10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 July 1, 2023


☐	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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 ☐ No ☒

As of July 28, 2023, the Registrant had 184,004,936 shares of common stock, $0.001 par value per share, outstanding.

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		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 the 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	28

Signatures		29

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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, and in Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended April 1, 2023. 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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

LESLIE’S, INC.

CONDENSED Consolidated Balance Sheets

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


	July 1, 2023			October 1, 2022			July 2, 2022
	(Unaudited)			(Audited)			(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	19,430		$	112,293		$	193,130
Accounts and other receivables, net		49,263			45,295			47,266
Inventories		436,557			361,686			361,391
Prepaid expenses and other current assets		31,454			23,104			30,542
Total current assets		536,704			542,378			632,329
Property and equipment, net		85,396			78,087			71,653
Operating lease right-of-use assets		250,378			236,477			221,694
Goodwill and other intangibles, net		219,835			213,701			155,663
Deferred tax assets		194			1,268			1,230
Other assets		44,918			37,720			34,422
Total assets	$	1,137,425		$	1,109,631		$	1,116,991
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable and accrued expenses	$	242,510		$	266,972		$	330,881
Operating lease liabilities		61,342			60,373			63,303
Income taxes payable		3,345			12,511			30,611
Current portion of long-term debt		8,100			8,100			8,100
Total current liabilities		315,297			347,956			432,895
Operating lease liabilities, noncurrent		193,004			179,835			161,473
Revolving Credit Facility		31,000			—			—
Long-term debt, net		774,884			779,726			781,322
Other long-term liabilities		3,050			65			70
Total liabilities		1,317,235			1,307,582			1,375,760
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.001 par value, 1,000,000,000 shares authorized and 184,004,936, 183,480,545, and 183,027,684 issued and outstanding as of July 1, 2023, October 1, 2022, and July 2, 2022, respectively.		184			183			183
Additional paid in capital		97,313			89,934			87,050
Retained deficit		(277,307	)		(288,068	)		(346,002	)
Total stockholders’ deficit		(179,810	)		(197,951	)		(258,769	)
Total liabilities and stockholders’ deficit	$	1,137,425		$	1,109,631		$	1,116,991

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

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LESLIE’S, INC.

CONDENSED Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended					Nine Months Ended
	July 1, 2023		July 2, 2022			July 1, 2023		July 2, 2022
Sales	$	610,891	$	673,633		$	1,018,839	$	1,086,529
Cost of merchandise and services sold		359,295		370,026			630,777		629,977
Gross profit		251,596		303,607			388,062		456,552
Selling, general and administrative expenses		135,789		131,469			324,427		300,872
Operating income		115,807		172,138			63,635		155,680
Other expense:
Interest expense		17,675		6,847			48,282		20,659
Other (income) expenses, net		—		(143	)		—		407
Total other expense		17,675		6,704			48,282		21,066
Income before taxes		98,132		165,434			15,353		134,614
Income tax expense		25,585		42,448			4,592		33,519
Net income	$	72,547	$	122,986		$	10,761	$	101,095
Earnings per share:
Basic	$	0.39	$	0.67		$	0.06	$	0.55
Diluted	$	0.39	$	0.67		$	0.06	$	0.54
Weighted average shares outstanding:
Basic		183,932		182,937			183,725		184,707
Diluted		184,760		184,721			184,752		186,695

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

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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, April 2, 2022		182,784		$	183		$	83,074		$	(468,988	)	$	(385,731	)
Issuance of common stock under the Plan		244			—			1,049			—			1,049
Equity-based compensation		—			—			2,927			—			2,927
Net income		—			—			—			122,986			122,986
Balance, July 2, 2022		183,028		$	183		$	87,050		$	(346,002	)	$	(258,769	)

Balance, April 1, 2023		183,843		$	184		$	94,705		$	(349,854	)	$	(254,965	)
Issuance of common stock under the Plan		166			—			—			—			—
Equity-based compensation		—			—			2,649			—			2,649
Restricted stock units surrendered in lieu of withholding taxes		(4	)		—			(41	)		—			(41	)
Net income		—			—			—			72,547			72,547
Balance, July 1, 2023		184,005		$	184		$	97,313		$	(277,307	)	$	(179,810	)

	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		707			1			1,377			—			1,378
Equity-based compensation		—			—			8,462			—			8,462
Repurchase and retirement of common stock		(7,500	)		(8	)		(127,500	)		(24,638	)		(152,146	)
Net income		—			—			—			101,095			101,095
Balance, July 2, 2022		183,028		$	183		$	87,050		$	(346,002	)	$	(258,769	)

Balance, October 1, 2022		183,481		$	183		$	89,934		$	(288,068	)	$	(197,951	)
Issuance of common stock under the Plan		643			1			—			—			1
Equity-based compensation		—			—			9,159			—			9,159
Restricted stock units surrendered in lieu of withholding taxes		(119	)		—			(1,780	)		—			(1,780	)
Net income		—			—			—			10,761			10,761
Balance, July 1, 2023		184,005		$	184		$	97,313		$	(277,307	)	$	(179,810	)

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

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LESLIE’S, INC.

CONDENSED Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)


	Nine Months Ended
	July 1, 2023			July 2, 2022
Operating Activities
Net income	$	10,761		$	101,095
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		25,569			22,880
Equity-based compensation		9,159			8,462
Amortization of deferred financing costs and debt discounts		1,541			1,483
Provision for doubtful accounts		25			723
Deferred income taxes		1,074			2,504
Loss on asset dispositions		103			271
Changes in operating assets and liabilities:
Accounts and other receivables		(3,399	)		(9,129	)
Inventories		(70,393	)		(146,196	)
Prepaid expenses and other current assets		(9,614	)		(9,075	)
Other assets		(8,864	)		(9,429	)
Accounts payable and accrued expenses		(21,846	)		91,145
Income taxes payable		(9,166	)		23,666
Operating lease assets and liabilities, net		237			(5,742	)
Net cash (used in) provided by operating activities		(74,813	)		72,658
Investing Activities
Purchases of property and equipment		(26,733	)		(25,927	)
Business acquisitions, net of cash acquired		(15,549	)		(40,670	)
Proceeds from asset dispositions		1,384			414
Net cash used in investing activities		(40,898	)		(66,183	)
Financing Activities
Borrowings on Revolving Credit Facility		264,000			45,000
Payments on Revolving Credit Facility		(233,000	)		(45,000	)
Repayment of long-term debt		(6,075	)		(6,075	)
Payment of deferred financing costs		(297	)		—
Proceeds from options exercised		—			1,378
Repurchase and retirement of common stock		—			(152,146	)
Payments of employee tax withholdings related to restricted stock vesting		(1,780	)		—
Net cash provided by (used in) financing activities		22,848			(156,843	)
Net decrease in cash and cash equivalents		(92,863	)		(150,368	)
Cash and cash equivalents, beginning of period		112,293			343,498
Cash and cash equivalents, end of period	$	19,430		$	193,130
Supplemental Information:
Interest	$	46,413		$	19,409
Income taxes, net of refunds received		12,648			7,442

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

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LESLIE’S, INC.

