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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2023

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: 001-39667

 

LESLIE’S, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

20-8397425

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2005 East Indian School Road

Phoenix, AZ

85016

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (602) 366-3999

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

LESL

 

The Nasdaq Global Select Market

 

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. YesNo

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). YesNo

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

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 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). YesNo

As of April 28, 2023, the Registrant had 183,843,169 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

Table of Contents

 

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Stockholders’ Deficit

4

 

Condensed Consolidated Statements of Cash Flows

5

 

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.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

 

 

 

Signatures

 

28

 

i


Table of Contents

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 or outcomes could differ materially from those indicated in these forward-looking statements for a variety of reasons, including, among others:

our ability to execute on our growth strategies;
supply disruptions;
our ability to maintain favorable relationships with suppliers and manufacturers;
competition from mass merchants and specialty retailers;
impacts on our business from the sensitivity of our business to weather conditions, changes in the economy (including rising interest rates, recession fears, and inflationary pressures), geopolitical events or conflicts, and the housing market;
disruptions in the operations of our distribution centers;
our ability to implement technology initiatives that deliver the anticipated benefits, without disrupting our operations;
our ability to attract and retain senior management and other qualified personnel;
regulatory changes and development affecting our current and future products;
our ability to obtain additional capital to finance operations;
commodity price inflation and deflation;
impacts on our business from epidemics, pandemics, or natural disasters;
impacts on our business from cyber incidents and other security threats or disruptions;
our ability to remediate the material weakness in our internal control over financial reporting or additional material weaknesses or other deficiencies in the future or to maintain effective disclosure controls and procedures and internal control over financial reporting; and
other risks and uncertainties, including those listed in the section titled “Risk Factors” in our filings with the United States Securities and Exchange Commission (“SEC”).

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” in our Annual Report on Form 10-K for the year ended October 1, 2022. 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 or outcomes 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


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

LESLIE’S, INC.

CONDENSED Consolidated Balance Sheets

(Amounts in Thousands, Except Share and Per Share Amounts)

 

 

 

April 1, 2023

 

 

October 1, 2022

 

 

April 2, 2022

 

 

 

(Unaudited)

 

 

(Audited)

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,701

 

 

$

112,293

 

 

$

51,971

 

Accounts and other receivables, net

 

 

37,988

 

 

 

45,295

 

 

 

33,619

 

Inventories

 

 

492,328

 

 

 

361,686

 

 

 

345,046

 

Prepaid expenses and other current assets

 

 

52,701

 

 

 

23,104

 

 

 

41,240

 

Total current assets

 

 

591,718

 

 

 

542,378

 

 

 

471,876

 

Property and equipment, net

 

 

80,612

 

 

 

78,087

 

 

 

70,547

 

Operating lease right-of-use assets

 

 

231,428

 

 

 

236,477

 

 

 

208,531

 

Goodwill and other intangibles, net

 

 

216,594

 

 

 

213,701

 

 

 

146,865

 

Deferred tax assets

 

 

 

 

 

1,268

 

 

 

2,429

 

Other assets

 

 

42,878

 

 

 

37,720

 

 

 

29,947

 

Total assets

 

$

1,163,230

 

 

$

1,109,631

 

 

$

930,195

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

222,704

 

 

$

266,972

 

 

$

268,475

 

Operating lease liabilities

 

 

61,587

 

 

 

60,373

 

 

 

61,612

 

Income taxes payable

 

 

 

 

 

12,511

 

 

 

 

Current portion of long-term debt

 

 

8,100

 

 

 

8,100

 

 

 

8,100

 

Total current liabilities

 

 

292,391

 

 

 

347,956

 

 

 

338,187

 

Deferred tax liabilities

 

 

676

 

 

 

 

 

 

 

Operating lease liabilities, noncurrent

 

 

173,531

 

 

 

179,835

 

 

 

149,818

 

Revolving Credit Facility

 

 

172,000

 

 

 

 

 

 

45,000

 

Long-term debt, net

 

 

776,542

 

 

 

779,726

 

 

 

782,921

 

Other long-term liabilities

 

 

3,055

 

 

 

65

 

 

 

 

Total liabilities

 

 

1,418,195

 

 

 

1,307,582

 

 

 

1,315,926

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 1,000,000,000 shares authorized and 183,843,169, 183,480,545, and 182,784,211 issued and outstanding as of April 1, 2023, October 1, 2022, and April 2, 2022, respectively.

