0001821806--09-28Q2false0001821806us-gaap:CommonStockMember2025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:TermLoanMembersrt:MinimumMember2025-03-290001821806us-gaap:RestrictedStockUnitsRSUMember2023-10-012024-03-300001821806us-gaap:RetainedEarningsMember2024-09-280001821806us-gaap:OtherIntangibleAssetsMember2024-09-280001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:DebtInstrumentRedemptionPeriodOneMember2023-06-012023-06-3000018218062023-12-300001821806us-gaap:EmployeeStockOptionMember2023-12-312024-03-300001821806us-gaap:PerformanceSharesMembersrt:MinimumMember2023-12-012023-12-300001821806us-gaap:EmployeeStockOptionMember2024-09-292025-03-2900018218062023-12-312024-03-300001821806us-gaap:CommonStockMember2024-12-292025-03-290001821806lesl:TermLoanDueInTwentyTwentyEightMemberus-gaap:FairValueInputsLevel2Member2024-03-300001821806us-gaap:RetainedEarningsMember2025-03-290001821806lesl:TermLoanMember2024-09-292024-12-280001821806us-gaap:OtherIntangibleAssetsMember2024-03-300001821806us-gaap:WorkersCompensationInsuranceMember2025-03-290001821806lesl:RestrictedStockUnitsAndPerformanceUnitsMember2024-09-280001821806us-gaap:CommonStockMember2024-12-280001821806us-gaap:AdditionalPaidInCapitalMember2023-12-300001821806lesl:TrademarksAndTradeNameMember2024-09-292025-03-290001821806us-gaap:RevolvingCreditFacilityMember2024-09-280001821806us-gaap:WorkersCompensationInsuranceMember2024-03-300001821806us-gaap:CommonStockMember2024-09-292025-03-290001821806us-gaap:CommonStockMember2021-12-032021-12-030001821806us-gaap:RetainedEarningsMember2023-09-300001821806lesl:TermLoanMember2024-09-280001821806us-gaap:AdditionalPaidInCapitalMember2023-10-012024-03-300001821806us-gaap:AdditionalPaidInCapitalMember2024-12-292025-03-2900018218062024-09-292025-03-290001821806us-gaap:EmployeeStockOptionMember2024-09-292025-03-290001821806lesl:FirstLienLeverageRatioGreaterThanTwoPointSevenFiveToOneMembersrt:MinimumMemberlesl:TermLoanMember2023-06-012023-06-300001821806us-gaap:CommonStockMember2023-09-300001821806us-gaap:RestrictedStockUnitsRSUMember2023-12-312024-03-300001821806us-gaap:RevolvingCreditFacilityMember2025-03-290001821806lesl:TermLoanMember2024-03-3000018218062024-08-3100018218062023-10-012024-09-280001821806us-gaap:RetainedEarningsMember2024-03-300001821806us-gaap:RetainedEarningsMember2024-12-280001821806us-gaap:PerformanceSharesMembersrt:MinimumMember2024-12-012024-12-310001821806lesl:FirstLienLeverageRatioLessThanOrEqualToTwoPointSevenFiveToOneMemberlesl:TermLoanMembersrt:MaximumMember2023-06-012023-06-300001821806us-gaap:AdditionalPaidInCapitalMember2024-12-280001821806us-gaap:PerformanceSharesMembersrt:MaximumMember2024-12-012024-12-310001821806us-gaap:BaseRateMemberlesl:ABLCreditFacilityMembersrt:MaximumMember2024-09-292025-03-2900018218062023-09-300001821806us-gaap:AdditionalPaidInCapitalMember2024-09-292025-03-290001821806lesl:RestrictedStockUnitsAndPerformanceUnitsMember2025-03-290001821806us-gaap:PerformanceSharesMember2023-12-012023-12-300001821806us-gaap:CommonStockMember2024-03-3000018218062023-10-012024-03-3000018218062024-12-292025-03-290001821806lesl:ABRMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806us-gaap:TrademarksAndTradeNamesMember2024-03-300001821806us-gaap:RestrictedStockUnitsRSUMember2024-09-292025-03-290001821806us-gaap:RevolvingCreditFacilityMember2023-03-012023-03-310001821806lesl:TrademarksAndTradeNameMember2024-03-300001821806us-gaap:CommonStockMember2021-12-162021-12-160001821806us-gaap:AdditionalPaidInCapitalMember2023-09-300001821806us-gaap:CommonStockMember2021-12-160001821806us-gaap:BaseRateMemberus-gaap:RevolvingCreditFacilityMembersrt:MinimumMember2023-03-012023-03-310001821806us-gaap:PerformanceSharesMembersrt:MaximumMember2023-12-012023-12-300001821806lesl:FirstLienLeverageRatioGreaterThanTwoPointSevenFiveToOneMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806lesl:ABRMemberlesl:FirstLienLeverageRatioLessThanOrEqualToTwoPointSevenFiveToOneMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806lesl:TermLoanDueInTwentyTwentyEightMemberus-gaap:FairValueInputsLevel2Member2025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:ABLCreditFacilityMembersrt:MinimumMember2024-09-292025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:TermLoanMembersrt:MinimumMember2024-09-292025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:ABLCreditFacilityMembersrt:MaximumMember2024-09-292025-03-290001821806us-gaap:NoncompeteAgreementsMember2025-03-290001821806lesl:TermLoanMember2024-12-280001821806us-gaap:BaseRateMemberus-gaap:RevolvingCreditFacilityMembersrt:MaximumMember2023-03-012023-03-310001821806srt:ScenarioForecastMember2024-01-012027-12-310001821806us-gaap:DebtInstrumentRedemptionPeriodTwoMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-06-012023-06-300001821806lesl:TrademarksAndTradeNameMember2025-03-290001821806lesl:FirstLienLeverageRatioGreaterThanTwoPointSevenFiveToOneMemberlesl:ABRMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806us-gaap:CommonStockMember2021-12-030001821806us-gaap:OtherIntangibleAssetsMember2025-03-290001821806us-gaap:AdditionalPaidInCapitalMember2024-09-280001821806lesl:TermLoanMember2023-06-012023-06-300001821806us-gaap:DebtInstrumentRedemptionPeriodThreeMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-06-012023-06-300001821806us-gaap:RevolvingCreditFacilityMember2023-03-310001821806us-gaap:PerformanceSharesMember2024-12-012024-12-310001821806lesl:TrademarksAndTradeNameMember2023-10-012024-03-300001821806us-gaap:CustomerRelationshipsMember2024-09-280001821806us-gaap:EmployeeStockOptionMember2024-09-280001821806us-gaap:RevolvingCreditFacilityMember2024-03-300001821806lesl:FirstLienLeverageRatioGreaterThanTwoPointSevenFiveToOneMemberlesl:TermLoanMembersrt:MaximumMember2023-06-012023-06-300001821806lesl:GeneralLiabilityInsuranceProgramMembersrt:MaximumMember2025-03-290001821806us-gaap:EmployeeStockOptionMember2023-10-012024-03-300001821806lesl:TermLoanMember2023-06-300001821806us-gaap:AdditionalPaidInCapitalMember2024-03-300001821806us-gaap:NoncompeteAgreementsMember2024-09-280001821806us-gaap:RetainedEarningsMember2023-10-012024-03-300001821806us-gaap:AdditionalPaidInCapitalMember2025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:RevolvingCreditFacilityMembersrt:MaximumMember2023-03-012023-03-310001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:RevolvingCreditFacilityMember2023-03-012023-03-310001821806us-gaap:EmployeeStockOptionMember2025-03-2900018218062024-12-280001821806us-gaap:CommonStockMember2023-10-012024-03-300001821806us-gaap:RevolvingCreditFacilityMemberus-gaap:InterestRateFloorMember2023-03-012023-03-310001821806us-gaap:NoncompeteAgreementsMember2024-03-300001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:FirstLienLeverageRatioLessThanOrEqualToTwoPointSevenFiveToOneMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-12-312024-03-300001821806us-gaap:TrademarksAndTradeNamesMember2024-09-280001821806lesl:RestrictedStockUnitsAndPerformanceUnitsMember2024-09-292025-03-290001821806us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-10-012024-03-300001821806us-gaap:SellingGeneralAndAdministrativeExpensesMember2024-09-292025-03-290001821806lesl:TermLoanDueInTwentyTwentyEightMemberus-gaap:FairValueInputsLevel2Member2024-09-280001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:TermLoanMemberlesl:ApplicableRateMember2023-06-012023-06-300001821806us-gaap:RetainedEarningsMember2023-12-300001821806us-gaap:RestrictedStockUnitsRSUMember2024-12-292025-03-290001821806us-gaap:CustomerRelationshipsMember2024-03-3000018218062025-03-290001821806lesl:FirstLienLeverageRatioLessThanOrEqualToTwoPointSevenFiveToOneMemberlesl:TermLoanMembersrt:MinimumMember2023-06-012023-06-300001821806us-gaap:TrademarksAndTradeNamesMember2025-03-290001821806us-gaap:BaseRateMemberlesl:ABLCreditFacilityMembersrt:MinimumMember2024-09-292025-03-290001821806us-gaap:CustomerRelationshipsMember2025-03-290001821806us-gaap:CommonStockMember2023-12-312024-03-300001821806us-gaap:RevolvingCreditFacilityMember2024-04-032024-04-030001821806us-gaap:RetainedEarningsMember2024-09-292025-03-290001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberlesl:TermLoanMembersrt:MaximumMember2025-03-2900018218062024-03-300001821806us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:RevolvingCreditFacilityMembersrt:MinimumMember2023-03-012023-03-310001821806lesl:TrademarksAndTradeNameMember2023-10-012024-09-280001821806lesl:TermLoanMember2025-03-290001821806lesl:TrademarksAndTradeNameMember2024-09-280001821806us-gaap:SellingGeneralAndAdministrativeExpensesMember2024-12-292025-03-290001821806us-gaap:AdditionalPaidInCapitalMember2023-12-312024-03-300001821806us-gaap:RetainedEarningsMember2023-12-312024-03-300001821806us-gaap:EmployeeStockOptionMember2024-12-292025-03-290001821806us-gaap:CommonStockMember2023-12-300001821806us-gaap:CommonStockMember2024-09-2800018218062025-05-020001821806us-gaap:RetainedEarningsMember2024-12-292025-03-2900018218062024-09-28iso4217:USDxbrli:shareslesl:Statelesl:Locationxbrli:purexbrli:sharesiso4217:USD

