UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
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.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of January 31, 2022, the Registrant had
Table of Contents
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Page |
PART I |
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Item 1. |
2 |
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2 |
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3 |
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4 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
24 |
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Item 4. |
25 |
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PART II |
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Item 1. |
26 |
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Item 1A. |
26 |
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Item 2. |
26 |
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Item 3. |
26 |
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Item 4. |
26 |
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Item 5. |
26 |
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Item 6. |
27 |
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28 |
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. Our actual results could differ materially from those indicated in these forward-looking statements for a variety of reasons, including, among others:
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended October 2, 2021 and elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in 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 on information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LESLIE’S, INC.
CONDENSED Consolidated Balance Sheets
(Amounts in Thousands, Except Share and Per Share Amounts)
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January 1, 2022 |
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October 2, 2021 |
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January 2, 2021 |
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(Unaudited) |
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(Audited) |
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(Unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Accounts and other receivables, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill and other intangibles, net |
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Deferred tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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$ |
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Liabilities and stockholders’ deficit |
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Current liabilities |
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Accounts payable and accrued expenses |
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$ |
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$ |
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$ |
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Operating lease liabilities |
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Income taxes payable |
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— |
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Current portion of long-term debt |
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Total current liabilities |
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Operating lease liabilities, noncurrent |
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Long-term debt, net |
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Other long-term liabilities |
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— |
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Total liabilities |
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Stockholders’ deficit |
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Common stock, $ |
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Additional paid in capital |
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Retained deficit |
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( |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
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( |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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$ |
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See accompanying notes which are an integral part of these condensed consolidated financial statements.
2
LESLIE’S, INC.
CONDENSED Consolidated Statements of Operations
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
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Three Months Ended |
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January 1, 2022 |
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January 2, 2021 |
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Sales |
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$ |
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$ |
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Cost of merchandise and services sold |
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Gross profit |
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Selling, general and administrative expenses |
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Operating loss |
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( |
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( |
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Other expense: |
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Interest expense |
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Loss on debt extinguishment |
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— |
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Other expenses, net |
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— |
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Total other expense |
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Loss before taxes |
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( |
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( |
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Income tax benefit |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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Earnings per share: |
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Basic |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes which are an integral part of these condensed consolidated financial statements.
3
LESLIE’S, INC.
CONDENSED Consolidated Statements of Stockholders’ Deficit
(Amounts in Thousands)
(Unaudited)
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Common Stock |
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Additional |
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Retained |
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Total |
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Shares |
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Amount |
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(Deficit) |
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Deficit |
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Deficit |
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Balance, October 3, 2020 |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Issuance of common stock upon initial public offering, |
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— |
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Issuance of shares under stock incentive plans |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, January 2, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Balance, October 2, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Stock options exercised |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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Repurchase and retirement of common stock |
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( |
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( |
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( |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance, January 1, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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See accompanying notes which are an integral part of these condensed consolidated financial statements.
4
LESLIE’S, INC.
CONDENSED Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
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Three Months Ended |
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January 1, 2022 |
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January 2, 2021 |
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Operating Activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Amortization of deferred financing costs and debt discounts |
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Provision for doubtful accounts |
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Deferred income taxes |
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( |
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Loss (gain) on disposition of assets |
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( |
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Loss on debt extinguishment |
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— |
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Changes in operating assets and liabilities: |
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Accounts and other receivables |
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( |
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( |
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Inventories |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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( |
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Other assets |
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( |
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( |
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Accounts payable and accrued expenses |
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( |
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( |
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Income taxes payable |
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( |
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( |
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Operating lease assets and liabilities, net |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing Activities |
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Purchases of property and equipment |
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( |
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( |
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Business acquisitions, net of cash acquired |
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( |
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— |
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Proceeds from disposition of fixed assets |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities |
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Repayment of long term debt |
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( |
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( |
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Proceeds from options exercised |
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— |
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Repurchase and retirement of common stock |
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( |
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— |
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Proceeds from issuance of common stock upon initial public offering, net |
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— |
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Net cash (used in) provided by financing activities |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental Information: |
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Interest |
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$ |
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$ |
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Income taxes, net of refunds received |
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( |
) |
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See accompanying notes which are an integral part of these condensed consolidated financial statements.
5
LESLIE’S, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Business and Operations
Leslie’s, Inc. (“Leslie’s,” “we,” “our,” “us,” “its,” or the “Company”) is the leading direct-to-consumer pool and spa care brand. We market and sell pool and spa supplies and related products and services, which primarily consist of maintenance items such as chemicals, equipment and parts, cleaning accessories, as well as safety, recreational, and fitness-related products. We currently market our products through
Note 2—Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
We prepared the accompanying interim condensed consolidated financial statements following United States generally accepted accounting principles (“GAAP”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. The interim condensed consolidated financial statements include the accounts of Leslie’s, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. These interim condensed consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements and notes for the years ended October 2, 2021, October 3, 2020 and September 28, 2019.