NOTES TO THE 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 cleaning accessories, as well as safety, recreational, and fitness-related products. We currently market our products through 1,009 company-operated locations in 39 states and e-commerce websites.

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

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 July 1, 2023 and July 2, 2022 refer to the 13 weeks ended July 1, 2023 and July 2, 2022, respectively. References to the nine months ended July 1, 2023 and July 2, 2022 refer to the 39 weeks ended July 1, 2023 and July 2, 2022, respectively.

Use of Estimates

Management is required to make certain estimates and assumptions during the preparation of the condensed consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements. They also impact the reported amount of net income (loss) during any period. Actual results could differ from those estimates.

Significant estimates underlying the accompanying condensed consolidated financial statements include inventory reserves, lease assumptions, vendor rebate programs, our loyalty program, the determination of income taxes payable and deferred income taxes, sales returns reserve, self-insurance liabilities, the recoverability of intangible assets and goodwill, fair value of assets acquired in a business combination, and contingent consideration related to business combinations.

Seasonality

Our business is highly seasonal. Sales and earnings are highest during our third and fourth fiscal quarters, being April through September, which represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters.

Summary of Other Significant Accounting Policies

There have been no changes to our Significant Accounting Policies since our Annual Report on Form 10-K for the year ended October 1, 2022, other than the adoption of Reference Rate Reform discussed further below. For more information regarding our Significant Accounting Policies and Estimates, see Note 2—Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended October 1, 2022.

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Recent Accounting Pronouncements

In March 2020, January 2021 and December 2022, the FASB issued ASU No. 2020-04, 2021-01 and 2022-06, respectively, regarding Reference Rate Reform (collectively “Topic 848”). This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates, and particularly, the risk of cessation of the London Inter-Bank Offer Rate (“LIBOR”) related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of LIBOR is expected to be June 30, 2023. In addition, Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective upon issuance and may be applied through December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The primary contracts for which LIBOR is used are our Revolving Credit Facility and Term Loan (as defined in Note 9—Long-Term Debt, Net). The Company transitioned from a LIBOR-based rate to a Term Secured Overnight Financing Rate (“Term SOFR”)-based rate for our Revolving Credit Facility and Term Loan and elected the optional expedients under the standard as of the first day of the second and third quarters, respectively. This adoption did not have a material impact to our condensed consolidated financial statements.

Note 3—Business Combinations

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 tangible and intangible assets acquired and the liabilities assumed at their estimated fair values as of each acquisition date, with the excess recorded to goodwill. The goodwill resulting from these acquisitions is expected to be deductible for income tax purposes. During the measurement periods, which will not exceed one year from each closing, we will continue to obtain information to assist us in finalizing the acquisition date fair values. Any qualifying changes to our preliminary estimates will be recorded as adjustments to the respective assets and liabilities, with any residual amounts allocated to goodwill.

Fiscal 2023 Acquisitions

During the nine months ended July 1, 2023, we acquired five businesses for an aggregate purchase price of $15.5 million, net of cash acquired. These acquisitions expanded our pool and spa footprint and added 12 new locations across Arizona, California, Florida, and Louisiana. The purchase accounting for these acquisitions has not yet been completed.


	Total
Total purchase consideration, net of cash acquired	$	15,549
Fair value of assets acquired and liabilities assumed:
Inventories		4,518
Finite-lived intangible assets		2,700
Other assets and liabilities, net		152
Total assets acquired, net of liabilities assumed		7,370
Goodwill	$	8,179

Fiscal 2022 Acquisitions

In fiscal 2022, we acquired six businesses for an aggregate purchase price of $107.7 million, inclusive of contingent consideration of up to $4.0 million if certain performance metrics are achieved within one to three years of the respective closing dates. Contingent considerations are remeasured to fair value at each reporting period until the contingency is resolved. There were no material reductions in the fair value of certain prior year contingent considerations. These acquisitions expanded our pool and spa footprint and added 27 new locations as well as expanded our manufacturing capabilities. The following table sets forth the preliminary purchase price allocation of these acquisitions, net of immaterial measurement period adjustments, in the aggregate (in thousands). The purchase accounting for five of the six acquisitions is complete.


	Total
Total purchase consideration, net of cash acquired	$	107,663
Fair value of assets acquired and liabilities assumed:
Inventories		20,050
Finite-lived intangible assets		15,200
Other assets and liabilities, net		3,086
Total assets acquired, net of liabilities assumed		38,336
Goodwill	$	69,327

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Note 4 —Goodwill and Other Intangibles, Net

Goodwill

The following table details the changes in goodwill (in thousands):


	July 1, 2023		October 1, 2022		July 2, 2022
Balance at beginning of the period	$	173,513	$	101,114	$	101,114
Acquisitions, net of measurement period adjustments		7,185		72,399		24,160
Balance at the end of the period	$	180,698	$	173,513	$	125,274

Other Intangible Assets

Other intangible assets consisted of the following as of July 1, 2023 (in thousands, except weighted average remaining useful life):


	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		10.1	$	26,740	$	(7,436	)	$	19,304
Trade name and trademarks (indefinite life)	Indefinite			9,350		—			9,350
Non-compete agreements		5.6		8,683		(7,534	)		1,149
Consumer relationships		7.6		24,100		(14,935	)		9,165
Other intangibles		5.3		6,620		(6,451	)		169
Total			$	75,493	$	(36,356	)	$	39,137

Other intangible assets consisted of the following as of October 1, 2022 (in thousands, except weighted average remaining useful life):


	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		11.0	$	24,440	$	(5,907	)	$	18,533
Trade name and trademarks (indefinite life)	Indefinite			9,350		—			9,350
Non-compete agreements		6.5		8,683		(7,379	)		1,304
Consumer relationships		7.9		24,100		(13,339	)		10,761
Other intangibles		6.2		6,620		(6,380	)		240
Total			$	73,193	$	(33,005	)	$	40,188

Other intangible assets consisted of the following as of July 2, 2022 (in thousands, except weighted average remaining useful life):


	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		9.5	$	10,440	$	(5,505	)	$	4,935
Trade name and trademarks (indefinite life)	Indefinite			17,750		—			17,750
Non-compete agreements		6.7		8,683		(7,328	)		1,355
Consumer relationships		6.0		19,000		(12,926	)		6,074
Other intangibles		6.4		6,620		(6,345	)		275
Total			$	62,493	$	(32,104	)	$	30,389

Amortization expense was $1.1 million and $0.7 million for the three months ended July 1, 2023 and July 2, 2022, respectively. Amortization expense was $3.4 million and $2.1 million for the nine months ended July 1, 2023 and July 2, 2022, respectively. No impairment of goodwill or other intangible assets was recorded during the three and nine months ended July 1, 2023 and July 2, 2022, respectively.

