we operate;

 

   

the increased expenses associated with being a public company; and

 

   

other risks and uncertainties, including those described under “Risk Factors.”

We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described under “Risk Factors” and elsewhere in this prospectus. These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot be sure that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in, or implied by, the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe that information forms a reasonable basis for such statements, that information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

The forward-looking statements made in this prospectus relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this prospectus or to conform such statements to actual results or revised expectations, except as required by law.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $                 million (or approximately $                 million if the underwriters exercise their option to purchase additional shares of common stock from us in full), based on an assumed initial public offering price of $                per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our common stock. We will not receive any proceeds from the sale of shares in this offering by the selling stockholders, including upon the sale of shares if the underwriters exercise their option to purchase additional shares. After deducting underwriting discounts and commissions, the selling stockholders will receive approximately $                 million of net proceeds from this offering (or approximately $                 million if the underwriters exercise their option to purchase additional shares in full). See “Principal and Selling Stockholders.”

A $1.00 increase (decrease) in the assumed initial public offering price of $                 per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $                 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $                 million, assuming the assumed initial public offering price of $                 per share remains the same, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use net proceeds received by us from this offering to repay approximately $             million of indebtedness plus accrued and unpaid interest and premium under the New Term Loan Facility. The New Term Loan Facility matures in April 2028 and accrues interest at a variable rate equal to a reference rate plus a margin ranging from 4.50% to 5.75%. As of October 2, 2021, there was $600.0 million outstanding, which was incurred in April 2021 to refinance existing indebtedness, and on November 8, 2021, we incurred an additional $225.0 million to finance the 2nd Ave Acquisition. We intend to use any remainder for general corporate purposes, including working capital, debt reduction, payment of operating expenses and capital expenditures. We may also use a portion of any net proceeds we receive from this offering for acquisitions or other strategic investments, although we do not currently have any specific plans to do so. We will have broad discretion over the uses of any net proceeds in this offering to be used for general corporate purposes.

We intend to invest the net proceeds to us from this offering that are not used as described above (or pending such use) in investment-grade, interest-bearing instruments. The precise allocation of funds among these uses will depend upon future developments in or affecting our business and the emergence of future opportunities.

 

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CORPORATE CONVERSION

We currently operate as a Delaware limited liability company under the name S-Evergreen Holding LLC. S-Evergreen Holding LLC is a holding company which directly and indirectly holds all of the equity interests in our operating subsidiaries. Prior to the effectiveness of the registration statement of which this prospectus forms a part, S-Evergreen Holding LLC will convert into a Delaware corporation pursuant to a statutory conversion and will change its name to Savers Value Village, Inc.

In conjunction with the Corporate Conversion, all of our outstanding membership interests will be converted into an aggregate of shares of our common stock. The number of shares of common stock issuable in connection with the Corporate Conversion will be determined pursuant to the applicable provisions of the plan of conversion.

As a result of the Corporate Conversion, Savers Value Village, Inc. will succeed to all of the property and assets of S-Evergreen Holding LLC and will succeed to all of the debts and obligations of S-Evergreen Holding LLC. Savers Value Village, Inc. will be governed by a certificate of incorporation filed with the Delaware Secretary of State and bylaws, the material provisions of which are described under the heading “Description of Capital Stock.” On the effective date of the Corporate Conversion, each of our directors and officers will be as described elsewhere in this prospectus. See “Management.”

The purpose of the Corporate Conversion is to reorganize our structure so that the entity that is offering our common stock to the public in this offering is a corporation rather than a limited liability company and so that our existing investors will own our common stock rather than equity interests in a limited liability company. Except as otherwise noted herein, the Consolidated Financial Statements included elsewhere in this prospectus are those of S-Evergreen Holding LLC and its consolidated operations. We do not expect that the Corporate Conversion will have an effect on our results of operations.

 

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DIVIDEND POLICY

On November 22, 2021, we paid the November 2021 Dividend to our shareholders, the Ares Funds. No executive officers or directors received dividend payments. Following completion of this offering, we do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate that all of our earnings on our common stock in the foreseeable future will be used to repay debt, for working capital, to support our operations and to finance the growth and development of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including restrictions in our current and future debt instruments, our future earnings, capital requirements, financial condition, prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits.

As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries. Our ability to pay dividends will therefore be restricted as a result of restrictions on their ability to pay dividends to us, including under the agreements governing our existing and any future indebtedness. See “Risk Factors—Risks relating to this offering and ownership of our common stock,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Credit Facilities.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of October 2, 2021:

 

   

on an actual basis; and

 

   

on a pro forma basis, to give effect to the Transactions, including the Corporate Conversion, the 2nd Ave. Acquisition, the related financings, the November 2021 Dividend; and the issuance and sale of                  shares of our common stock in this offering at the assumed initial offering price of $                 per share, which is the midpoint of the estimated offering price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with the sections titled “Selected Financial and Other Data,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Information” and our financial statements and related notes included elsewhere in this prospectus.