 

9184

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 March 29, 2025

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 May 2, 2025, the Registrant had 185,421,657, 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

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Stockholders’ Deficit

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to the Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

 

 

Signatures

 

31

 

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, legal proceedings, competitive advantages, market size, growth opportunities, industry expectations, 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 or increased costs, including as a result of trade policies;
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 high interest rates, recession fears, inflationary pressures and changes in trade policies, including tariffs or other trade restrictions or the threat of such actions), 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 execute on our management transition plans and to attract and retain senior management and other qualified personnel;
regulatory changes and developments affecting our current and future products including evolving legal standards, regulations and stakeholder expectations concerning environmental, social and governance (“ESG”) matters;
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 regain and maintain compliance with Nasdaq listing standards;
our ability to remediate material weaknesses or other deficiencies in our internal control over financial reporting 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 September 28, 2024, in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and in our other filings with the SEC. 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, outcomes, 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.

1


Table of Contents

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, changed expectations, the occurrence of unanticipated events or otherwise, except as required by law. We may not actually achieve the plans, intentions, outcomes, 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.

2


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)

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

 

 

(Unaudited)

 

 

(Audited)

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,252

 

 

$

108,505

 

 

$

8,436

 

Accounts and other receivables, net

 

 

32,036

 

 

 

45,467

 

 

 

32,693

 

Inventories

 

 

335,101

 

 

 

234,283

 

 

 

379,090

 

Prepaid expenses and other current assets

 

 

33,180

 

 

 

34,179

 

 

 

33,413

 

Total current assets

 

 

417,569

 

 

 

422,434

 

 

 

453,632

 

Property and equipment, net

 

 

95,515

 

 

 

98,447

 

 

 

89,820

 

Operating lease right-of-use assets

 

 

250,916

 

 

 

270,488

 

 

 

260,221

 

Goodwill and other intangibles, net

 

 

213,315

 

 

 

215,127

 

 

 

216,973

 

Deferred tax assets

 

 

29,132

 

 

 

4,168

 

 

 

34,297

 

Other assets

 

 

36,509

 

 

 

39,661

 

 

 

40,305

 

Total assets

 

$

1,042,956

 

 

$

1,050,325

 

 

$

1,095,248

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

114,770

 

 

$

67,622

 

 

$

112,441

 

Accrued expenses and other current liabilities

 

 

88,310

 

 

 

106,713

 

 

 

79,989

 

Operating lease liabilities

 

 

64,534

 

 

 

63,357

 

 

 

61,571

 

Income taxes payable

 

 

 

 

 

1,127

 

 

 

 

Current portion of long-term debt

 

 

 

 

 

8,100

 

 

 

8,100

 

Total current liabilities

 

 

267,614

 

 

 

246,919

 

 

 

262,101

 

Operating lease liabilities, noncurrent

 

 

188,174

 

 

 

209,067

 

 

 

193,818

 

Revolving credit facility

 

 

101,500

 

 

 

 

 

 

97,000

 

Long-term debt, net

 

 

751,077

 

 

 

769,065

 

 

 

770,157

 

Other long-term liabilities

 

 

4,050

 

 

 

2,423

 

 

 

3,144

 

Total liabilities

 

 

1,312,415

 

 

 

1,227,474

 

 

 

1,326,220

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 1,000,000,000 shares authorized and 185,401,657, 184,969,296, and 184,742,767 issued and outstanding as of March 29, 2025, September 28, 2024, and March 30, 2024, respectively.

 

 

185

 

 

 

185

 

 

 

185

 

Additional paid-in capital

 

 

110,445

 

 

 

106,871

 

 

 

103,775

 

Retained deficit

 

 

(380,089

)

 

 

(284,205

)

 

 

(334,932

)

Total stockholders’ deficit

 

 

(269,459

)

 

 

(177,149

)

 

 

(230,972

)

Total liabilities and stockholders’ deficit

 

$

1,042,956

 

 

$

1,050,325

 

 

$

1,095,248

 

 

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

3


Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Sales

 

$

177,134

 

 

$

188,664

 

 

$

352,362

 

 

$

362,624

 

Cost of merchandise and services sold

 

 

133,188

 

 

 

134,336

 

 

 

260,699

 

 

 

257,888

 

Gross profit

 

 

43,946

 

 

 

54,328

 

 

 

91,663

 

 

 

104,736

 

Selling, general and administrative expenses

 

 

92,325

 

 

 

84,856

 

 

 

179,741

 

 

 

171,734

 

Operating loss

 

 

(48,379

)

 

 

(30,528

)

 

 

(88,078

)

 

 

(66,998

)

Interest expense

 

 

15,897

 

 

 

18,153

 

 

 

31,661

 

 

 

35,224

 

Loss before taxes

 

 

(64,276

)

 

 

(48,681

)

 

 

(119,739

)

 

 

(102,222

)

Income tax benefit

 

 

(12,956

)

 

 

(14,128

)

 

 

(23,855

)

 

 

(28,116

)

Net loss

 

$

(51,320

)

 

$

(34,553

)

 

$

(95,884

)

 

$

(74,106

)

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

Diluted

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

Diluted

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

 

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

4


Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Stockholders’ Deficit

(Amounts in Thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid in Capital

 

 

Retained Deficit

 

 

Stockholders’ Deficit

 

Balance, December 30, 2023

 

 

184,513

 

 

$

184

 

 

$

101,547

 

 

$

(300,379

)

 

$

(198,648

)