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The following table summarizes the estimated future amortization expense related to finite-lived intangible assets on our condensed consolidated balance sheet as of July 1, 2023 (in thousands):


	Amount
Remainder of fiscal 2023	$	980
2024		3,693
2025		3,573
2026		3,325
2027		3,063
Thereafter		15,153
Total	$	29,787

Note 5—Accounts and Other Receivables, Net

Accounts and other receivables, net consisted of the following (in thousands):


	July 1, 2023			October 1, 2022			July 2, 2022
Vendor and other rebates receivable	$	23,298		$	24,546		$	27,936
Customer receivables		21,175			17,708			17,470
Other receivables		6,436			4,553			2,985
Allowance for doubtful accounts		(1,646	)		(1,512	)		(1,125	)
Total	$	49,263		$	45,295		$	47,266

Note 6—Inventories

Inventories consisted of the following (in thousands):


	July 1, 2023		October 1, 2022		July 2, 2022
Raw materials	$	8,342	$	9,065	$	9,927
Finished goods		428,215		352,621		351,464
Total	$	436,557	$	361,686	$	361,391

Note 7—Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	July 1, 2023		October 1, 2022		July 2, 2022
Prepaid insurance	$	3,629	$	1,110	$	3,559
Prepaid occupancy costs		1,955		1,840		1,836
Prepaid sales tax		7,679		2,874		6,358
Prepaid inventory		—		—		5,748
Prepaid other		4,308		4,847		2,263
Other current assets		13,883		12,433		10,778
Total	$	31,454	$	23,104	$	30,542

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Note 8—Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands):


	July 1, 2023		October 1, 2022		July 2, 2022
Accounts payable	$	147,437	$	156,456	$	218,953
Accrued payroll and employee benefits		14,437		34,010		18,258
Customer deposits		7,477		13,250		15,134
Interest		630		342		4,496
Inventory related accruals		23,635		16,034		21,791
Loyalty and deferred revenue		5,932		5,541		6,392
Sales tax		15,729		9,130		16,037
Self-insurance reserves		9,517		9,280		11,566
Other accrued liabilities		17,716		22,929		18,254
Total	$	242,510	$	266,972	$	330,881

As of July 1, 2023, October 1, 2022, and July 2, 2022, capital expenditures included in other accrued liabilities were $0.9 million, $1.1 million, and $0.3 million, respectively.

Note 9—Long-Term Debt, Net

Our long-term debt, net consisted of the following (in thousands, except interest rates):


	Effective Interest Rate (1)				July 1, 2023			October 1, 2022			July 2, 2022
Term Loan		7.97	%	(2)	$	791,775		$	797,850		$	799,875
Revolving Credit Facility		6.83	%	(3)		31,000			—			—
Total long-term debt						822,775			797,850			799,875
Less: current portion of long-term debt						(8,100	)		(8,100	)		(8,100	)
Less: noncurrent Revolving Credit Facility						(31,000	)		—			—
Less: unamortized discount						(2,439	)		(2,805	)		(2,926	)
Less: deferred financing charges						(6,352	)		(7,219	)		(7,527	)
Total long-term debt, net					$	774,884		$	779,726		$	781,322

(1)

Effective interest rates as of July 1, 2023.

(2)

Carries interest at a specified margin over Term SOFR between 2.50% and 2.75% with a minimum SOFR of 0.50% plus a SOFR adjustment.

(3)

Carries interest at a specific margin between 0.25% and 0.75% with respect to Base Rate loans and between 1.25% and 1.75% with respect to Term SOFR loans, with a SOFR adjustment.

Term Loan

In June 2023, we entered into Amendment No. 1 (“Term Loan Amendment”) to our Amended and Restated Term Loan Credit Agreement (“Term Loan”). The Term Loan Amendment (i) replaced the existing LIBOR-based interest rate benchmark with a Term SOFR-based benchmark and (ii) amended certain other related terms and provisions, including the addition of a SOFR adjustment of (a) 0.11448% per annum for one-month, (b) 0.26161% per annum for three months, and (c) 0.42826% per annum for six months. The other material terms of the Term Loan remained substantially unchanged.

The Term Loan provides for an $810.0 million secured term loan facility with a maturity date of March 9, 2028. Borrowings under the Term Loan have an initial applicable rate, at our option, of (i) 2.75% for loans that are Term SOFR loans and (ii) 1.75% for loans that are ABR loans (the “Applicable Rate”). The Applicable Rate of the Term Loan is based on our first lien leverage ratio as follows: (a) if the first lien leverage ratio is greater than 2.75 to 1.00, the applicable rate will be 2.75% for Term SOFR loans and 1.75% for ABR loans and (b) if the first lien leverage ratio is less than or equal to 2.75 to 1.00, the applicable rate will be 2.50% for Term SOFR loans and 1.50% for ABR loans. For Term SOFR loans, the loans will bear interest at the Term SOFR-based benchmark rate plus the Applicable Rate and the SOFR adjustment, as defined above.

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Revolving Credit Facility

In March 2023, we entered into Amendment No. 6 to our $200.0 million credit facility (“Revolving Credit Facility”) maturing on August 13, 2025 (the “Amendment”). The Amendment (i) increased the revolving credit commitments under the Revolving Credit Facility in the amount of $50.0 million, such that the aggregate commitments are $250.0 million and (ii) replaced the existing LIBOR-based rate with a Term SOFR-based rate, as an interest rate benchmark. The Revolving Credit Facility has (i) an applicable margin on Base Rate loans with a range of 0.25% to 0.75%, (ii) an applicable margin on Term SOFR loans with a range of 1.25% and 1.75%, (iii) a SOFR Adjustment of 0.10% for all borrowing periods, (iv) a floor of 0% per annum, and (v) a commitment fee rate of 0.25% per annum. The other material terms of the Revolving Credit Facility prior to the Amendment remained substantially unchanged.

As of July 1, 2023, we had $31.0 million outstanding on our Revolving Credit Facility. No amounts were outstanding on the Revolving Credit Facility as of October 1, 2022 and July 2, 2022. The amount available under our Revolving Credit Facility was reduced by $11.4 million of existing standby letters of credit as of July 1, 2023.

Representations and Covenants

Substantially all of our assets are pledged as collateral to secure our indebtedness. The Term Loan and the Revolving Credit Facility do not require us to comply with any financial covenants. The Term Loan and the Revolving Credit Facility contain customary representations and warranties, covenants, and conditions to borrowing. No event of default occurred as of July 1, 2023, October 1, 2022, or July 2, 2022.

Future Debt Maturities

The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of July 1, 2023 (in thousands):


	Amount
Remainder of fiscal 2023	$	2,025
2024		6,075
2025		41,125
2026		8,100
2027		8,100
Thereafter		757,350
Total	$	822,775

Note 10—Income Taxes

Our effective income tax rate was 29.9% for the nine months ended July 1, 2023, compared to 24.9% for the nine months ended July 2, 2022. The difference between the statutory rate and our effective rate for the nine months ended July 1, 2023 was primarily attributable to state taxes and net income tax expenses attributable to equity-based compensation awards. The difference between the statutory rate and our effective rate for the nine months ended July 2, 2022 was primarily attributable to state taxes. Our effective income tax rate can fluctuate due to factors including valuation allowances, changes in tax laws, federal and state audits, and the impact of other discrete items.

In August 2022, the Inflation Reduction Act of 2022 was signed into law and contains provisions effective January 1, 2023 which were not material to the Company’s income tax provision.