Fiscal Periods
We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended January 1, 2022, and the three months ended January 2, 2021 refer to the 13 weeks ended January 1, 2022 and January 2, 2021, respectively.
Use of Estimates
Prior Period Reclassifications
Reclassifications of certain immaterial prior period amounts have been made to conform to current period presentation.
Fair Value Measurements
We use fair value measurements to record fair value of certain assets and to estimate fair value of financial instruments
As of January 1, 2022 and October 2, 2021, we held
The fair value of our amended and restated term loan credit agreement (“Term Loan”) due in 2028 (see Note 9) was determined to be $
The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term maturity of these instruments.
There were
6
Seasonality
Our business is highly seasonal. In general, sales and earnings are highest during our third and fourth fiscal quarters, being April through September and represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions related to intraperiod tax allocations, foreign subsidiaries and interim reporting that are present within existing GAAP rules. The ASU also provides updated guidance regarding the tax treatment of certain franchise taxes, goodwill and nontaxable entities, among other items. In addition, ASU 2019-12 clarifies that the effect of a change in tax laws or rates should be reflected in the annual effective tax rate computation during the interim period that includes the enactment date. The ASU is effective for annual periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022. We expect to early adopt ASU 2019-12 as of October 3, 2022. In anticipation of the adoption and based on management’s initial evaluation of the projected impact to our consolidated financial statements, we do not estimate there to be a material impact.
Note 3—Business Combinations
Fiscal 2022 Acquisition
In October 2021, we acquired the assets of a retailer of pool supplies and services. The acquisition included
Fiscal 2021 Acquisitions
In fiscal 2021, we completed three acquisitions of retailers of supplies and services for hot tubs, swim spas and fireplaces with
These acquisitions did not have a material impact on our financial position or results of operations. Our condensed consolidated financial statements include the results of operations of these acquisitions from the date of acquisition. The total purchase consideration was allocated to the assets acquired and the liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The goodwill resulting from these acquisitions is expected to be deductible for income tax purposes. Our estimates and assumptions are subject to change as we gather additional information throughout the measurement period, which is up to 12 months after the acquisition date, and if we make changes to the amounts recorded, such amounts are recorded in the period in which they are identified. During the three months ended January 1, 2022, we recorded adjustments resulting in an increase in goodwill of $
7
Note 4 —Goodwill and Other Intangibles, Net
Goodwill
The carrying amounts of goodwill are as follows (in thousands):
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January 1, 2022 |
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October 2, 2021 |
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January 2, 2021 |
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Balance at beginning of the period |
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$ |
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$ |
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$ |
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Acquisitions |
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Measurement period adjustments |
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— |
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Balance at the end of the period |
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$ |
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$ |
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$ |
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Other Intangible Assets
Other intangible assets consisted of the following as of January 1, 2022 (in thousands, except weighted average remaining useful life):
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Weighted |
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Gross |
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Accumulated |
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Net |
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Trade name and trademarks (finite life) |
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$ |
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$ |
( |
) |
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$ |
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Trade name and trademarks (indefinite life) |
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— |
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Non-compete agreements |
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( |
) |
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Consumer relationships |
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( |
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Other intangibles |
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( |
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Total |
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$ |
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$ |
( |
) |
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$ |
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Other intangible assets consisted of the following as of October 2, 2021 (in thousands, except weighted average remaining useful life):
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Weighted |
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Gross |
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Accumulated |
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Net |
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Trade name and trademarks (finite life) |
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|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Trade name and trademarks (indefinite life) |
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Consumer relationships |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other intangibles |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Other intangible assets consisted of the following as of January 2, 2021 (in thousands, except weighted average remaining useful life):
|
|
Weighted |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||
Trade name and trademarks (finite life) |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Trade name and trademarks (indefinite life) |
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Consumer relationships |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other intangibles |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
8
Amortization expense was $
The following table summarizes the estimated future amortization expense related to finite-lived intangible assets on our condensed consolidated balance sheet as of January 1, 2022 (in thousands):
|
|
Amount |
|
|
Remainder of fiscal 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
Note 5—Accounts and Other Receivables, Net
Accounts and other receivables, net consisted of the following (in thousands):
|
|
January 1, 2022 |
|
|
October 2, 2021 |
|
|
January 2, 2021 |
|
|||
Vendor and other rebates receivable |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Customer receivables |
|
|
|
|
|
|
|
|
|
|||
Other receivables |
|
|
|
|
|
|
|
|
|
|||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
Note 6—Inventories
Inventories consisted of the following (in thousands):
|
|
January 1, 2022 |
|
|
October 2, 2021 |
|
|
January 2, 2021 |
|
|||
Raw materials |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Finished goods |
|
|
|
|
|
|
|
|