Issuance of common stock under the Plan

 

 

320

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Equity-based compensation

 

 

 

 

 

 

 

 

2,688

 

 

 

 

 

 

2,688

 

Restricted stock units surrendered in lieu of withholding taxes

 

 

(90

)

 

 

 

 

 

(460

)

 

 

 

 

 

(460

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(34,553

)

 

 

(34,553

)

Balance, March 30, 2024

 

 

184,743

 

 

$

185

 

 

$

103,775

 

 

$

(334,932

)

 

$

(230,972

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 28, 2024

 

 

185,208

 

 

 

185

 

 

 

108,546

 

 

 

(328,769

)

 

 

(220,038

)

Issuance of common stock under the Plan

 

 

209

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,914

 

 

 

 

 

 

1,914

 

Restricted stock units surrendered in lieu of withholding taxes

 

 

(15

)

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(51,320

)

 

 

(51,320

)

Balance, March 29, 2025

 

 

185,402

 

 

$

185

 

 

$

110,445

 

 

$

(380,089

)

 

$

(269,459

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid in Capital

 

 

Retained Deficit

 

 

Stockholders’ Deficit

 

Balance, September 30, 2023

 

 

184,334

 

 

$

184

 

 

$

99,280

 

 

$

(260,826

)

 

$

(161,362

)

Issuance of common stock under the Plan

 

 

541

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Equity-based compensation

 

 

 

 

 

 

 

 

5,383

 

 

 

 

 

 

5,383

 

Repurchase and retirement of common stock

 

 

(132

)

 

 

 

 

 

(888

)

 

 

 

 

 

(888

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(74,106

)

 

 

(74,106

)

Balance, March 30, 2024

 

 

184,743

 

 

$

185

 

 

$

103,775

 

 

$

(334,932

)

 

$

(230,972

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 28, 2024

 

 

184,969

 

 

$

185

 

 

$

106,871

 

 

$

(284,205

)

 

$

(177,149

)

Issuance of common stock under the Plan

 

 

461

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,623

 

 

 

 

 

 

3,623

 

Restricted stock units surrendered in lieu of withholding taxes

 

 

(28

)

 

 

 

 

 

(49

)

 

 

 

 

 

(49

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(95,884

)

 

 

(95,884

)

Balance, March 29, 2025

 

 

185,402

 

 

$

185

 

 

$

110,445

 

 

$

(380,089

)

 

$

(269,459

)

 

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

5


Table of Contents

LESLIE’S, INC.

CONDENSED Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(95,884

)

 

$

(74,106

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

16,508

 

 

 

16,173

 

Equity-based compensation

 

 

3,623

 

 

 

5,383

 

Amortization of deferred financing costs and debt discounts

 

 

1,078

 

 

 

1,116

 

Provision for doubtful accounts

 

 

205

 

 

 

318

 

Deferred income taxes

 

 

(24,964

)

 

 

(26,699

)

Loss on asset dispositions

 

 

98

 

 

 

88

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts and other receivables

 

 

13,226

 

 

 

(3,615

)

Inventories

 

 

(100,818

)

 

 

(67,253

)

Prepaid expenses and other current assets

 

 

999

 

 

 

(9,780

)

Other assets

 

 

3,011

 

 

 

5,461

 

Accounts payable

 

 

47,148

 

 

 

53,885

 

Accrued expenses and other current liabilities

 

 

(17,268

)

 

 

(9,649

)

Income taxes payable

 

 

(1,127

)

 

 

(5,782

)

Operating lease assets and liabilities, net

 

 

(144

)

 

 

(622

)

Net cash used in operating activities

 

 

(154,309

)

 

 

(115,082

)

Investing Activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(11,211

)

 

 

(24,008

)

Proceeds from asset dispositions

 

 

86

 

 

 

44

 

Net cash used in investing activities

 

 

(11,125

)

 

 

(23,964

)

Financing Activities

 

 

 

 

 

 

Borrowings on revolving credit facility

 

 

119,500

 

 

 

130,500

 

Payments on revolving credit facility

 

 

(18,000

)

 

 

(33,500

)

Repayment of long-term debt

 

 

(27,025

)

 

 

(4,050

)

Payments on finance leases

 

 

(245

)

 

 

 

Payments of employee tax withholdings related to restricted stock vesting

 

 

(49

)

 

 

(888

)

Net cash provided by financing activities

 

 

74,181

 

 

 

92,062

 

Net decrease in cash and cash equivalents

 

 

(91,253

)

 

 

(46,984

)

Cash and cash equivalents, beginning of period

 

 

108,505

 

 

 

55,420

 

Cash and cash equivalents, end of period

 

$

17,252

 

 

$

8,436

 

Supplemental Information:

 

 

 

 

 

 

Cash paid for interest

 

$

26,389

 

 

$

35,517

 

Cash paid for income taxes, net of refunds received

 

 

3,162

 

 

 

6,046

 

 

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

6


Table of Contents

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 over 1,000 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 September 28, 2024.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on our results of operations.

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 as approved by the board. 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 March 29, 2025 and March 30, 2024 refer to the 13 weeks ended March 29, 2025 and March 30, 2024 respectively. Reference to the six months ended March 29, 2025 and March 30, 2024 refer to the 26 weeks ended March 29, 2025 and March 30, 2024, 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 reserves, self-insurance liabilities, the recoverability of intangible assets and goodwill, 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, 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 September 28, 2024. 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 September 28, 2024.

7


Table of Contents

Recent Accounting Pronouncements

In January 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 2020-40): Disaggregation of Income Statement Expenses. This update clarifies the initial effective date for entities that do not have an annual reporting period that ends on December 31 to be the first annual reporting period beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the ASU to determine its impact on our disclosures; however, we do not expect there to be a material impact.

In November 2024, FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update requires additional disclosures over certain expenses, including purchases of inventory, employee compensation, depreciation, intangible asset amortization, and other specific expense categories. This standard also requires disclosure of the total amount of selling expenses and the Company's definition of selling expenses. This update is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the ASU to determine its impact on our disclosures; however, we do not expect there to be a material impact.

In December 2023, FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We are currently evaluating the ASU to determine its impact on our disclosures; however, we do not expect there to be a material impact.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which require an entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”) and the significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss. This update is effective for annual periods beginning after December 15, 2023 and interim disclosures beginning after December 15, 2024, though early adoption is permitted. This update is effective retrospectively upon adoption to all periods presented in the financial statements. We are currently evaluating the ASU to determine its impact on our disclosures; however, we do not expect there to be a material impact.

Note 3 —Goodwill and Other Intangibles, Net

Goodwill

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

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Balance at beginning of the period

 

$

180,698

 

 

$

180,698

 

 

$

180,698

 

Acquisitions, net of measurement period adjustments

 

 

-

 

 

 

-

 

 

 

-

 

Balance at the end of the period

 

$

180,698

 

 

$

180,698

 

 

$

180,698

 

Other Intangibles

Other intangible assets consisted of the following as of March 29, 2025 (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)

 

 

8.5

 

 

$

22,100

 

 

$

(6,341

)

 

$

15,759

 

Trade name and trademarks (indefinite life)

 

Indefinite

 

 

 

9,350

 

 

 

 

 

 

9,350

 

Non-compete agreements

 

 

3.9

 

 

 

2,260

 

 

 

(1,471

)

 

 

789

 

Consumer relationships

 

 

6.3

 

 

 

15,400

 

 

 

(8,744

)

 

 

6,656

 

Other intangibles

 

 

3.6

 

 

 

4,000

 

 

 

(3,937

)

 

 

63

 

Total

 

 

 

 

$

53,110

 

 

$

(20,493

)

 

$

32,617

 

 

8


Table of Contents

 

Other intangible assets consisted of the following as of September 28, 2024 (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)

 

 

8.9

 

 

$

22,100

 

 

$

(5,355

)

 

$

16,745

 

Trade name and trademarks (indefinite life)

 

Indefinite

 

 

 

9,350

 

 

 