Note 11—Commitments & Contingencies

Contingencies

We are defendants in lawsuits or potential claims encountered in the normal course of business. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from the estimates. We do not expect that the resolutions of any of these matters will have a material effect to our condensed consolidated financial position or results of operations. We did not record any material loss contingencies as of July 1, 2023, October 1, 2022, and July 2, 2022, respectively.

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Our workers’ compensation insurance program, general liability insurance program, and employee group medical plan have self-insurance retention features of up to $0.4 million per event as of July 1, 2023, October 1, 2022, and July 2, 2022, respectively. We had standby letters of credit outstanding in the amount of $11.4 million as of July 1, 2023 for the purpose of securing such obligations under our workers’ compensation self-insurance programs.

Note 12—Related Party Transactions

On December 14, 2021, the Company entered into a share repurchase agreement with Bubbles Investor Aggregator, L.P. and Explorer Investment Pte. Ltd. (together, the “Selling Stockholders”), each a greater than 5% beneficial owner of the Company’s common stock at the time of the transaction, providing for the repurchase by the Company from the Selling Stockholders of an aggregate of 7.5 million shares of common stock, conditioned on the closing of a contemporaneous secondary public offering (the “Offering”). The price per share of repurchased common stock paid by the Company was $20.25, which represents the per share price at which shares of common stock were sold to the public in the Offering less the underwriting discount. The repurchase transaction closed on December 16, 2021. See Note 13—Share Repurchase Program for detailed information regarding our share repurchase program.

Note 13—Share Repurchase Program

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, expiring December 3, 2024. The amount, price, manner, and timing of repurchases are determined by the Company in its discretion and depends on a number of factors, including legal requirements, price, economic and market conditions, the Company’s financial condition, capital requirements, cash flows, results of operations, future business prospects, and other factors our management may deem relevant. The share repurchase program may be amended, suspended, or discontinued at any time. Shares may be repurchased from time-to-time using a variety of methods, including on the open market and/or in privately negotiated transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, as part of accelerated share repurchases, and other methods.

On December 16, 2021, the Company repurchased and retired 7.5 million shares of common stock at a price per share of $20.25 under the program. The Company paid $151.9 million ($152.1 million including offering costs) to fund the share repurchase using existing cash on hand. The Company accounted for the share repurchase and retirement of shares under the cost method by deducting its par value from common stock, reducing additional paid-in-capital by $127.5 million (using the share price when the shares were originally issued), and increasing retained deficit by the remaining excess cost of $24.4 million.

As of July 1, 2023, approximately $147.7 million remained available for future purchases under our share repurchase program.

The following table presents information about our repurchases of common stock under our share repurchase program (in thousands):


	Three Months Ended				Nine Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Total number of shares repurchased		—		—		27		7,500
Total amount paid for shares repurchased	$	—	$	—	$	419	$	151,875

Note 14—Equity-Based Compensation

Equity-Based Compensation

2020 Omnibus Incentive Plan

In October 2020, we adopted the Leslie’s, Inc. 2020 Omnibus Incentive Plan (the “Plan”). The Plan provides for the grant of awards such as non-qualified stock options to purchase Leslie’s common stock (each, a “Stock Option”), restricted stock units (“RSUs”) and performance stock units (“PSUs”) which may settle in Leslie’s, Inc. common stock to our directors, executives, and eligible employees of the Company. The vesting of the Company’s outstanding and unvested Stock Options, RSUs, and PSUs is contingent upon the holder’s continued service through the date of each applicable vesting event. As of July 1, 2023, we had approximately 7.3 million shares of common stock available for future grants under the Plan.

As of July 1, 2023, the aggregate unamortized value of all outstanding equity-based compensation awards was approximately $29.7 million, which is expected to be recognized over a weighted average period of approximately 2.4 years.

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Stock Options

Stock Options granted under the Plan generally expire ten years from the date of grant and consist of Stock Options that vest upon the satisfaction of time-based requirements. The following tables summarizes our Stock Option activity under the Plan during the nine months ended July 1, 2023 (in thousands, except per share amounts):


	Number of Options			Weighted Average Exercise Price
Outstanding, Beginning		3,780		$	18.24
Granted		—			—
Exercised		—			—
Forfeited/Expired		(304	)		19.30
Balance, Ending		3,476		$	18.15

Vested and exercisable as of July 1, 2023		1,983		$	18.15


	As of July 1, 2023
Aggregate intrinsic value of options outstanding	$	—
Unamortized value of unvested stock options	$	5,631
Weighted average years that expense is expected to be recognized		1.2
Weighted average remaining contractual years outstanding		7.9

Restricted Stock Units and Performance Units

RSUs represent grants that vest ratably upon the satisfaction of time-based requirements. PSUs represent grants potentially issuable in the future based upon the Company’s achievement of certain performance conditions. The fair value of our RSUs and PSUs are calculated based on the Company’s stock price on the date of the grant.

The following table summarizes our RSU and PSU activity under the Plan during the nine months ended July 1, 2023 (in thousands, except per share amounts):


	Number of RSUs/PSUs			Weighted Average Grant Date Fair Value
Outstanding, Beginning		2,297		$	10.04
Granted (1)		1,310			11.73
Vested		(634	)		9.74
Forfeited		(219	)		15.59
Balance, Ending		2,754		$	10.46

(1)

Includes 0.3 million PSUs granted in December 2022 subject to the Company achieving certain adjusted net income and sales performance targets on a cumulative basis during each of fiscal years 2023, 2024, and 2025. The criteria are based on a range of these performance targets in which participants may earn between 0% to 200% of the base number of awards granted. The weighted average grant date fair value of the PSUs was $12.04. The Company assesses the attainment of target payout rates each reporting period. Equity-based compensation expense is recognized for awards deemed probable of vesting.


	As of July 1, 2023
Unamortized value of unvested RSUs/PSUs	$	24,096
Weighted average period (years) expense is expected to be recognized		2.7

During the three months ended July 1, 2023 and July 2, 2022, equity-based compensation expense was $2.6 million and $2.9 million, respectively. During the nine months ended July 1, 2023 and July 2, 2022, equity-based compensation expense was $9.2 million and $8.5 million, respectively. Equity-based compensation expense is reported in selling, general, & administrative expenses (“SG&A”) in our condensed consolidated statements of operations.

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Note 15—Earnings Per Share

The following is a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Numerator:
Net income	$	72,547	$	122,986	$	10,761	$	101,095
Denominator:
Weighted average shares outstanding - basic		183,932		182,937		183,725		184,707
Effect of dilutive securities:
Stock Options		—		1		—		52
RSUs		828		1,783		1,027		1,936
Weighted average shares outstanding - diluted		184,760		184,721		184,752		186,695

Basic earnings per share	$	0.39	$	0.67	$	0.06	$	0.55
Diluted earnings per share	$	0.39	$	0.67	$	0.06	$	0.54

The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted earnings per share because the effect of including such shares would have been antidilutive (in thousands):


	Three Months Ended				Nine Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Stock Options		3,502		3,967		3,591		1,742
RSUs		1,587		563		778		551
Total		5,089		4,530		4,369		2,293

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022 and in Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended April 1, 2023.