 

     As of October 2, 2021  
(In thousands, except unit/share and per unit/share data)    Actual     Pro Forma(1)  

Cash and cash equivalents

   $ 160,252     $                    

Total debt

   $ 578,548     $                    

Members’ equity / stockholders’ equity:

    

Common A Units, 198,378,867 units authorized, issued, and outstanding as of October 2, 2021

     223,379    

Common B Units, 25,482,695 units authorized as of October 2, 2021; No units issued and outstanding as of October 2, 2021

     1,112    

Common stock, $              par value;              shares authorized; no shares issued and outstanding, actual;              shares authorized, pro forma;              shares issued and outstanding, pro forma;

     —      

Additional paid-in capital

     —      

Accumulated deficit

     (6,446  

Accumulated other comprehensive loss

     12,797    
  

 

 

   

 

 

 

Total members’ / stockholders’ equity(2)

     230,842    
  

 

 

   

 

 

 

Total capitalization

   $ 809,390     $                    
  

 

 

   

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the amount of our pro forma cash and cash equivalents, additional paid-in capital, total stockholders’ equity, and capitalization by $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma cash and cash equivalents, additional paid-in capital, total stockholders’ equity, and capitalization by $                million assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

(2)

In connection with the Corporate Conversion, the membership interests and will be reduced to zero to reflect the elimination of all outstanding interests in S-Evergreen Holding LLC and corresponding adjustments will be reflected as common stock, additional paid-in capital, and total stockholders’ equity in Savers Value Village, Inc.

 

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Assuming no change in the number of shares offered by us as set forth on the cover page of this prospectus, a $1.00 increase (decrease) in the assumed initial public offering price of $                 per share of common stock (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) each of cash and cash equivalents, additional paid-in capital, and total equity by $                , would decrease (increase) total debt by $                , and would increase (decrease) total capitalization by $                , after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

Similarly, a share increase (decrease) in the number of shares offered by us, as set forth on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, and total equity by $                , would decrease (increase) total debt by $                , and would increase (decrease) total capitalization by $                , after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us, based on the assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover of this prospectus, remained the same.

The table above does not include shares of common stock reserved for future issuance under our equity incentive plans, consisting of options outstanding under our 2019 Management Incentive Plan and shares reserved under our Omnibus Incentive Plan, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of our common stock reserved for issuance under our Omnibus Incentive Plan, or under our Employee Stock Purchase Plan, which we expect to be adopted in connection with this offering, as well as any future increases in the number of shares of our common stock available for issuance under our Employee Stock Purchase Plan.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma net tangible book value per share immediately after this offering.

Our pro forma net tangible book value as of October 2, 2021 was $                million, or $                per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our shares of common stock outstanding as of October 2, 2021, after giving effect to the Corporate Conversion immediately prior to the completion of this offering, assuming an initial public offering price of $                per share, which is the midpoint of the estimated offering price range on the cover page of this prospectus. After giving effect to the sale by us of                shares of common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the estimated offering price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value would have been $                , or $                per share. This amount represents an immediate increase in pro forma net tangible book value of $                per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $                per share to new investors purchasing common stock in this offering. We determine dilution by subtracting the pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

      $            

Historical net tangible book value as of

     

Pro forma net tangible book value per share as of October 2, 2021

   $               
  

 

 

    

Increase in pro forma net tangible book value per share attributable to this offering existing investors

     
  

 

 

    

Pro forma net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors purchasing shares in this offering

      $    
     

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $                per share of common stock, the midpoint of the estimated offering price range on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value per share after this offering by $                per share and increase (decrease) the dilution to new investors by $                per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of common stock offered by us would increase (decrease) our pro forma net tangible book value by approximately $                per share and decrease (increase) the dilution to new investors by approximately $                per share, in each case assuming the assumed initial public offering price of $                per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of common stock in full, the pro forma net tangible book value per share, to give effect to this offering, would be $                per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $                per share.

The following table summarizes, as of October 2, 2021, on a pro forma basis as described above, the number of shares of our common stock, the total consideration and the average price per share

 

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(1) paid to us by existing stockholders and (2) to be paid by new investors acquiring our common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the estimated offering price range on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing investors(1)

                       $                                     $                

New investors

                             
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     100                       $ 100                      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

(1)

Does not give effect to the sale of shares by the selling stockholders in this offering or the exercise by the underwriters of the option to purchase additional shares and includes an estimated                 shares related to the Stock Payment.

After giving effect to the sale of                 shares by the selling stockholders in this offering, the percentage of our shares held by existing investors would be                 % and the percentage of our shares held by new investors would be     %. If the underwriters were to exercise in full their over-allotment option to purchase an additional                  shares from the selling stockholders, the percentage of our shares held by existing investors would be                 %, and the percentage of our shares held by new investors would be                 %.

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the estimated offering price range on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $                , assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions.

The total number of shares reflected in the discussion and tables above is based on                 common shares outstanding as of the date of this prospectus on a pro forma basis.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is fully exercised, the number of shares of our common stock held by existing stockholders would be reduced to                 % of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to % of the total number of shares of our common stock outstanding after this offering.