 

 

 

9,350

 

Non-compete agreements

 

 

4.4

 

 

 

2,260

 

 

 

(1,368

)

 

 

892

 

Consumer relationships

 

 

6.6

 

 

 

15,400

 

 

 

(8,038

)

 

 

7,362

 

Other intangibles

 

 

4.1

 

 

 

4,000

 

 

 

(3,920

)

 

 

80

 

Total

 

 

 

 

$

53,110

 

 

$

(18,681

)

 

$

34,429

 

 

Other intangible assets consisted of the following as of March 30, 2024 (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)

 

 

9.4

 

 

$

22,100

 

 

$

(4,350

)

 

$

17,750

 

Trade name and trademarks (indefinite life)

 

Indefinite

 

 

 

9,350

 

 

 

 

 

 

9,350

 

Non-compete agreements

 

 

4.9

 

 

 

2,260

 

 

 

(1,265

)

 

 

995

 

Consumer relationships

 

 

7.0

 

 

 

15,400

 

 

 

(7,332

)

 

 

8,068

 

Other intangibles

 

 

4.6

 

 

 

4,000

 

 

 

(3,888

)

 

 

112

 

Total

 

 

 

 

$

53,110

 

 

$

(16,835

)

 

$

36,275

 

 

Amortization expense was $0.9 million and $0.9 million for the three months ended March 29, 2025 and March 30, 2024, respectively. Amortization expense was $1.8 million and $1.9 million for the six months ended March 29, 2025 and March 30, 2024, respectively. No impairment of goodwill or other intangible assets was recorded during the three and six months ended March 29, 2025 and March 30, 2024.

The following table summarizes the estimated future amortization expense related to finite-lived intangible assets on our condensed consolidated balance sheet as of March 29, 2025 (in thousands):

 

 

Amount

 

Remainder of fiscal 2025

 

$

1,889

 

2026

 

 

3,382

 

2027

 

 

3,262

 

2028

 

 

3,150

 

2029

 

 

2,899

 

Thereafter

 

 

8,685

 

Total

 

$

23,267

 

 

Note 4—Accounts and Other Receivables, Net

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

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Vendor and other rebates receivable

 

$

15,446

 

 

$

24,713

 

 

$

14,597

 

Customer receivables

 

 

16,029

 

 

 

18,262

 

 

 

15,120

 

Other receivables

 

 

2,737

 

 

 

4,723

 

 

 

4,668

 

Allowance for doubtful accounts

 

 

(2,176

)

 

 

(2,231

)

 

 

(1,692

)

Total

 

$

32,036

 

 

$

45,467

 

 

$

32,693

 

 

9


Table of Contents

Note 5—Inventories

Inventories consisted of the following (in thousands):

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Raw materials

 

$

3,973

 

 

$

3,381

 

 

$

4,693

 

Finished goods

 

 

331,128

 

 

 

230,902

 

 

 

374,397

 

Total

 

$

335,101

 

 

$

234,283

 

 

$

379,090

 

 

Note 6—Prepaid Expenses and Other Current Assets

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

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Prepaid insurance

 

$

5,366

 

 

$

1,120

 

 

$

5,777

 

Prepaid occupancy costs

 

 

2,404

 

 

 

2,132

 

 

 

2,167

 

Prepaid sales tax

 

 

3,266

 

 

 

3,719

 

 

 

3,396

 

Prepaid maintenance

 

 

3,735

 

 

 

4,388

 

 

 

5,329

 

Prepaid other

 

 

4,956

 

 

 

13,380

 

 

 

2,024

 

Other current assets

 

 

13,453

 

 

 

9,440

 

 

 

14,720

 

Total

 

$

33,180

 

 

$

34,179

 

 

$

33,413

 

 

Note 7—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Accrued payroll and employee benefits

 

$

21,022

 

 

$

20,813

 

 

$

15,587

 

Customer deposits

 

 

6,553

 

 

 

5,289

 

 

 

6,370

 

Interest

 

 

9,738

 

 

 

5,545

 

 

 

1,179

 

Inventory related accruals

 

 

10,171

 

 

 

13,586

 

 

 

8,498

 

Loyalty and deferred revenue

 

 

7,792

 

 

 

6,269

 

 

 

7,577

 

Sales tax

 

 

6,506

 

 

 

8,282

 

 

 

6,532

 

Self-insurance reserves

 

 

11,146

 

 

 

9,287

 

 

 

11,477

 

Other accrued liabilities

 

 

15,382

 

 

 

37,642

 

 

 

22,769

 

Total

 

$

88,310

 

 

$

106,713

 

 

$

79,989

 

As of March 29, 2025, September 28, 2024, and March 30, 2024, capital expenditures included in other accrued liabilities were $0.8 million, $1.0 million, and $0.6 million, respectively.

10


Table of Contents

Note 8—Long-Term Debt, Net

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

 

 

 

Effective
Interest Rate
(1)

 

 

March 29, 2025

 

 

September 28, 2024

 

 

March 30, 2024

 

Term Loan

 

 

7.30

%

(2)

$

756,650

 

 

$

783,675

 

 

$

785,700

 

Revolving Credit Facility

 

 

5.94

%

(3)

 

101,500

 

 

 

 

 

 

97,000

 

Total long-term debt

 

 

 

 

 

858,150

 

 

 

783,675

 

 

 

882,700

 

Less: current portion of long-term debt

 

 

 

 

 

 

 

 

(8,100

)

 

 

(8,100

)

Less: noncurrent Revolving Credit Facility

 

 

 

 

 

(101,500

)

 

 

 

 

 

(97,000

)

Less: unamortized discount

 

 

 

 

 

(1,564

)

 

 

(1,818

)

 

 

(2,068

)

Less: deferred financing charges

 

 

 

 

 

(4,009

)

 

 

(4,692

)

 

 

(5,375

)

Total long-term debt, net

 

 

 

 

$

751,077

 

 

$

769,065

 

 

$

770,157

 

 

(1)
Effective interest rates as of March 29, 2025.
(2)
Carries interest at a specified margin over the Term Secured Overnight Financing Rate (“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 (the “Applicable Rate”) ABR loans. 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.

During the quarter ended December 28, 2024, we made our normal principal payment of $2.0 million and a $25.0 million pre-payment on our Term Loan. This pre-payment was applied to our scheduled principal payments in fiscal years 2025, 2026 and 2027, however we still intend to make our regular principal payments in each quarter during those years, representing $8.1 million annually, unless other business opportunities arise.

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.

On April 3, 2024, we entered into Amendment No. 7 to our Revolving Credit Facility (the “2024 Amendment”). The 2024 Amendment (i) extended the maturity date to April 3, 2029 and (ii) revised the applicable margin on Term SOFR and base rate loans. The other material terms of the Revolving Credit Facility prior to the 2024 Amendment remained substantially unchanged.

As of March 29, 2025, we had $101.5 million outstanding on our Revolving Credit Facility. The amount available under our Revolving Credit Facility was reduced by $11.9 million and $10.4 million of existing standby letters of credit as of March 29, 2025 and September 28, 2024, respectively.

11


Table of Contents

Fair Value

The fair value of our Term Loan due in 2028 was determined to be $571.7 million as of March 29, 2025, $758.2 million as of September 28, 2024, and $784.2 million as of March 30, 2024. These fair value estimates, determined to be Level 2, are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

Representations and Covenants

Substantially all of our assets are pledged as collateral to secure our indebtedness. The Term Loan does 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 March 29, 2025, September 28, 2024, and March 30, 2024.

Future Debt Maturities

The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of March 29, 2025 (in thousands):

 

 

Amount

 

Remainder of fiscal 2025

 

$

101,500

 

2026

 

 

 

2027

 

 

 

2028

 

 

756,650

 

2029

 

 

 

Thereafter

 

 

 

Total

 

$

858,150

 

 

 

Note 9—Income Taxes

 

Our effective income tax rate was 19.9% for the six months ended March 29, 2025, compared to 27.5% for the six months ended March 30, 2024. The differences between the statutory rate and our effective rate for the six months ended March 29, 2025 were primarily attributable to state taxes and changes in the valuation allowance related to our interest expense limitation. The difference between the statutory rate and our effective rate for the six months ended March 30, 2024 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.