Our Company

We are the largest and most trusted direct-to-consumer brand in the $15 billion United States pool and spa care industry, serving residential and professional consumers. Founded in 1963, we are the only direct-to-consumer pool and spa care brand with national scale, operating an integrated marketing and distribution ecosystem powered by a physical network of 1,009 branded locations and a robust digital platform. We offer an extensive assortment of professional-grade products, the majority of which are exclusive to Leslie’s, as well as certified installation and repair services, all of which are essential to the ongoing maintenance of pools and spas. Our dedicated team of associates, pool and spa care experts, and experienced service technicians are passionate about empowering our consumers with the knowledge, products, and solutions necessary to confidently maintain and enjoy their pools and spas. The considerable scale of our integrated marketing and distribution ecosystem, which is powered by our direct-to-consumer network, uniquely enables us to efficiently reach and service every pool and spa in the continental United States.

We operate primarily in the pool and spa aftermarket industry, which is one of the most fundamentally attractive consumer categories given its scale, predictability, and growth outlook. We have a highly predictable, recurring revenue model, as evidenced by our 59 consecutive years of sales growth. Approximately 80% of our assortment is comprised of non-discretionary products essential to the care of residential and commercial pools and spas. Our assortment includes chemicals, equipment and parts, cleaning and maintenance equipment, and safety, recreational, and fitness-related products. We also offer important essential services, such as equipment installation and repair for residential consumers and professional pool operators. Consumers receive the benefit of extended vendor warranties on purchased products from our locations and on installations or repairs from our certified in-field technicians. We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue® system, which increases consumer engagement, conversion, basket size, and loyalty, resulting in higher lifetime value. Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry. Due to the non-discretionary nature of our products and services, our business has historically delivered strong, uninterrupted growth and profitability in all market environments, including through the Great Recession and the COVID-19 pandemic.

We have a legacy of leadership and disruptive innovation. Since our founding in 1963, we have been the leading innovator in our category and have provided our consumers with the most advanced pool and spa care available. As we have scaled, we have leveraged our competitive advantages to strategically reinvest in our business and intellectual property to develop new value-added capabilities. Over the course of our history, we have pioneered complimentary in-store water testing, offered complimentary in-store equipment repair services, introduced the industry’s first loyalty program, and developed an expansive platform of owned and exclusive brands. These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us.

Key Factors and Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under GAAP are sales, gross profit and gross margin, SG&A, and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted earnings per share.

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Sales

We offer a broad range of products that consists of regularly purchased, non-discretionary pool and spa maintenance items such as chemicals, equipment, cleaning accessories and parts, as well as installation and repair services for pool and spa equipment. Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers and encouraging repeat visits from our existing consumers. Revenue from merchandise sales at retail locations is recognized at the point of sale, revenue from services is recognized when the services are rendered, and revenue from e-commerce merchandise sales is generally recognized upon shipment of the merchandise. Revenue is recorded net of related discounts and sales tax. Payment from retail customers is generally at the point of sale and payment terms for professional pool operator customers are based on our credit requirements and generally have terms of less than 60 days. When we receive payment from a consumer before the consumer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue or as a customer deposit until the sale or service is complete. Sales are impacted by product mix and availability, as well as promotional and competitive activities and the spending habits of our consumers. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.

Comparable Sales and Comparable Sales Growth

We measure comparable sales growth as the increase or decrease in sales recorded by the comparable base in any reporting period, compared to sales recorded by the comparable base in the prior reporting period. The comparable base includes sales through our locations and through our e-commerce websites and third-party marketplaces. Comparable sales growth is a key measure used by management and our board of directors to assess our financial performance.

We consider a new or acquired location comparable in the first full month after it has completed one year of sales. Closed locations become non-comparable during their last partial month of operation. Locations that are relocated are considered comparable at the time the relocation is complete. Comparable sales is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies.

The number of new locations reflects the number of locations opened during a particular reporting period. New locations require an initial capital investment in location buildouts, fixtures, and equipment, which we amortize over time as well as cash required for inventory.

As of July 1, 2023, we operated 1,009 locations in 39 states across the United States. We owned 27 locations and leased the remainder of our locations. Our initial lease terms are typically five years with options to renew for multiple successive five-year periods. We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability. Our limited investment costs in individual locations and our ability to transfer sales to our extensive network of remaining locations and e-commerce websites allows us to improve profitability as a result of any strategic closures.

Gross Profit and Gross Margin

Gross profit is equal to our sales less our cost of merchandise and services sold. Cost of merchandise and services sold reflects the direct cost of purchased merchandise, costs to package certain chemical products, including direct materials and labor, costs to provide services, including labor and materials, as well as distribution and occupancy costs. The direct cost of purchased merchandise includes vendor rebates, which are generally treated as a reduction of merchandise costs. We recognize such vendor rebates at the time the obligations to purchase products or perform services have been completed, and the related inventory has been sold. Distribution costs include warehousing and transportation expenses, including costs associated with third-party fulfillment centers used to ship merchandise to our e-commerce consumers. Occupancy costs include the rent, common area maintenance, real estate taxes, and depreciation and amortization costs of all retail locations. These costs are significant and are expected to continue to increase proportionate to our growth.

Gross margin is gross profit as a percentage of our sales. Gross margin is impacted by merchandise costs, pricing and promotions, product mix and availability, inflation, and service costs, which can vary. Our proprietary brands, custom-formulated products, and vertical integration provide us with cost savings, as well as greater control over product availability and quality as compared to other companies in the industry. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in sales. The components of our cost of merchandise and services sold may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

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Selling, General and Administrative Expenses

Our SG&A includes selling and operating expenses across our retail locations and digital platform, and our corporate-level general and administrative expenses. Selling and operating expenses at retail locations include payroll, bonus and benefit costs for personnel, supplies, and credit and debit card processing costs. Corporate expenses include payroll, bonus, and benefit costs for our corporate and field support functions, equity-based compensation, marketing and advertising, insurance, utilities, occupancy costs related to our corporate office facilities, professional services, and depreciation and amortization for all assets, except those related to our retail locations and distribution operations, which are included in cost of merchandise and services sold. Selling and operating expenses generally vary proportionately with sales and the change in the number of locations. In contrast, general and administrative expenses are generally not directly proportional to sales and the change in the number of locations but are expected to increase over time to support our growth and public company obligations. The components of our SG&A may not be comparable to the components of similar measures of other companies.

Operating Income (Loss)

Operating income (loss) is gross profit less SG&A. Operating income (loss) excludes interest expense, loss on debt extinguishment, income tax expense (benefit), and other (income) expenses, net. We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest (including amortization of debt issuance costs), taxes, depreciation and amortization, management fees, equity-based compensation expense, loss on debt extinguishment, costs related to equity offerings, strategic project costs, executive transition costs, severance, losses (gains) on asset dispositions, merger and acquisition costs, and other non-recurring, non-cash or discrete items. Adjusted EBITDA is a key measure used by management and our board of directors to assess our financial performance. Adjusted EBITDA is also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other companies using similar measures.