The discussion and tables give effect to the Corporate Conversion and exclude shares of common stock reserved for future issuance under our equity incentive plans, consisting of options outstanding under our 2019 Management Incentive Plan and shares reserved under our Omnibus Incentive Plan, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of our common stock reserved for issuance under our Omnibus Incentive Plan, or under our Employee Stock Purchase Plan, which we expect to be adopted in connection with this offering, as well as any future increases in the number of shares of our common stock available for issuance under our Employee Stock Purchase Plan.

We expect to require additional capital to fund our current and future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders. See “Risk Factors—Risks relating to this offering and ownership of our common stock—Future issuances of our common stock could result in significant dilution to our stockholders, dilute the voting power of our common stock and depress the market price of our common stock.”

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the accompanying notes. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of S-Evergreen Holding Corp. (the “Company”) upon consummation of the following transactions (collectively, the “Transactions”):

 

   

April 2021 Refinancing - In connection with the Ares Share Purchase Transaction in April 2021 (See “Presentation of Financial Information”), the outstanding borrowings under the Company’s existing credit facilities were refinanced (the “April 2021 Refinancing”) with proceeds from the Company’s New Term Loan Facility (See “Risks Relating to Our Indebtedness and Liquidity”). The historical unaudited condensed consolidated balance sheet of the Company as of October 2, 2021 already reflects the effects of the April 2021 Refinancing and does not require a pro forma adjustment. The unaudited pro forma condensed combined statements of operations reflect the April 2021 Refinancing as if it occurred on December 29, 2019, the first day of fiscal year 2020.

 

   

2nd Ave. Acquisition - On November 8, 2021, the Company acquired Thrift Intermediate Holdings I, Inc. (“2nd Ave.”) for purchase price consideration of $238.9 million in cash (the “2nd Ave. Acquisition”). The Company financed the 2nd Ave. Acquisition with cash on hand and $225.0 million of additional borrowings under the New Term Loan Facility.

 

   

November 2021 Dividend - The Company paid a dividend (the "November 2021 Dividend”) of $75.0 million to the Company’s equityholders on November 22, 2021, which is reflected on the unaudited pro forma condensed combined balance sheet.

 

   

Initial Public Offering - The unaudited pro forma condensed combined financial information reflects the Corporate Conversion and the issuance and sale of our common stock in this offering after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the intended use of the net proceeds, as described under “Use of Proceeds” (collectively, the “Initial Public Offering”).

The following unaudited pro forma condensed combined financial information is derived from the historical consolidated financial statements of the Company and 2nd Ave., as detailed below.

 

   

The unaudited pro forma condensed combined balance sheet combines the unaudited condensed consolidated balance sheet of the Company as of October 2, 2021 and 2nd Ave. as of October 3, 2021, giving effect to the 2nd Ave. Acquisition and related adjustments, the November 2021 Dividend, and this offering as if they had been consummated on October 2, 2021.

 

   

The unaudited pro forma condensed combined statement of operations for the nine months ended October 2, 2021 combines the unaudited condensed consolidated statement of operations of the Company for the nine months ended October 2, 2021 with the unaudited condensed consolidated statement of operations of 2nd Ave. for the nine months ended October 3, 2021, giving effect to the Transactions as if they had occurred on December 29, 2019, the first day of fiscal year 2020.

 

   

The unaudited pro forma condensed combined statement of operations for the year ended January 2, 2021 combines the audited statement of operations of the Company for the year ended January 2, 2021 with the audited statement of operations of 2nd Ave. for the year ended January 3, 2021, giving effect to the Transactions as if they had occurred on December 29, 2019, the first day of fiscal year 2020.

 

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The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. This unaudited pro forma condensed combined financial information has been prepared to give effect to the Transactions that have occurred or are probable for which disclosure of pro forma financial information would be material to investors.

The unaudited pro forma condensed combined financial information herein has been adjusted to depict the accounting for the April 2021 Refinancing, the 2nd Ave. Acquisition and the related financing, the November 2021 Dividend and the Initial Public Offering (“Transaction Accounting Adjustments”), which reflect the application of the accounting required by the U.S. Generally Accepted Accounting Principles (“GAAP”), linking the effects of the Transactions to the historical consolidated financial statements, of the Company on a pro forma basis.

We elected not to present the reasonably estimable cost savings, synergies, and other transaction effects that may occur (“Management’s Adjustments”). The Transaction Accounting Adjustments are described in the notes to the unaudited pro forma condensed combined financial information.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these expenses.