For the six months ended March 29, 2025, we utilized the discrete effective tax rate method, as allowed by ASC 740- 270-30-18, “Income Taxes—Interim Reporting,” to calculate our interim income tax provision. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that the use of this discrete method is more appropriate than the annual effective tax rate method due to the sensitivity of tax adjustments to marginal pre-tax book profitability anticipated for the year.

Note 10—Commitments & Contingencies

Contingencies

On September 8, 2023, a class action complaint for violation of federal securities laws was filed by West Palm Beach Police Pension Fund in the U.S. District Court for the District of Arizona against us, our former Chief Executive Officer and our former Chief Financial Officer. On December 1, 2023, the court appointed the lead plaintiff, and on February 20, 2024, the lead plaintiff filed an amended and consolidated complaint. The amended and consolidated complaint alleges that we violated federal securities laws by issuing materially false and misleading statements that failed to disclose adverse facts about our financial guidance, business operations and prospects, and seeks class certification, damages, interest, attorneys’ fees, and other relief. On April 22, 2024, we filed a motion to dismiss the amended and consolidated complaint. That motion is fully briefed and pending before the court. Due to the early stage of this proceeding, we cannot reasonably estimate the potential range of loss, if any. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

On March 13, 2024 and March 14, 2024, and December 17, 2024, three derivative actions were separately filed in the U.S. District Courts for the Districts of Arizona and Delaware by John Clemens, Sally Flynn, and Ian Mednick, on behalf of the company, against our officers and directors. Each of the three complaints include substantially the same allegations as those in the securities

12


Table of Contents

class action, and allege that the defendant directors and officers harmed the Company by either making false or misleading statements, or allowing false or misleading statements to be made. The complaints seek the award of damages, costs, attorney’s fees, and other declaratory relief. The two derivative actions pending in the U.S. District Court for the District of Arizona have been consolidated into a single proceeding. All of the derivative actions are stayed pending a decision on the motion to dismiss in the securities class action. Due to the early stage of these proceedings, we cannot reasonably estimate the potential range of loss, if any. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

We are also 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 on our condensed consolidated financial position or results of operations. We did not record any material loss contingencies for the periods presented.

In August 2024, the Company entered into an amended agreement with one of its vendors in which the Company provided a guarantee of certain existing and future warranty obligations of the vendor’s products. In exchange for providing the guarantee, the Company was provided additional rebates on past and future purchases from the vendor. The amended agreement was retroactive to January 1, 2024 with a term of four years.

Under the terms of the guarantee, the Company is required to reimburse the vendor for parts used for warranty work performed. The guarantee has no limitation on the maximum potential future payment of warranty costs under the agreement. The Company recognized a liability in accrued expenses associated with this guarantee at an estimated fair value of approximately $10.7 million. The corresponding asset related to the expected discounts on future purchases is recorded in prepaid expenses and other current assets. The amortization of this balance will be recorded as cost of goods sold during the term of the amended agreement. As of September 28, 2024, the liability related to the guarantee was $9.5 million.

In November 2024, the Company and the vendor amended the agreement effective September 29, 2024 to eliminate the guarantee and reduce rebates on future purchases. As a result, the Company derecognized the warranty guarantee liability and the other current asset balance in the first quarter of fiscal 2025. Additionally, the Company received credit for $1.8 million of previous warranty-related expense which was recorded as a reduction to cost of goods sold.

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. We had standby letters of credit outstanding in the amount of $11.9 million and $10.7 million as of March 29, 2025 and March 30, 2024, respectively, for the purpose of securing such obligations under our workers’ compensation self-insurance programs.

Note 11—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, which expired on December 31, 2024. The amount, price, manner, and timing of repurchases were determined by the Company in its discretion and depended 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, business prospects, and other factors management deemed relevant. Shares were authorized to 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.

During the three and six month periods ended March 29, 2025 and March 30, 2024, no shares were repurchased.

 

13


Table of Contents

 

Note 12—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”), which was amended and restated by our shareholders at our 2024 Annual Meeting of Shareholders. The Plan provides for various types of awards, including 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. As of March 29, 2025, we had 12.4 million shares of common stock available for future grants under the Plan.

As of March 29, 2025, the aggregate unamortized value of all outstanding equity-based compensation awards was $12.9 million, which is expected to be recognized over a weighted average period of 2.3 years.

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 summarize our Stock Option activity under the Plan during the six months ended March 29, 2025 (in thousands, except per share amounts):

 

 

Number of Options

 

 

Weighted Average
Exercise Price

 

Outstanding, Beginning

 

 

1,878

 

 

$

18.46

 

Granted

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

Forfeited/Expired

 

 

(902

)

 

 

17.13

 

Balance, Ending

 

 

976

 

 

$

19.68

 

 

 

 

 

 

 

 

Vested and exercisable as of March 29, 2025

 

 

931

 

 

$

19.37

 

 

 

 

As of March 29, 2025

 

Aggregate intrinsic value of options outstanding

 

$

 

Unamortized value of unvested stock options

 

 

44

 

Weighted average years that expense is expected to be recognized

 

 

0.1

 

Weighted average remaining contractual years outstanding

 

 

6.4

 

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 six months ended March 29, 2025 (in thousands, except per share amounts):

 

 

Number of RSUs/PSUs

 

 

Weighted Average
Grant Date Fair Value

 

Outstanding, Beginning

 

 

3,047

 

 

$

6.79

 

Granted

 

 

3,992

 

 

 

1.87

 

Vested

 

 

(461

)

 

 

7.11

 

Forfeited

 

 

(927

)

 

 

6.05

 

Balance, Ending

 

 

5,651

 

 

$

3.41

 

 

In December 2024, 0.9 million PSUs were granted subject to the Company achieving certain adjusted sales and adjusted EBITDA performance targets on a cumulative basis during fiscal years 2025, 2026, and 2027. The criteria are based on a range of 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 $2.44. The Company assesses the attainment of target payout rates each reporting period. Equity-based compensation expense is recognized for awards deemed probable of vesting.

 

14


Table of Contents

In December 2023, the Company granted 0.4 million PSUs subject to the Company achieving certain adjusted net income and sales performance targets on a cumulative basis during fiscal years 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 $5.43. As of March 29, 2025, the performance targets had not been met for the PSUs to vest, and no PSUs had vested as of such date.

 

 

 

 

As of March 29, 2025

 

Unamortized value of unvested RSUs/PSUs (in thousands)

 

$

12,892

 

Weighted average period (years) expense is expected to be recognized

 

 

2.3

 

During the three months ended March 29, 2025 and March 30, 2024, equity-based compensation expense was $1.9 million and $2.7 million, respectively. During the six months ended March 29, 2025 and March 30, 2024, equity-based compensation expense was $3.6 million and $5.4 million, respectively. Equity-based compensation expense is reported in selling, general, & administrative expenses (“SG&A”) in our condensed consolidated statements of operations.

Note 13—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

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(51,320

)

 

$

(34,553

)

 

$

(95,884

)

 

$

(74,106

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

RSUs

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

Diluted earnings per share

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

 

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

 

 

Six Months Ended

 

 

 

 

March 29, 2025

 

 

Mach 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Stock Options

 

 

 

1,000

 

 

 

2,915

 

 

 

1,259

 

 

 

3,048

 

RSUs

 

 

 

3,693

 

 

 

1,512

 

 

 

3,210

 

 

 

1,620

 

Total

 

 

 

4,693

 

 

 

4,427

 

 

 

4,469

 

 

 

4,668

 

 

15


Table of Contents

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 September 28, 2024, in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and in our other filings with the SEC.