Adjusted EBITDA is not a recognized measure of financial performance under GAAP but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance in isolation from, or as a substitute for, net income (loss), cash flows from operations or cash flow data, all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

Adjusted Net Income (Loss) and Adjusted Earnings per Share

Adjusted net income (loss) and Adjusted earnings per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net income (loss) and Adjusted earnings per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude management fees, equity-based compensation expense, loss on debt extinguishment, costs related to equity offerings, strategic project costs, executive transition costs, severance, losses (gains) on asset dispositions, merger and acquisition costs, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

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Factors Affecting the Comparability of our Results of Operations

Our reported results have been affected by, among other events, the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.

Impact of Macroeconomic Events and Uncertainties

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including the COVID-19 pandemic, escalating global conflicts, supply chain disruptions, labor market constraints, rising rates of inflation, rising interest rates, general economic slowdown, and potential failures among financial institutions. The extent of the impact of COVID-19 on our financial and operating performance depends significantly on the duration and severity of the pandemic, the actions taken to contain or mitigate its impact, and any changes in consumer behaviors. While it is not possible to predict the likelihood, timing, or severity of future direct and indirect impacts of COVID-19 on our business, due to the non-discretionary nature of our products and services, our business has delivered strong growth and profitability throughout the pandemic, despite restrictions on the operation of our locations and distribution facilities. Significant disruption to our supply chain for products we sell, as a result of COVID-19, geopolitical conflict or otherwise, could have a material impact on our sales and earnings.

Business Acquisitions

See Note 3—Business Combinations to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information regarding our business acquisitions.

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Results of Operations

We derived our condensed consolidated statements of operations for the three and nine months ended July 1, 2023 and July 2, 2022 from our condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended
Statements of Operations Data:	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Sales	$	610,891		$	673,633		$	1,018,839		$	1,086,529
Cost of merchandise and services sold		359,295			370,026			630,777			629,977
Gross profit		251,596			303,607			388,062			456,552
Selling, general and administrative expenses		135,789			131,469			324,427			300,872
Operating income		115,807			172,138			63,635			155,680
Other expense:
Interest expense		17,675			6,847			48,282			20,659
Other (income) expenses, net		—			(143	)		—			407
Total other expense		17,675			6,704			48,282			21,066
Income before taxes		98,132			165,434			15,353			134,614
Income tax expense		25,585			42,448			4,592			33,519
Net income	$	72,547		$	122,986		$	10,761		$	101,095
Earnings per share
Basic	$	0.39		$	0.67		$	0.06		$	0.55
Diluted	$	0.39		$	0.67		$	0.06		$	0.54
Weighted average shares outstanding
Basic		183,932			182,937			183,725			184,707
Diluted		184,760			184,721			184,752			186,695

Percentage of Sales(1)	(%)			(%)			(%)			(%)
Sales		100.0			100.0			100.0			100.0
Cost of merchandise and services sold		58.8			54.9			61.9			58.0
Gross margin		41.2			45.1			38.1			42.0
Selling, general and administrative expenses		22.2			19.5			31.8			27.7
Operating income		19.0			25.6			6.2			14.3
Other expense:
Interest expense		2.9			1.0			4.7			1.9
Other (income) expenses, net		—			—			—			—
Total other expense		2.9			1.0			4.7			1.9
Income before taxes		16.1			24.6			1.5			12.4
Income tax expense		4.2			6.3			0.5			3.1
Net income		11.9			18.3			1.1			9.3
Other Financial and Operations Data:
Number of new and acquired locations, net		12			14			19			27
Number of locations open at end of period		1,009			979			1,009			979
Comparable sales growth(2)		(11.8	)%		7.4	%		(10.9	)%		10.7	%
Adjusted EBITDA(3)	$	129,038		$	182,942		$	108,683		$	192,734
Adjusted EBITDA as a percentage of sales(3)		21.1	%		27.2	%		10.7	%		17.7	%
Adjusted net income(3)	$	76,362		$	125,685		$	25,370		$	112,031
Adjusted diluted earnings per share	$	0.41		$	0.68		$	0.14		$	0.60

(1)

Components may not add to totals due to rounding.

(2)

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors and Measures We Use to Evaluate Our Business.”

(3)

The tables below provide a reconciliation from our net income to Adjusted EBITDA and net income to Adjusted net income for the three and nine months ended July 1, 2023 and July 2, 2022, respectively (in thousands).

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	Three Months Ended					Nine Months Ended
	July 1, 2023		July 2, 2022			July 1, 2023		July 2, 2022
Net income	$	72,547	$	122,986		$	10,761	$	101,095
Interest expense		17,675		6,847			48,282		20,659
Income tax expense		25,585		42,448			4,592		33,519
Depreciation and amortization expense(1)		8,144		7,063			25,569		22,880
Equity-based compensation expense(2)		2,754		3,113			9,460		8,825
Costs related to equity offerings(3)		—		—			—		550
Strategic project costs(4)		749		641			2,763		4,428
Executive transition costs and other(5)		1,584		(156	)		7,256		778
Adjusted EBITDA	$	129,038	$	182,942		$	108,683	$	192,734


	Three Months Ended						Nine Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Net income	$	72,547		$	122,986		$	10,761		$	101,095
Equity-based compensation expense(2)		2,754			3,113			9,460			8,825
Costs related to equity offerings(3)		—			—			—			550
Strategic project costs(4)		749			641			2,763			4,428
Executive transition costs and other(5)		1,584			(156	)		7,256			778
Tax effects of these adjustments(6)		(1,272	)		(899	)		(4,870	)		(3,645	)
Adjusted net income	$	76,362		$	125,685		$	25,370		$	112,031

(1)

Includes depreciation related to our distribution centers and locations, which is reported in cost of merchandise and services sold in our condensed consolidated statements of operations.

(2)

Represents charges related to equity-based compensation and the related Company payroll tax expense, which are reported in SG&A in our condensed consolidated statements of operations.

(3)

Includes costs incurred for follow-on equity offerings, which are reported in other (income) expenses, net in our condensed consolidated statements of operations.

(4)

Represents non-recurring costs, such as third-party consulting costs, which are not part of our ongoing operations and are incurred to execute differentiated, strategic projects, and are reported in SG&A in our condensed consolidated statements of operations.

(5)

Includes executive transition costs, severance associated with corporate restructuring, losses (gains) on asset dispositions, merger and acquisition costs, and other non-recurring, non-cash, or discrete items as determined by management. Amounts are reported in SG&A in our condensed consolidated statements of operations.

(6)

Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax expense in our condensed consolidated statements of operations.

Selected Financial Information

Sales

Sales decreased to $610.9 million for the three months ended July 1, 2023, from $673.6 million in the prior year period, a decrease of $62.7 million, or 9.3%. Comparable sales decreased $78.9 million, or 11.8%, compared to the prior year period, primarily driven by traffic declines. Non-comparable sales including acquisitions and new stores were $16.1 million compared to the prior year period.