The unaudited pro forma condensed combined financial information is presented for informational purposes only and does not purport to represent what our actual consolidated statements of operations or consolidated balance sheet would have been had the Transactions actually occurred on the dates indicated, nor are they necessarily indicative of future consolidated results of operations or consolidated financial condition. The unaudited pro forma condensed combined financial information should be read in conjunction with the information contained in the “Capitalization,” “Dilution,” “Selected financial data,” “Management’s discussion and analysis of financial condition and results of operations,” sections and the historical consolidated financial statements and related notes thereto included elsewhere in this prospectus. All pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma condensed combined financial information.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF OCTOBER 2, 2021

 

    Historical                                            
(in thousands of US dollars)   S-Evergreen
Holding
Corp.
    Thrift
Intermediate
Holdings I
(4)
    Transaction
Accounting
Adjustments -
Business
Combination
          Transaction
Accounting
Adjustments -
Financing
          Transaction
Accounting
Adjustments -
Initial Public
Offering
          Pro forma  

Assets

                 

Current assets:

                 

Cash and cash equivalents

  $ 160,252     $ 16,019     $

 

(238,944

(2,127


   
5B
5C
 
 
  $

 

225,000

(5,625

(75,000

 

   

5A

5A

5D

 

 

 

  $        

5E

5F

 

 

  $ 79,575  

Restricted cash

    1,093       —         —           —               1,093  

Trade and other receivables, net of allowance for doubtful accounts

    6,389       861       —           —               7,250  

Inventories

    21,758       7,635       —           —               29,393  

Prepaid expenses and other current assets

    19,347       3,094       —           —               22,441  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total current assets

    208,839       27,609       (241,071     $ 144,375       $           139,752  

Property and equipment, net

    122,053       9,693       —           —               131,746  

Goodwill

    485,934       47,013       129,166       5B       —               662,113  

Intangible assets, net

    172,597       29,624       5,897       5B       —               208,118  

Derivative asset - non-current

    14,923       —         —           —               14,923  

Other assets

    4,488       3,221       —           —               7,709  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total assets

  $ 1,008,834     $ 117,160     $ (106,008     $ 144,375       $                     $ 1,164,361  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Liabilities

                 

Current liabilities:

                 

Accounts payable and accrued liabilities

    79,075       2,252       (546     5C       —         $           80,781  

Accrued payroll and related taxes

    60,443       3,107       —           —               63,550  

Derivative liability – current

    3,999       —         —           —               3,999  

Current portion of long-term debt, net

    4,500       692       —           1,446       5A           6,638  

Current portion of long-term debt, net due to related parties

    —         —         —           —               —    

Other current liabilities

    —         3,965       —           —               3,965  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total current liabilities

    148,017       10,016       (546       1,446             158,933  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Insurance reserves

    6,779       —         —           —         $           6,779  

Deferred rent

    16,111       —         —           —               16,111  

Deferred compensation

    2,352       —         —           —               2,352  

Lease intangible liability, net

    3,283       —         —           —               3,283  

Long-term debt, net

    574,048       41,998       (40,776     5B       217,929       5A         5F       793,199  

Long-term debt, net due to related parties

    —         —         —           —         $           —    

Derivative liability – non-current

    4,027       —         —           —               4,027  

Deferred tax liabilities

    18,302       —         1,544       5B       —               19,846  

Other liabilities

    5,073       881       —           —               5,954  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total liabilities

  $ 777,992     $ 52,895     $ (39,778     $ 219,375       $         $ 1,010,484  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Stockholders’ equity

                 

Common Stock

    —         —         —           —             5F       —    

Common A Units

    223,379       —         —           —             5G       223,379  

Common B Units

    1,112       —         —           —             5G       1,112  

(Accumulated deficit) retained earnings

    (6,446     —         (1,965     5C       —               (8,411

Member’s equity

    —         64,265       (64,265     5B       (75,000     5D           (75,000

Accumulated other comprehensive (loss) income

    12,797       —         —           —               12,797  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total stockholders’ equity

    230,842       64,265       (66,230       (75,000           153,877  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total liabilities and stockholders’ equity

  $ 1,008,834     $ 117,160     $ (106,008     $ 144,375       $         $ 1,164,361  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED OCTOBER 2, 2021

 

    Historical                                                        
(in thousands of US dollars)   S-Evergreen
Holding
Corp.
    Thrift
Intermediate
Holdings I
(4)
          Transaction
Accounting
Adjustments -
Business
Combination
          Transaction
Accounting
Adjustments -
Financing
          Transaction
Accounting
Adjustments -
Initial Public
Offering
          Pro forma        

Net sales

  $ 859,291     $ 71,081       $ —         $ —         $ —         $ 930,372    

Operating expenses:

                     

Cost of merchandise sold exclusive of depreciation and amortization

    317,620       19,057         —           —           —           336,677    

Salaries, wages, and benefits

    168,314       31,426         —           —           —           199,740    

Selling, general, and administrative

    186,858       4,160         (546     AB       —           (766     AE       189,706    

Depreciation and amortization

    33,972       7,294         (5,166     AA       —           —           36,099    
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expenses

    706,764       61,937         (5,712       —           (766       762,223    

Operating income (loss)

    152,527       9,144         5,712         —           766         168,149    

Other (expense) income:

    —         —           —           —           —           —      

Interest expense

    (40,591     (3,043       —           2,955       AC       —           (43,284  
              (2,605     AD          

Other income (expense), net

    (399     7,021         —           —           —           6,621    

(Loss) on extinguishment of debt

    (47,541     —           —           47,541       AD       —           —      
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Other (expense) income, net

    (88,531     3,978         —           47,890         —           (36,663  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

(Loss) income before income tax expense

    63,996       13,122         5,712         47,890         766         131,486    

Income tax expense

    8,340       (1,196       1,554       AF       13,409       AF       —           22,107    
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Net (loss) income

  $ 55,656     $ 14,318       $ 4,158       $ 34,481       $ 766       $ 109,379    
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Basic earnings (loss) per common share

  $ 0.28                     $         AG  

Diluted earnings (loss) per common share

  $ 0.28                     $         AG  

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE TWELVE MONTHS ENDED JANUARY 2, 2021

 

    Historical                                                  

(in thousands of US dollars)

  S-Evergreen
Holding
Corp.
    Thrift
Intermediate
Holdings I
(4)
    Transaction
Accounting
Adjustments -
Business
Combination
          Transaction
Accounting
Adjustments -

Financing
          Transaction
Accounting
Adjustments -

Initial Public
Offering
          Pro
forma
       

Net sales

  $ 834,010     $ 63,875     $ —         $ —         $                   $ 897,885    

Operating expenses:

                   

Cost of merchandise sold exclusive of depreciation and amortization

    353,455       24,323       —           —               377,778    

Salaries, wages, and benefits

    184,392       27,615       —           —               212,007    

Selling, general, and administrative

    229,886       9,520       7,986       AB       —          

 

AE

 

    247,392    

Depreciation and amortization

    59,432       9,264       (6,895     AA       —               61,802    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expenses

    827,165       70,722       1,092         —               898,979    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Operating income (loss)

    6,845       (6,847     (1,092       —               (1,094  

Other (expense) income:

    —         —         —           —               —      

Interest expense

    (69,678     (2,991     —           2,904       AC           (61,442  
            8,323       AD          
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

   

Other income (expense), net

    3,410       32       —           —               3,442    

(Loss) on extinguishment of debt

    —         —         —           (47,541     AD           (47,541  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Other (expense) income, net

    (66,268     (2,959     —           (36,314           (105,541  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

(Loss) income before income tax expense

    (59,423     (9,806     (1,092       (36,314           (106,635  

Income tax expense

    4,060       (23     290       AF       (10,168     AF           (5,841  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Net (loss) income

  $ (63,483   $ (9,783   $ (1,382     $ (26,146     $         $ (100,794  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

   

Basic earnings (loss) per common share

  $ (0.34                 $         AG  

Diluted earnings (loss) per common share

  $ (0.34                 $         AG  

 

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1.

Basis of Presentation

The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of S-Evergreen Holding Corp. (the “Company”) upon consummation of the following transactions (collectively, the “Transactions”):

 

   

April 2021 Refinancing - In connection with the Ares Share Purchase Transaction in April 2021 (See “Presentation of Financial Information”), the outstanding borrowings under the Company’s existing credit facilities were refinanced (the “April 2021 Refinancing”) with proceeds from the Company’s New Term Loan Facility (See “Risks Relating to Our Indebtedness and Liquidity”). The historical unaudited condensed consolidated balance sheet of the Company as of October 2, 2021 already reflects the effects of the April 2021 Refinancing and does not require a pro forma adjustment. The unaudited pro forma condensed combined statements of operations reflect the April 2021 Refinancing as if it occurred on December 29, 2019, the first day of the earliest period presented.

 

   

2nd Ave. Acquisition - On November 8, 2021, the Company acquired Thrift Intermediate Holdings I, Inc. (“2nd Ave.”) for purchase price consideration of $238.9 million in cash (the “2nd Ave. Acquisition”). The Company financed the 2nd Ave. Acquisition with cash on hand and $225.0 million of additional borrowings under the New Term Loan Facility.

 

   

November 2021 Dividend - The Company paid a dividend (the “November 2021 Dividend”) of $75.0 million to the Company’s equityholders on November 22, 2021, which is reflected on the unaudited pro forma condensed combined balance sheet.

 

   

Initial Public Offering - The unaudited pro forma condensed combined financial information reflects the Corporate Conversion and the issuance and sale of our common stock in this offering after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the intended use of the net proceeds, as described under “Use of Proceeds” (collectively, the “Initial Public Offering”).

The unaudited pro forma condensed combined financial information has been prepared as if the 2nd Ave. Acquisition and related adjustments, the November 2021 Dividend, and the Initial Public Offering had been consummated on October 2, 2021 in the case of the unaudited pro forma condensed combined balance sheet. The unaudited pro forma condensed combined statements of operations assume the Transactions, including the April 2021 Refinancing, occurred on December 29, 2019, the first day of fiscal year 2020.