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 March 29, 2025 and March 30, 2024 refer to the 13 weeks ended March 29, 2025 and March 30, 2024, respectively. References to the six months ended March 29, 2025 and March 30, 2024 refer to the 26 weeks ended March 29, 2025 and March 30, 2024, respectively.

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 customers and pool professionals nationwide. 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 over 1,000 branded locations and a robust digital and e-commerce platform. We have a market-leading share of approximately 15% of residential aftermarket product spend as of 2023, our physical network is larger than the sum of our 20 largest competitors, and our digital sales are estimated to be greater than five times as large as that of our largest digital competitor. 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. More than 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. 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.

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-adding 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 United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“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 diluted earnings (loss) per share.

16


Table of Contents

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 weather, seasonality, product mix and availability, promotional and competitive activities, the spending habits of our consumers, as well as inflation and interest rates. 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 March 29, 2025, we operated over 1,000 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 the 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. We recognize vendor rebates based on an estimated recognition pattern using historical data. 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.

17


Table of Contents

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 may 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, equity-based compensation expense, executive transition costs, severance, strategic project costs, 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 Diluted Earnings (Loss) per Share

Adjusted net income (loss) and Adjusted diluted earnings (loss) 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 diluted earnings (loss) 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 equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, change in valuation allowance for deferred taxes, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings (loss) per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

18


Table of Contents

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 tariffs, public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, higher rates of inflation, higher interest rates, general economic slowdown, and potential failures among financial institutions. The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, in spite of restrictions on the operation of our locations and distribution facilities. New or increased tariffs and other barriers to trade, especially in light of recent comments and executive orders made by the U.S. presidential administration, could further impact or exacerbate these conditions. In recent months, the United States has announced tariffs on imports from most countries, including significant tariffs on imports from Canada, Mexico and China. In response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. There is substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended, and the impacts of such actions on the Company’s business. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict, tariffs or trade policies or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high ticket items, which can result in corresponding declines in sales and/or gross profit.

An additional uncertainty that can impact our results of operations is consumer purchasing patterns. Due to the highly unstable supply of granular chlorine compounds over the last three years, we believe some customers stockpiled chemicals, resulting in unexpected changes in demand. As a result of such behavior, our revenue may be higher than normal during the periods of stockpiling and may be lower than normal during the periods after stockpiling has occurred.

19


Table of Contents

 

Results of Operations

We derived our condensed consolidated statements of operations for the three and six months ended March 29, 2025 and March 30, 2024 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

 

 

Six Months Ended

 

Statements of Operations Data:

 

March 29, 2025

 

 

March 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Sales

 

$

177,134

 

 

$

188,664

 

 

$

352,362

 

 

$

362,624

 

Cost of merchandise and services sold

 

 

133,188

 

 

 

134,336

 

 

 

260,699

 

 

 

257,888

 

Gross profit

 

 

43,946

 

 

 

54,328

 

 

 

91,663

 

 

 

104,736

 

Selling, general and administrative expenses

 

 

92,325

 

 

 

84,856

 

 

 

179,741

 

 

 

171,734

 

Operating loss

 

 

(48,379

)

 

 

(30,528

)

 

 

(88,078

)

 

 

(66,998

)

Interest expense

 

 

15,897

 

 

 

18,153

 

 

 

31,661

 

 

 

35,224

 

Loss before taxes

 

 

(64,276

)

 

 

(48,681

)

 

 

(119,739

)

 

 

(102,222

)

Income tax benefit

 

 

(12,956

)

 

 

(14,128

)

 

 

(23,855

)

 

 

(28,116

)

Net loss

 

$

(51,320

)

 

$

(34,553

)

 

$

(95,884

)

 

$

(74,106

)

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

Diluted

 

$

(0.28

)

 

$

(0.19

)

 

$

(0.52

)

 

$

(0.40

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

Diluted

 

 

185,256

 

 

 

184,625

 

 

 

185,139

 

 

 

184,504

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Sales(1)

 

(%)

 

 

(%)

 

 

(%)

 

 

(%)

 

Sales

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

Cost of merchandise and services sold

 

 

75.2

 

 

 

71.2

 

 

 

74.0

 

 

 

71.1

 

Gross margin

 

 

24.8

 

 

 

28.8

 

 

 

26.0

 

 

 

28.9

 

Selling, general and administrative expenses

 

 

52.1

 

 

 

45.0

 

 

 

51.0

 

 

 

47.4

 

Operating loss

 

 

(27.3

)

 

 

(16.2

)

 

 

(25.0

)

 

 

(18.5

)

Interest expense

 

 

9.0

 

 

 

9.6

 

 

 

9.0

 

 

 

9.7

 

Loss before taxes

 

 

(36.3

)

 

 

(25.8

)

 

 

(34.0

)

 

 

(28.2

)

Income tax benefit

 

 

(7.3

)

 

 

(7.5

)

 

 

(6.8

)

 

 

(7.8

)

Net loss

 

 

(29.0

)

 

 

(18.3

)

 

 

(27.2

)

 

 

(20.4

)

Other Financial and Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

Number of new and acquired locations, net

 

 

(1

)

 

 

3

 

 

 

(1

)

 

 

2

 

Number of locations open at end of period

 

 

1,020

 

 

 

1,010

 

 

 

1,020

 

 

 

1,010

 

Comparable sales growth(2)

 

 

(6.7

)%

 

 

(11.7

)%

 

 

(3.3

)%

 

 

(11.7

)%

Adjusted EBITDA(3)

 

$

(36,061

)

 

$

(19,278

)

 

$

(65,379

)

 

$

(43,698

)

Adjusted EBITDA as a percentage of sales(3)

 

 

(20.4

)%

 

 

(10.2

)%

 

 

(18.6

)%

 

 

(12.1

)%

Adjusted net loss(3)

 

$

(46,525

)

 

$

(31,998

)

 

$

(87,816

)

 

$

(68,761

)

Adjusted diluted earnings per share

 

$

(0.25

)

 

$

(0.17

)

 

$

(0.47

)

 

$

(0.37

)

 

(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 loss to Adjusted EBITDA and net loss to Adjusted net loss for the three and six months ended March 29, 2025 and March 30, 2024 (in thousands).

 

20


Table of Contents

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Net loss

 

$

(51,320

)

 

$

(34,553

)

 

$

(95,884

)

 

$

(74,106

)

Interest expense

 

 

15,897

 

 

 

18,153

 

 

 

31,661

 

 

 

35,224

 

Income tax benefit

 

 

(12,956

)

 

 

(14,128

)

 

 

(23,855

)

 

 

(28,116

)

Depreciation and amortization expense(1)

 

 

8,271

 

 

 

7,843

 

 

 

16,508

 

 

 

16,173

 

Equity-based compensation expense(2)

 

 

1,920

 

 

 

2,710

 

 

 

3,661

 

 

 

5,438

 

Strategic project costs(3)

 

 

607

 

 

 

540

 

 

 

779

 

 

 

663

 

Executive transition costs and other(4)

 

 

1,520

 

 

 

157

 

 

 

1,751

 

 

 

1,026

 

Adjusted EBITDA

 

$

(36,061

)

 

$

(19,278

)

 

$

(65,379

)

 

$

(43,698

)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

 

March 29, 2025

 

 

March 30, 2024

 

Net loss

 

$

(51,320

)

 

$

(34,553

)

 

$

(95,884

)

 

$

(74,106

)

Equity-based compensation expense(2)

 

 

1,920

 

 

 

2,710

 

 

 

3,661

 

 

 

5,438

 

Strategic project costs(3)

 

 

607

 

 

 

540

 

 

 

779

 

 

 

663

 

Executive transition costs and other(4)

 

 

1,520

 

 

 

157

 

 

 

1,751

 

 

 

1,026

 

Change in valuation allowance(5)

 

 

2,348

 

 

 

 

 

 

4,566

 

 

 

 

Tax effects of these adjustments(6)

 

 

(1,600

)

 

 

(852

)

 

 

(2,689

)

 

 

(1,782

)

Adjusted net loss

 

$

(46,525

)

 

$

(31,998

)

 

$

(87,816

)

 

$

(68,761

)

 

(1)
Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and selling, general and administrative in our condensed consolidated statements of operations.
(2)
Represents charges related to equity-based compensation and our related payroll tax expense, which are reported in SG&A in our condensed consolidated statements of operations.
(3)
Represents non-recurring costs, such as third-party consulting costs related to first-generation technology initiatives, replacements of systems that are no longer supported by our vendors, investment in and development of new products outside of the course of continuing operations, or other discrete strategic projects that are infrequent or unusual in nature and potentially distortive to continuing operations. These items are reported in SG&A in our condensed consolidated statements of operations.
(4)
Includes certain senior executive transition costs and severance associated with completed corporate restructuring activities across the organization, losses 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.
(5)
Represents non-cash change in valuation allowance for deferred taxes that management does not believe are indicative of our ongoing operations. This item is reported in income tax benefit in our condensed consolidated statements of operations and we note they may reoccur in the future.
(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 benefit in our condensed consolidated statements of operations.