Sales decreased to $1,018.8 million for the nine months ended July 1, 2023, from $1,086.5 million in the prior year period, a decrease of $67.7 million, or 6.2%. Comparable sales decreased $118.0 million, or 10.9%, compared to the prior year period, primarily driven by traffic declines. Non-comparable sales including acquisitions and new stores were $50.3 million compared to the prior year period.

Gross Profit and Gross Margin

Gross profit decreased to $251.6 million for the three months ended July 1, 2023 from $303.6 million in the prior year period, a decrease of $52.0 million, or 17.1%. Gross margin decreased to 41.2% compared to 45.1% in the prior year period, a decrease of 390 basis points. Gross profit decreased to $388.1 million for the nine months ended July 1, 2023 from $456.6 million in the prior year period, a decrease of $68.5 million, or 15.0%. Gross margin decreased to 38.1% compared to 42.0% in the prior year period, a decrease of 390 basis points. The decreases in gross margin were primarily driven by product margin rate declines associated with increased product costs that could not be passed through to consumers, distribution expenses related to peak season inventory build, and occupancy deleverage.

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Selling, General and Administrative Expenses

SG&A increased to $135.8 million during the three months ended July 1, 2023 from $131.5 million during the three months ended July 2, 2022, an increase of $4.3 million, or 3.3%. This increase in SG&A was primarily related to a $4.5 million increase driven by non-comparable SG&A associated with acquisitions and new stores, a $1.6 million increase in executive transition and other costs primarily related to severance payments associated with the elimination of non-customer facing positions, and higher depreciation and amortization expense of $0.5 million. These increases were partially offset by reductions in comparable SG&A.

SG&A increased to $324.4 million during the nine months ended July 1, 2023 from $300.9 million during the nine months ended July 2, 2022, an increase of $23.5 million, or 7.8%. This increase in SG&A was primarily related to a $14.8 million increase driven by non-comparable SG&A associated with acquisitions and new stores, a $6.5 million increase in executive transition and other costs primarily related to severance payments associated with the elimination of non-customer facing positions, and a $0.6 million increase in non-cash equity-based compensation expense.

Total Other Expense

Total other expense increased to $17.7 million for the three months ended July 1, 2023 from $6.7 million in the prior year period, an increase of $11.0 million. Total other expense increased to $48.3 million for the nine months ended July 1, 2023 from $21.1 million in the prior year period, an increase of $27.2 million.

These increases in other expense were primarily related to the increase in interest expense of $10.9 million and $27.6 million for the three and nine months ended July 1, 2023, respectively, compared to the prior year periods, due to higher interest rates on our Term Loan and Revolving Credit Facility and increased borrowings on our Revolving Credit Facility.

Income Taxes

Income tax expense decreased to $25.6 million for the three months ended July 1, 2023 compared to $42.4 million in the prior year period, a decrease of $16.8 million. Income tax expense decreased to $4.6 million for the nine months ended July 1, 2023 compared to $33.5 million in the prior year period, a decrease of $28.9 million. These decreases were primarily attributable to lower pretax income.

The effective income tax rate was 26.1% and 29.9% for the three and nine months ended July 1, 2023, respectively. The effective income tax rate was 25.7% and 24.9% for the three and nine months ended July 2, 2022, respectively.

Net Income and Earnings per Share

Net income decreased to $72.5 million for the three months ended July 1, 2023 compared to $123.0 million in the prior year period, a decrease of $50.5 million. Net income decreased to $10.8 million for the nine months ended July 1, 2023 compared to $101.1 million in the prior year period, a decrease of $90.3 million. Diluted earnings per share was $0.39 for the three months ended July 1, 2023 compared to $0.67 in the prior year period. Diluted earnings per share was $0.06 for the nine months ended July 1, 2023 compared to $0.54 in the prior year period.

Adjusted net income decreased to $76.4 million for the three months ended July 1, 2023 compared to $125.7 million in the prior year period, a decrease of $49.3 million. Adjusted net income decreased to $25.4 million for the nine months ended July 1, 2023 compared to $112.0 million in the prior year period, a decrease of $86.6 million. Adjusted diluted earnings per share was $0.41 for the three months ended July 1, 2023 compared to $0.68 in the prior year period. Adjusted diluted earnings per share was $0.14 for the nine months ended July 1, 2023 compared to $0.60 in the prior year period.

Adjusted EBITDA

Adjusted EBITDA decreased to $129.0 million for the three months ended July 1, 2023 compared to $182.9 million in the prior year period, a decrease of $53.9 million. Adjusted EBITDA decreased to $108.7 million for the nine months ended July 1, 2023 compared to $192.7 million in the prior year period, a decrease of $84.0 million. These decreases were primarily due to decreases in gross profit and higher SG&A.

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Seasonality and Quarterly Fluctuations

Our business is highly seasonal. Sales and earnings are highest during the third and fourth fiscal quarters, which include April through September, and represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters. We have a long track record of investing in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to new locations and other growth initiatives. While these investments drive performance during the primary selling season in our third and fourth fiscal quarters, they have a negative impact on our earnings and cash flow during our first and second fiscal quarters.

We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season. We negotiate extended payment terms with certain of our primary suppliers as we receive merchandise in December through March, and we pay for merchandise in April through July.

The principal external factor affecting our business is weather. Hot weather can increase purchases of chemicals and other non-discretionary products as well as purchases of discretionary products and can drive increased purchases of installation and repair services. Unseasonably cool weather or significant amounts of rainfall during the peak sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services. In addition, unseasonably early or late warming trends can increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales.

We generally open new locations before our peak selling season begins and we generally close locations after our peak selling season ends. We expect that our quarterly results of operations will fluctuate depending on the timing and amount of sales contributed by new locations.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, debt service requirements and repurchases of shares of our common stock with internally generated cash on hand and through our Revolving Credit Facility.

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $19.4 million and $112.3 million as of July 1, 2023 and October 1, 2022, respectively. As of July 1, 2023, we had $31.0 million outstanding on our Revolving Credit Facility. No amounts were outstanding as of October 1, 2022.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, other facility costs, distribution costs, and general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by seasonality and the timing of inventory purchases.

Our capital expenditures are primarily related to infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems, ongoing location improvements, expenditures related to our distribution centers, and new location openings. We expect to fund capital expenditures from net cash provided by operating activities.

Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, share repurchases, and debt service over the next 12 months. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, then we may need to obtain additional equity or debt financing. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, whether the terms will be satisfactory to us.

As of July 1, 2023, outstanding standby letters of credit totaled $11.4 million and, after considering borrowing base restrictions, we had $207.6 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of July 1, 2023, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.

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Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table (in thousands):


	Nine Months Ended
	July 1, 2023			July 2, 2022
Net cash (used in) provided by operating activities	$	(74,813	)	$	72,658
Net cash used in investing activities		(40,898	)		(66,183	)
Net cash provided by (used in) financing activities		22,848			(156,843	)
Net decrease in cash and cash equivalents	$	(92,863	)	$	(150,368	)

Cash (Used in) Provided by Operating Activities

Net cash used in operating activities was $74.8 million for the nine months ended July 1, 2023. Net cash provided by operating activities was $72.7 million for the nine months ended July 2, 2022. This decrease was primarily driven by lower net income in the current year period and changes in working capital.