The 2nd Ave. Acquisition is accounted for using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) on the basis of the Company as the accounting acquirer. The acquisition method of accounting is based on ASC 805 and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurements (“ASC 820”). In general, ASC 805 requires, among other things, that assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The consolidated financial statements issued by the Company after completion of the 2nd Ave. Acquisition will reflect these values. Prior periods will not be retroactively restated to reflect the historical financial position or results of operations of 2nd Ave.

The Transaction Accounting Adjustments represent management’s estimates based on information available as of the date of this Registration Statement on Form S-1 and are subject to change as additional information becomes available and additional analyses are performed. These adjustments are discussed in greater detail in Note 5 below. Management considers this basis of presentation to be reasonable under the circumstances.

 

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Additionally, certain amounts in the 2nd Ave. historical balance sheet and statements of operations have been conformed to the Company’s presentation in Note 4 below.

 

2.

Accounting Policies

2nd Ave. is in the process of being integrated with the Company. This integration includes a review by the Company of 2nd Ave.’s accounting policies. As a result of that review, the Company may identify differences between the accounting policies that, when conformed, could have a material impact on the consolidated financial statements. As a private company, 2nd Ave. historically amortized its acquired goodwill. The unaudited pro forma condensed combined statement of operations includes an adjustment to remove the effects of 2nd Ave.’s goodwill amortization in its historical financial results. At this time, the Company is not aware of any other accounting policy differences that would have a material impact on the consolidated financial statements that have not been adjusted for in the pro forma financial information. Accounting policy differences may be identified after completion of the integration.

 

3.

Purchase Price Allocation

The Company completed the 2nd Ave. Acquisition for cash consideration of $238.9 million, of which $1.0 million was placed in escrow pending future potential working capital adjustments and satisfaction of potential claims as defined in the purchase agreement. The 2nd Ave. Acquisition has been accounted for as a business combination in accordance with ASC 805, using the acquisition method of accounting, which results in acquired assets and assumed liabilities being measured at their estimated fair values as of the acquisition date. Goodwill is measured as the excess of consideration transferred, which is generally measured at fair value of the net assets acquired.

The following table summarizes the preliminary allocation of the purchase price as of the acquisition date.

 

Assets acquired and liabilities assumed

   Book Value As
of Oct 2, 2021
     Adjustment      Fair Value  

Current assets

   $ 27,609      $ —        $ 27,609  

Property and equipment, net

     9,693        —          9,693  

Goodwill

     47,013        129,166        176,179  

Intangible assets, net

     29,624        5,897        35,521  

Other assets

     3,221        —          3,221  

Current liabilities

     10,016        (384      9,632  

Long-term debt, net

     41,998        (40,776      1,222  

Other liabilities

     881        —          881  

Deferred tax liabilities

     —          1,544        1,544  
  

 

 

    

 

 

    

 

 

 

Total

   $ 64,265      $ 174,679      $ 238,944  
  

 

 

    

 

 

    

 

 

 

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial statements herein. The Company may make changes to the above purchase price allocation within the measurement period (one year from the acquisition date) due to, among other things, identification of additional long-lived intangible assets and changes to goodwill related to completion of valuation procedures, changes to deferred tax assets and liabilities, and completion of our purchase accounting procedures. Accordingly, the final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.

The Company expects to finalize the accounting for the business combination as soon as practicable within the measurement period in accordance with ASC 805.

 

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4.

Reclassification Adjustments

The unaudited condensed combined financial information reflects certain reclassification adjustments to conform the historical financial amounts of 2nd Ave. to the Company’s presentation.

The following adjustments have been made to the historical consolidated balance sheet of 2nd Ave. to conform to the Company’s presentation (in thousands):

 

    Thrift Intermediate
Holdings I
Historical
Amounts
    Reclassification
Adjustments
    TMs     Adjusted Thrift
Intermediate
Holdings I
 

Store supplies

  $ 698     $ (698     A1     $ —    

Prepaid expenses and other current assets

    2,396       698       A1       3,094  

Other assets

    —         3,221       A2       3,221  

Deposits

    1,276       (1,276     A2       —    

Deferred tax asset

    1,945       (1,945     A2       —    

Current portion of long-term debt, GOLUB Note

    584       (584     A3       —    

Current maturities of obligations under capital leases

    108       (108     A3       —    

Current portion of long-term debt

    —         692       A3       692  

Income tax payable

    700       (700     A4       —    

Other current liabilities

    2,467       1,498       A4       3,965  

Sales tax payable

    798       (798     A4       —    

Accrued severance

    263       (263     A5       —    

Accrued salaries and wages

    2,844       (2,844     A5       —    

Accrued payroll and related taxes

    —         3,107       A5       3,107  

Long-term debt, less current portion

    41,838       (41,838     A6       —    

Long-term debt, net

    —         41,998       A6       41,998  

Obligations under capital leases, less current maturities

    160       (160     A6       —    

Accrued severance - LT

    65       (65     A7       —    

Other liabilities

    816       65       A7       881  

 

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Adjustment

  