Selected Financial Information

Sales

Sales were $177.1 million for the three months ended March 29, 2025 compared to $188.7 million in the prior year period, a decrease of $11.5 million, or 6.1%. The change was primarily driven by lower transaction volume and mix of products sold. Comparable sales were lower by $12.4 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $0.9 million in the current year period.

Sales were $352.4 million for the six months ended March 29, 2025, compared to $362.6 million in the prior year period, a decrease of $10.3 million, or 2.8%. The change was primarily driven by lower transaction volume as well as average order value and mix of products sold. Comparable sales were lower by $12.1 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $1.8 million in the current year period.

 

21


Table of Contents

Gross Profit and Gross Margin

Gross profit for the three months ended March 29, 2025 was $43.9 million compared to $54.3 million in the prior year period, representing a decrease of $10.4 million, or 19.1%. Gross margin decreased to 24.8% compared to 28.8% in the prior year period. The decline in rate was mainly due to occupancy and distribution center costs (220 basis points) and decrease in volume of products sold and mix (180 basis points).

Gross profit for the six months ended March 29, 2025 was $91.7 million compared to $104.7 million in the prior year period, a decrease of $13.1 million, or 12.5%. Gross margin decreased to 26.0% compared to 28.9% in the prior year period. The decline in rate was mainly due to occupancy costs and distribution center costs (150 basis points) and decrease in volume of products sold and mix (140 basis points).

Selling, General and Administrative Expenses

SG&A for the three months ended March 29, 2025 was $92.3 million compared to $84.9 million in the prior year period, an increase of $7.5 million, or 8.8%. The increase in SG&A was primarily related to increased compensation expenses of $4.3 million, $1.5 million for direct store expenses, and $1.1 million for professional fees and consulting expenses.

SG&A for the six months ended March 29, 2025 was $179.7 million compared to $171.7 million in the prior year period, an increase of $8.0 million, or 4.7%. The increase in SG&A was driven by $3.7 million of increased compensation expenses and $2.3 million of professional fees and consulting expenses.

Interest Expense

Interest expense for the three months ended March 29, 2025 was $15.9 million compared to $18.2 million in the prior year period, a decrease of $2.3 million. Interest expense for the six months ended March 29, 2025 was $31.7 million compared to $35.2 million in the prior year period, a decrease of $3.5 million.

These decreases for the three and six months ended March 29, 2025 were due to lower interest rates and lower balances on our term loan.

Income Taxes

Income tax benefit for the three months ended March 29, 2025 was $13.0 million compared to $14.1 million in the prior year period, a decrease of $1.2 million. Income tax benefit for the six months ended March 29, 2025 was $23.9 million compared to $28.1 million in the prior year period, a decrease of $4.2 million. The decreases were primarily attributable to the change in valuation allowance related to our interest expense limitation.

The effective income tax rate was 20.2% and 19.9% for the three and six months ended March 29, 2025, respectively, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance related to our interest expense limitation. The effective income tax rate was 29.0% and 27.5% for the three and six months ended March 30, 2024, and included net income tax expenses attributable to equity-based compensation awards.

Net Loss and Diluted Earnings (Loss) per Share

Net loss for the three months ended March 29, 2025 was $51.3 million compared to $34.6 million in the prior year period, an increase of $16.8 million. Net loss for the six months ended March 29, 2025 was $95.9 million compared to $74.1 million in the prior year period, an increase of $21.8 million. The changes in net loss during the three and six months ended March 29, 2025 was primarily due to decreases in gross profit combined with increases in SG&A.

Diluted earnings (loss) per share was $(0.28) for the three months ended March 29, 2025 compared to $(0.19) in the prior year period. Diluted earnings (loss) per share was $(0.52) for the six months ended March 29, 2025 compared to $(0.40) in the prior year period.

Adjusted net loss for the three months ended March 29, 2025 was $46.5 million compared to $32.0 million in the prior year period, an increase of $14.5 million. Adjusted net loss for the six months ended March 29, 2025 was $87.8 million compared to $68.8 million in the prior year period, an increase of $19.0 million. Adjusted diluted earnings (loss) per share was $(0.25) for the three months ended March 29, 2025 compared to $(0.17) in the prior year period. Adjusted diluted earnings (loss) per share was $(0.47) for the six months ended March 29, 2025 compared to $(0.37) in the prior year period.

 

22


Table of Contents

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 29, 2025 was $(36.1) million compared to $(19.3) million in the prior year period, a decrease of $16.8 million. Adjusted EBITDA for the six months ended March 29, 2025 was $(65.4) million compared to $(43.7) million in the prior year period, a decrease of $21.7 million. The decreases in both the three and six months ended March 29, 2025 were primarily due to decreases in gross profit combined with increases in SG&A expense during the period.

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 when we typically generate net losses and we realize negative operating cash flow. 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 pool 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, and debt service requirements 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 $17.3 million and $108.5 million as of March 29, 2025 and September 28, 2024, respectively. As of March 29, 2025, we had $101.5 million outstanding on our Revolving Credit Facility. We had no amounts outstanding on our Revolving Credit Facility as of September 28, 2024.

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, and debt service over the next 12 months and thereafter. 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 March 29, 2025, outstanding standby letters of credit totaled $11.9 million and, after considering borrowing base restrictions, we had $136.6 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of March 29, 2025, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan.

During the quarter ended March 29, 2025, the Company received downgraded credit ratings from both Standard and Poor’s (“S&P”) Global Ratings (B from B+) and Moody’s (Caa1 from B2).

23


Table of Contents

Summary of Cash Flows

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

 

 

 

Six Months Ended

 

 

 

March 29, 2025

 

 

March 30, 2024

 

Net cash used in operating activities

 

$

(154,309

)

 

$

(115,082

)

Net cash used in investing activities

 

 

(11,125

)

 

 

(23,964

)

Net cash provided by financing activities

 

 

74,181

 

 

 

92,062

 

Net decrease in cash and cash equivalents

 

$

(91,253

)

 

$

(46,984

)

 

Cash Used in Operating Activities

Net cash used in operating activities was $154.3 million for the six months ended March 29, 2025 compared to net cash used in operating activities of $115.1 million in the prior year period, an increase of $39.2 million. The increase was primarily driven by changes in working capital related to reduced accrued expenses of $7.6 million, reduced accounts payable of $6.7 million, and increased product inventories of $33.6 million.

Cash Used in Investing Activities

Net cash used in investing activities was $11.1 million for the six months ended March 29, 2025 compared to $24.0 million in the prior year period, a decrease of $12.9 million. This decrease was primarily driven by lower investments in purchases of property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended March 29, 2025 was $74.2 million compared to $92.1 million in the prior year period, a decrease of $17.9 million. This decrease was primarily driven by lower borrowings on the Revolving Credit Facility combined with higher repayment of long-term debt.

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, which expired on December 31, 2024. (see Note 11—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

24


Table of Contents

Contractual Obligations and Other Commitments

There have been no material changes to our contractual obligations and other commitments during the six months ended March 29, 2025 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

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 September 28, 2024. 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 six months ended March 29, 2025 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

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 September 28, 2024.