Cash Used in Investing Activities

Net cash used in investing activities decreased to $40.9 million for the nine months ended July 1, 2023 compared to $66.2 million in the prior year period, a decrease of $25.3 million. This decrease was driven by lower investments for business acquisitions of $25.1 million compared to the prior year period.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the nine months ended July 1, 2023 was $22.8 million and was primarily related to net borrowings on our Revolving Credit Facility of $31.0 million, partially offset by the repayment of long-term debt of $6.1 million and payments of employee tax withholdings related to vesting of restricted stock of $1.8 million. Net cash used in financing activities for the nine months ended July 2, 2022 was $156.8 million and was primarily related to the repurchase of common stock of $152.1 million and the net repayment of long-term debt of $6.1 million, partially offset by proceeds from option exercises of $1.4 million.

Share Repurchase Program

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, expiring December 31, 2024. As of July 1, 2023, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 13—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Contractual Obligations and Other Commitments

The following table summarizes our contractual cash obligations as of July 1, 2023 (in thousands):


	Payments Due By Period
	Total		Remainder of 2023		2024		2025		2026		2027		Thereafter
Long-term debt, net (1)	$	822,775	$	2,025	$	6,075	$	41,125	$	8,100	$	8,100	$	757,350
Purchase commitments (2)		183,506		11,624		79,223		77,667		7,383		5,401		2,208
Operating lease obligations (3)		304,484		13,674		79,993		65,950		56,785		36,885		51,197
Total	$	1,310,765	$	27,323	$	165,291	$	184,742	$	72,268	$	50,386	$	810,755

(1)

We are required to pay a commitment fee of 0.25% based on the unused portion of the Revolving Credit Facility.

(2)

Purchase obligations include all legally binding contracts and primarily relate to firm commitments for inventory purchases. Purchase orders that are not binding agreements are excluded from the table above.

(3)

Operating lease obligations relate to our locations, office, distribution, and manufacturing facilities. We are obligated to make cash payments in connection with various lease obligations and purchase commitments and all obligations require cash payments to be made by us over varying periods of time. Certain leases are renewable at our option typically for periods of five or more years and some require payments upon early termination.

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Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022. We base these estimates on historical results and various other assumptions we believe to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

There have been no material changes to our critical accounting estimates during the three and nine months ended July 1, 2023 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022. The interest rate on borrowings under our Revolving Credit Facility and Term Loan were LIBOR-based rates prior to March 2023 and June 2023, respectively. Due to the discontinuation of LIBOR-based rates, we have transitioned the impacted interest rate benchmarks to Term SOFR-based rates. See Note 9—Long-Term Debt, Net to our condensed consolidated financial statements for additional information.

Impact of Inflation and Deflation

There have been no material changes in our exposure to inflation or deflation from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022.

Item 4. Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the appropriate time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were ineffective as the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2022 was not yet remediated as of July 1, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended July 1, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

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Remediation

As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended October 1, 2022, we are in the process of implementing a plan to address the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We anticipate that the remediation of this material weakness will be completed during fiscal year 2023. We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of our remediation measures.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to various litigations, claims and other proceedings that arise from time to time in the ordinary course of business. We believe these actions are routine and incidental to the business. As of July 1, 2023, we had established reserves for claims that were probable and estimable and such reserves were not significant as of such date. While we cannot feasibly predict the outcome of these matters with certainty, we believe, based on examination of these matters, experience to date and discussions with counsel, that the ultimate liability, individually or in the aggregate, will not have a material adverse effect on our business, financial position, results of operations, or cash flows.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended October 1, 2022, except as disclosed in our Quarterly Report on Form 10-Q for the quarter ended April 1, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

None.

Sales of Unregistered Securities

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

(a) Information Required to be Disclosed on Form 8-K

On August 1, 2023, our board of directors approved and adopted the Company’s Amended and Restated Bylaws (as amended and restated, the “Bylaws”), which became effective immediately. Among other things, the amendments: (a) revise and enhance the procedural mechanics and disclosure requirements relating to business proposals submitted and director nominations made by stockholders, including by updating certain provisions to promote consistency with the SEC’s adoption of Rule 14a-19 under the Securities Exchange Act of 1934, as amended, relating to the universal proxy rules, and by requiring certain additional background information regarding the proposing stockholders, proposed nominees or business (as applicable) and certain other persons related to such matters; (b) require that a stockholder directly or indirectly soliciting proxies from other stockholders use a proxy card color other than white; (c) update the procedural mechanics with respect to adjourned meetings of stockholders; (d) revise and enhance the organizational mechanics relating to the conduct stockholder meetings; (e) opt out of Section 116 of the General Corporation Law of the State of Delaware (the “DGCL”) by requiring that certain notices and other information or documents provided by stockholders to the Company pursuant to the Bylaws be delivered in writing; (f) allow the board of directors and its committees to conduct business in the event of an emergency, as permitted under the Section 110 of the DGCL; (g) provide for certain procedures relating to the use of electronic signatures; (h) eliminate the requirement to have a stockholder list available for inspection at stockholder meetings; and (i) revise the Company’s procedures relating to the indemnification of certain parties, including by providing for the indemnification of persons serving as directors or officers of subsidiaries of the Company. The Bylaws also incorporate various other updates and technical, clarifying and conforming changes, including to reflect the phasing in of the declassification of our board of directors, as approved by the Company’s stockholders the Annual Meeting of Shareholders held on March 16, 2023, and to remove certain obsolete references to differentiated requirements before and after the “trigger event” that occurred when L Catterton and GIC Pte. Ltd. and each of their respective affiliates ceased to own at least 50% of the Company’s outstanding shares of common stock. The foregoing summary of the amendments to the Bylaws is qualified in all respects by reference to the text of the Bylaws, a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

(b) Changes to Procedures for Recommending Director Nominees

Not applicable.

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During the quarter ended July 1, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

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Item 6. Exhibits.


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date/ Period End Date
3.1*	Amended and Restated Bylaws, effective as of August 1, 2023
10.1	Amendment No. 1, dated as of June 8, 2023, to the Amended and Restated Term Loan Credit Agreement by and among Leslie’s Poolmart, Inc., Leslie’s, Inc., the lenders from time to time party thereto and Nomura Corporate Funding Americas, LLC, as administrative agent and collateral agent	8-K	10.1	6/13/2023
10.2*	Offer Letter, dated as of July 7, 2023, by and between Leslie’s Poolmart, Inc. and Scott Bowman
10.3*	Executive Severance Pay Plan, dated July 17, 2023, by and between Leslie’s Poolmart, Inc. and Scott Bowman
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934
32.1+	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2+	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Schema Document
101.CAL*	Inline XBRL Calculation Linkbase Document
101.LAB*	Inline XBRL Label Linkbase Document
101.PRE*	Inline XBRL Presentation Linkbase Document
101.DEF*	Inline XBRL Definition Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Filed herewith.

+ Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	LESLIE’S, INC.

Date: August 2, 2023	By:	/s/ Steven M. Weddell
		Steven M. Weddell
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)