Nature of Reclassfication

A1    Reflects reclassification of store supplies to prepaid expenses and other current assets.
A2    Reflects reclassification of deposits to other assets.
A3    Reflects reclassification of current portion of long-term debt, GOLUB Note and current maturities of obligations under capital leases to current portion of long-term debt.
A4    Reflects reclassification of income tax payable, other current liabilities, sales tax payable, to other current liabilities.
A5    Reflects reclassification from accrued severance and accrued salaries and wages to accrued payroll and related taxes.
A6    Reflects reclassification of long-term debt, less current portion, mortgage payable, long-term debt, less current portion, GOLUB note and obligations under capital leases, less current maturities to long-term debt, net.
A7    Reflects reclassification of accrued severance - LT to other liabilities

The following adjustments have been made to the historical consolidated statement of operations for the year ended January 3, 2021 of 2nd Ave. to conform the Company’s presentation (in thousands):

 

     Thrift
Intermediate
Holdings I
Historical
Amounts
    Reclassification
Adjustments
    TMs      Adjusted
Thrift
Intermediate
Holdings I
 

Net sales

   $ —       $ 63,875       B1      $ 63,875  

Sales, retail

     55,922       (55,922     B1        —    

Sales wholesale

     7,953       (7,953     B1        —    

Lease revenue, real estate

     38       (38     B2        —    

Other income (expenses)

     —         32       B2        32  

Interest income

     2       (2     B2        —    

Gain (loss) on sale of property and equipment

     (8     8       B2        —    

Cost of sales

     24,323       (24,323     B3        —    

Cost of merchandise sold exclusive of depreciation and amortization

     —         24,323       B3        24,323  

Salaries, wages, and benefits

     —         27,615       B4        27,615  

Selling, general and administrative

     38,871      

 

(27,615

 

(1,736

 

   

 

B4

 

B5

 

 

 

     9,520  

Depreciation and amortization

     —         9,264       B5        9,264  

Amortization expense on goodwill and intangible assets

     7,528       (7,528     B5        —    

 

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Adjustment

  

Nature of Reclassification

B1    Reflects reclassification of sales, retail and sales, wholesale to net sales.
B2    Reflects reclassification of lease revenue, real estate, interest income, and gain (loss) on sale of property and equipment to other income (expense).
B3    Reflects reclassification from cost of sales to cost of merchandise sold, exclusive of depreciation and amortization.
B4    Reflects reclassification from selling, general and administrative to salaries, wages, and benefits.
B5    Reflects reclassification from selling, general and administrative and amortization expense on goodwill and intangible assets to depreciation and amortization.

The following adjustments have been made to the historical consolidated statement of operations for the nine months ended October 3, 2021 of 2nd Ave. to conform the Company’s presentation (in thousands):

 

    Thrift Intermediate
Holdings I
Historical
Amounts
    Reclassification
Adjustments
     TMs     Adjusted Thrift
Intermediate
Holdings I
 

Net sales

  $ —       $ 71,081        C1     $ 71,081  

Sales, retail

    62,786       (62,786      C1       —    

Sales wholesale

    8,295       (8,295      C1       —    

Lease revenue, real estate

    38       (38      C2       —    

Other income (expense), net

    —         7,021        C2       7,021  

Paycheck Protection Program loan forgiveness

    8,121       (8,121      C2       —    

Rental income

    3       (3      C2       —    

Discontinued operations

    (384     384        C2       —    

Severance expense

    (289     289        C2       —    

Board and other fees

    (457     457        C2       —    

Gain (loss) of sale of property and equipment

    (11     11        C2       —    

Cost of sales

    19,057       (19,057      C3       —    

Cost of merchandise sold exclusive of depreciation and amortization

    —         19,057        C3       19,057  

Salaries, wages, and benefits

    —         31,426        C4       31,426  

Selling, general and administrative

    37,164      

 

(31,426

 

(1,578

 

    

 

C4

 

C5

 

 

 

    4,160  

Depreciation and amortization

    —         7,294        C5       7,294  

Amortization expense on goodwill and intangible assets

    5,715       (5,715      C5       —    

 

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Adjustment

  

Nature of Reclassification

C1    Reflects reclassification of sales, retail and sales, wholesale to net sales.
C2    Reflects reclassification of lease revenue, real estate, interest income, and gain (loss) on sale of property and equipment to other income (expense). 2nd Ave. recognized $8.1 million of non-recurring income within other income (expense), net related to the forgiveness of loans received under the Paycheck Protection Program.
C3    Reflects reclassification from cost of sales to cost of merchandise sold, exclusive of depreciation and amortization.
C4    Reflects reclassification from selling, general and administrative to salaries, wages, and benefits.
C5    Reflects reclassification from selling, general and administrative and amortization expense on goodwill and intangible assets to depreciation and amortization.

 

5.

Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

A.     Represents the Company’s incremental borrowings of $225.0 million under the New Term Loan Facility in connection with the 2nd Ave. Acquisition. Net proceeds are $219.4 million, after consideration of debt issuance costs of $5.6 million, which are reflected as an increase to cash and cash equivalents, current portion of long-term debt, and long-term debt, net.

