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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended July 1, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-39667

 

LESLIE’S, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

20-8397425

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2005 East Indian School Road

Phoenix, AZ

85016

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

LESL

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YesNo

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

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

 

 

 


Table of Contents

Table of Contents

 

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Stockholders’ Deficit

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to 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

 

i


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. Our actual results or outcomes could differ materially from those indicated in these forward-looking statements for a variety of reasons, including, among others:

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

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended October 1, 2022, 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.

1


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

LESLIE’S, INC.

CONDENSED Consolidated Balance Sheets

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

 

 

 

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.

2


Table of Contents

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.