 

 

184

 

 

 

183

 

 

 

183

 

Additional paid in capital

 

 

94,705

 

 

 

89,934

 

 

 

83,074

 

Retained deficit

 

 

(349,854

)

 

 

(288,068

)

 

 

(468,988

)

Total stockholders’ deficit

 

 

(254,965

)

 

 

(197,951

)

 

 

(385,731

)

Total liabilities and stockholders’ deficit

 

$

1,163,230

 

 

$

1,109,631

 

 

$

930,195

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

2


Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

 

April 1, 2023

 

 

April 2, 2022

 

Sales

 

$

212,844

 

 

$

228,072

 

 

$

407,948

 

 

$

412,896

 

Cost of merchandise and services sold

 

 

141,674

 

 

 

142,443

 

 

 

271,482

 

 

 

259,951

 

Gross profit

 

 

71,170

 

 

 

85,629

 

 

 

136,466

 

 

 

152,945

 

Selling, general and administrative expenses

 

 

96,357

 

 

 

89,618

 

 

 

188,638

 

 

 

169,403

 

Operating loss

 

 

(25,187

)

 

 

(3,989

)

 

 

(52,172

)

 

 

(16,458

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

17,247

 

 

 

6,949

 

 

 

30,607

 

 

 

13,812

 

Other expenses, net

 

 

 

 

 

161

 

 

 

 

 

 

550

 

Total other expense

 

 

17,247

 

 

 

7,110

 

 

 

30,607

 

 

 

14,362

 

Loss before taxes

 

 

(42,434

)

 

 

(11,099

)

 

 

(82,779

)

 

 

(30,820

)

Income tax benefit

 

 

(10,907

)

 

 

(3,659

)

 

 

(20,993

)

 

 

(8,929

)

Net loss

 

$

(31,527

)

 

$

(7,440

)

 

$

(61,786

)

 

$

(21,891

)

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.17

)

 

$

(0.04

)

 

$

(0.34

)

 

$

(0.12

)

Diluted

 

$

(0.17

)

 

$

(0.04

)

 

$

(0.34

)

 

$

(0.12

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

183,729

 

 

 

182,678

 

 

 

183,621

 

 

 

185,592

 

Diluted

 

 

183,729

 

 

 

182,678

 

 

 

183,621

 

 

 

185,592

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

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Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Stockholders’ Deficit

(Amounts in Thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid in Capital

 

 

Retained Deficit

 

 

Stockholders’ Deficit

 

Balance, January 1, 2022

 

 

182,497

 

 

$

182

 

 

$

80,062

 

 

$

(461,548

)

 

$

(381,304

)

Issuance of common stock under the Plan

 

 

287

 

 

 

1

 

 

 

228

 

 

 

 

 

 

229

 

Equity-based compensation

 

 

 

 

 

 

 

 

2,784

 

 

 

 

 

 

2,784

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,440

)

 

 

(7,440

)

Balance, April 2, 2022

 

 

182,784

 

 

$

183

 

 

$

83,074

 

 

$

(468,988

)

 

$

(385,731

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

183,564

 

 

$

184

 

 

$

92,508

 

 

$

(318,327

)

 

$

(225,635

)

Issuance of common stock under the Plan

 

 

367

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,517

 

 

 

 

 

 

3,517

 

Restricted stock units surrendered in lieu of withholding taxes

 

 

(88

)

 

 

 

 

 

(1,320

)

 

 

 

 

 

(1,320

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(31,527

)

 

 

(31,527

)

Balance, April 1, 2023

 

 

183,843

 

 

$

184

 

 

$

94,705

 

 

$

(349,854

)

 

$

(254,965

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid in Capital

 

 

Retained Deficit

 

 

Stockholders’ Deficit

 

Balance, October 2, 2021

 

 

189,821

 