B.     This adjustment reflects the preliminary allocation of the purchase price consideration to the net assets acquired as discussed in Note 3. Other than the acquired tradenames and supply agreements, which collectively reflect an incremental fair value of $5.9 million in the unaudited pro forma condensed combined balance sheet, Management has determined that the carrying value of the assets and liabilities acquired approximate fair value for purposes of the preliminary purchase price allocation. As part of the 2nd Ave. Acquisition, the historical debt was repaid, so that in effect, the Company acquired a debt-free business.

As a result of the 2nd Ave. Acquisition, the Company recorded a deferred tax liability of $1.5 million in the unaudited pro forma condensed combined balance sheet as of October 2, 2021, as a result of the difference between the financial reporting value and the tax basis of the intangible assets of 2nd Ave.

As part of the 2nd Ave. Acquisition, the historical equity balances, including noncontrolling interest, of 2nd Ave. are eliminated.

The final allocation of the purchase consideration may differ materially from these amounts.

C.     In connection with the 2nd Ave. Acquisition, the combined Company incurred approximately $8.0 million of transaction expenses, of which $5.9 million was paid, and $0.6 million was accrued as of October 2, 2021. The unaudited condensed combined pro forma financial information reflects the payment of transaction expenses as a reduction of cash and cash equivalents and accounts payable and accrued liabilities. The Company records the non-recurring transaction expenses associated with the 2nd Ave. Acquisition as an expense when incurred, resulting in a reduction to retained earnings.

D.     Reflects the payment of the November 2021 Dividend of $75.0 million. As the Company is in an accumulated deficit position, the dividend payment is reflected as a reduction to members’ equity.

E.     Reflects the reduction of cash of (i) $        million for the payment of offering expenses, (ii) reclassification of $        million from other assets for previously capitalized deferred offering costs, (iii) reduction of $        million from accounts payable for the payment of accrued offering costs and (iv) $        million to additional paid-in capital for costs directly related to the Initial Public Offering.

 

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F.     The Company estimates that the net proceeds from the sale of shares in this offering will be approximately $        million (or approximately $        million, if the underwriters exercise in full their option to purchase additional shares), based on the assumed Initial Public Offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

The Company intends to use the net proceeds from this offering to repay approximately $        million of indebtedness plus accrued and unpaid interest and premium under the New Term Loan Facility and any remainder for general corporate purposes. If the underwriters exercise in full their option to purchase additional shares, the Company estimates that it will receive additional net proceeds of approximately $        million, which it will use for general corporate purposes.

 

Offering price per share

   $                

Shares of common stock issued by us in this offering

  
  

 

 

 

Gross proceeds

  

Less: underwriting discounts and commissions and offering expenses

  
  

 

 

 

Net cash proceeds from offering

  

Repayment of debt

  
  

 

 

 

Net impact to cash and cash equivalents

   $        
  

 

 

 

G.     Reflects the reclassification of equity as a result of the Corporate Conversion and the anticipated post-offering capital structure. As of the closing date of this offering, the shareholders’ equity will reflect the issuance of common stock to the public and will reflect the $0.01 par value of million outstanding shares of common stock.

6.    Unaudited Pro Forma Condensed Combined Statements of Operations Adjustments

AA.    Reflects the reduction of amortization expense resulting from the removal of historical amortization expense related to goodwill and intangibles reflected in the historical financial results of 2nd Ave. offset by the amortization expense associated with the identified intangible assets related to 2nd Ave.’s supply agreements, which have an estimated useful life of fifteen years and are amortized on a straight-line basis. The Company also recognized a tradename intangible asset which was assigned an indefinite life. The final useful lives applied to the Company’s identified intangible assets may differ from these estimates.

The adjustment to depreciation and amortization for the nine months ended October 2, 2021 is computed as follows:

 

Amortization of supply agreement

   $ (475

Reversal of historical amortization

     5,641  
  

 

 

 

Adjustment to depreciation and amortization

   $ 5,166  
  

 

 

 

The adjustment to depreciation and amortization for fiscal year 2020 is computed as follows:

 

Amortization of supply agreement

   $ (633

Reversal of historical amortization

     7,528  
  

 

 

 

Adjustment to depreciation and amortization

   $ 6,895  
  

 

 

 

AB.     Represents transaction costs incurred or expected to be incurred by the Company and 2nd Ave. of $8.0 million, of which $0.6 million were incurred during the nine months ended October 2, 2021.

 

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These non-recurring transaction costs are reflected entirely in fiscal year 2020, the earliest period presented, resulting in an increase to selling, general and administrative expenses of $8.0 million in fiscal year 2020 and a reduction to selling, general and administrative expenses of $0.6 million during the nine months ended October 2, 2021. Refer to Adjustment 5C above for further details.

AC.     Reflects the removal of the interest expense associated with 2nd Ave.’s historical debt reflected in its consolidated statements of operations for fiscal year 2020 and the nine months ended October 3, 2020.