 

$

190

 

 

$

204,711

 

 

$

(422,459

)

 

$

(217,558

)

Issuance of common stock under the Plan

 

 

463

 

 

 

1

 

 

 

328

 

 

 

 

 

 

329

 

Equity-based compensation

 

 

 

 

 

 

 

 

5,535

 

 

 

 

 

 

5,535

 

Repurchase and retirement of common stock

 

 

(7,500

)

 

 

(8

)

 

 

(127,500

)

 

 

(24,638

)

 

 

(152,146

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,891

)

 

 

(21,891

)

Balance, April 2, 2022

 

 

182,784

 

 

$

183

 

 

$

83,074

 

 

$

(468,988

)

 

$

(385,731

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2022

 

 

183,481

 

 

$

183

 

 

$

89,934

 

 

$

(288,068

)

 

$

(197,951

)

Issuance of common stock under the Plan

 

 

477

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Equity-based compensation

 

 

 

 

 

 

 

 

6,510

 

 

 

 

 

 

6,510

 

Restricted stock units surrendered in lieu of withholding taxes

 

 

(115

)

 

 

 

 

 

(1,739

)

 

 

 

 

 

(1,739

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(61,786

)

 

 

(61,786

)

Balance, April 1, 2023

 

 

183,843

 

 

$

184

 

 

$

94,705

 

 

$

(349,854

)

 

$

(254,965

)

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

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Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

Six Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(61,786

)

 

$

(21,891

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

17,425

 

 

 

15,817

 

Equity-based compensation

 

 

6,510

 

 

 

5,535

 

Amortization of deferred financing costs and debt discounts

 

 

1,006

 

 

 

986

 

Provision for doubtful accounts

 

 

123

 

 

 

418

 

Deferred income taxes

 

 

1,944

 

 

 

1,305

 

Loss on asset dispositions

 

 

118

 

 

 

118

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts and other receivables

 

 

7,919

 

 

 

4,823

 

Inventories

 

 

(127,365

)

 

 

(132,358

)

Prepaid expenses and other current assets

 

 

(30,897

)

 

 

(20,306

)

Other assets

 

 

(6,734

)

 

 

(4,922

)

Accounts payable and accrued expenses

 

 

(41,701

)

 

 

26,588

 

Income taxes payable

 

 

(12,511

)

 

 

(6,945

)

Operating lease assets and liabilities, net

 

 

(41

)

 

 

(5,925

)

Net cash used in operating activities

 

 

(245,990

)

 

 

(136,757

)

Investing Activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(14,828

)

 

 

(14,322

)

Business acquisitions, net of cash acquired

 

 

(9,939

)

 

 

(29,988

)

Proceeds from asset dispositions

 

 

1,176

 

 

 

407

 

Net cash used in investing activities

 

 

(23,591

)

 

 

(43,903

)

Financing Activities

 

 

 

 

 

 

Borrowings on Revolving Credit Facility

 

 

193,000

 

 

 

45,000

 

Payments on Revolving Credit Facility

 

 

(21,000

)

 

 

 

Repayment of long-term debt

 

 

(4,050

)

 

 

(4,050

)

Payment of deferred financing costs

 

 

(222

)

 

 

 

Proceeds from options exercised

 

 

 

 

 

329

 

Repurchase and retirement of common stock

 

 

 

 

 

(152,146

)

Payments of employee tax withholdings related to restricted stock vesting

 

 

(1,739

)

 

 

 

Net cash provided by (used in) financing activities

 

 

165,989

 

 

 

(110,867

)

Net decrease in cash and cash equivalents

 

 

(103,592

)

 

 

(291,527

)

Cash and cash equivalents, beginning of period

 

 

112,293

 

 

 

343,498

 

Cash and cash equivalents, end of period

 

$

8,701

 

 

$

51,971

 

Supplemental Information:

 

 

 

 

 

 

Interest

 

$

28,339

 

 

$

13,325

 

Income taxes, net of refunds received

 

 

11,932

 

 

 

7,358

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

5


Table of Contents

LESLIE’S, INC.

NOTES TO UNAUDITED 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, and