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 September 28, 2024.

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 Interim Chief Financial Officer and Treasurer, 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 Interim Chief Financial Officer and Treasurer, have evaluated the effectiveness of our disclosure controls and procedures as of March 29, 2025. Based on that evaluation, our Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer and Treasurer (Principal Financial Officer) have concluded that the design and operation of our disclosure controls and procedures were ineffective as the material weaknesses in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024 were not yet remediated as of March 29, 2025.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 29, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

25


Table of Contents

Ongoing Remediation Efforts

As previously disclosed in Part II, Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended September 28, 2024, and September 30, 2023, we are in the process of implementing a plan to address these material weaknesses in internal control over financial reporting that were initially disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

We are enhancing the execution of existing inventory controls as follows:

backfilling open roles with individuals who have the requisite accounting and internal controls knowledge and experience to complement the existing accounting team;
assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards; and
examining and enhancing the procedures regarding the completeness and accuracy of data utilized in computing inventory reserves.

We are enhancing the design and execution of existing controls and creating new controls as needed regarding vendor rebates as follows:

enhancing controls to detect potential material misstatements in the data utilized to calculate vendor rebates earned and the timing of vendor rebate income recognition;
implementing and enhancing controls related to technical accounting reviews of top vendor rebate agreements prior to contract execution;
backfilling open roles with individuals who have the requisite accounting and internal controls knowledge and experience to complement the existing accounting team; and
assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards.

The Company has hired an experienced Director of Inventory to lead the remediation efforts for both inventory and vendor rebates.

The actions we are taking are subject to continued senior management review as well as audit committee oversight. We intend to remediate these material weaknesses as soon as possible, and we believe the measures described above will help remediate the material weakness and strengthen our internal control over financial reporting. The material weaknesses 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 our remediation activities will be completed during fiscal year 2025. 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 as described above or as described in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

26


Table of Contents

PART II - OTHER INFORMATION

 

We are subject to litigation, 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 March 29, 2025, we had established reserves for claims that were probable and estimable and such reserves were not significant. 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.

 

Except as set forth in Note 10 - Commitments & Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes to the legal proceedings described in Part I, Item 3 “Legal Proceedings” of our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

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 September 28, 2024, other than as noted below.

 

Our common stock may be delisted from The Nasdaq Global Select Market if we are unable to regain and maintain compliance with Nasdaq's continued listing standards.

 

As previously disclosed, on April 24, 2025, we received notification from Nasdaq indicating that our common stock is subject to potential delisting from The Nasdaq Global Select Market because we are not in compliance with the requirement to maintain a minimum bid price of at least $1.00 (the “Bid Price Rule”). This notice had no immediate impact on the Company’s listing on The Nasdaq Global Select Market. We have until October 21, 2025 to regain compliance and, if we do not, we may be eligible for an additional 180-day calendar period in which to regain compliance. If we do not regain compliance with the Bid Price Rule by the applicable deadline, Nasdaq will provide written notification to us that our common stock will be subject to delisting. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Listing Qualifications Panel (the “Panel”). We expect that our common stock would remain listed pending the Panel’s decision. However, there can be no assurance that, if we do appeal the delisting determination by Nasdaq to the Panel, that such appeal would be successful. However, there can be no assurance that we will be able to regain compliance with the Bid Price Rule.

Any delisting of our common stock would likely adversely affect the market liquidity and market price of our common stock and our ability to obtain financing for the continuation of our operations. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid.

 

Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business, react to changes in the economy or industry or pay our debts and meet our obligations under our debt agreements, and could divert our cash flow from operations to debt payments.

 

We have a substantial amount of indebtedness. As of March 29, 2025, our total borrowings under our Amended and Restated Term Loan Credit Agreement (the “Term Loan”) and our credit facility, as amended from time-to-time, among Leslie’s Poolmart, Inc., the subsidiary borrowers, Leslie’s, Inc., each lender party thereto, Bank of America, N.A., as Administrative Agent, and U.S. Bank National Association, as Co-Collateral Agent (the “Revolving Credit Facility,” together, the “Credit Facilities”) was $858.2 million. Subject to restrictions in the agreements governing our debt, we may incur additional debt.

Our substantial debt could have important consequences to our stockholders, including the following:

 

it may be difficult for us to satisfy our obligations, including debt service requirements under our existing or future debt agreements, resulting in possible defaults on and acceleration of such debt;
our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other general corporate purposes may be impaired;
a substantial portion of cash flow from operations may be dedicated to the payment of principal and interest on our debt, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities, and acquisitions or for other purposes;
we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited;

27


Table of Contents

our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and restrictive covenants contained in the agreements governing our existing and any future debt; and
our ability to borrow additional funds or to refinance debt may be limited.

Our credit rating was recently downgraded, and there is a risk of further downgrades in the future. Credit rating downgrades have and may continue to adversely affect our ability to access capital markets, increase our borrowing costs, limit our financing options, and reduce our financial flexibility. Lower credit ratings may also result in more stringent covenants in our debt agreements, require us to provide additional collateral for existing obligations, trigger early repayment obligations under certain of our debt instruments, or limit our ability to refinance existing debt on favorable terms. Given our substantial indebtedness, these impacts could further constrain our operational flexibility, intensify the risks associated with our leverage, exacerbate our vulnerability to economic downturns, and adversely affect our liquidity, financial condition, and ability to fund operations, capital expenditures, and strategic initiatives.

 

Furthermore, all of our debt under our Credit Facilities bears interest at variable rates. If these rates were to increase significantly, our ability to borrow additional funds may be reduced and the risks related to our substantial debt would intensify.

Product supply disruptions may have an adverse effect on our profitability and operating results.

 

We rely on various suppliers and vendors to provide and deliver product inventory on a continuous basis, some of which are located outside of the United States. These suppliers (and those they depend upon for materials and services) are subject to risks, including from natural or man-made disasters or extreme weather (including as a result of climate change), public health and safety issues, geopolitical events and conflicts (including terrorist attacks and armed hostilities), power outages, labor or trade disputes, union organizing activities, disruption to transportation routes, changes in tariffs or duties imposed on imported products or raw materials, financial liquidity problems, and similar events, as well as supply constraints and general economic, social, and political conditions that can limit their ability to provide us (or our suppliers) with quality products and services in a timely manner and at reasonable cost. The occurrence of these or other unexpected events can cause us to suffer significant product inventory losses, and significant lost revenue, and increased cost of sales. For example, recent and potential changes to US trade policies, particularly escalating tariff exchanges with China and other countries, have disrupted supply chains and increased costs, potentially creating unpredictable customer spending patterns and economic uncertainty that could, directly or indirectly, significantly impact business operations, financial conditions, and results in ways difficult to anticipate or mitigate.

 

Disruptions from natural or man-made disasters or extreme weather, public health and safety issues, geopolitical events and security issues, labor or trade disputes, macroeconomic crises, and similar events could have a material adverse effect on our business.

Natural or man-made disasters or extreme weather (including as a result of climate change), public health and safety issues, geopolitical events and conflicts (including terrorist attacks and armed hostilities), labor or trade disputes, macroeconomic crises (including any stemming from recent adverse developments in the financial services industry), and similar events can lead to uncertainty and have a negative impact on demand for our products, in addition to causing disruptions to our supply chain. Discretionary spending on chemicals, equipment and parts, cleaning and maintenance equipment, and safety, recreational, and fitness-related products, such as ours, is generally adversely affected during times of economic, social, or political uncertainty. For example, recent and potential changes to US trade policies, particularly escalating tariff exchanges with China and other countries, have disrupted supply chains and increased costs, potentially creating unpredictable customer spending patterns and economic uncertainty that could significantly impact consumers’ discretionary spending. The potential for natural or man-made disasters or extreme weather, geopolitical events and conflicts, labor or trade disputes, macroeconomic crises, and similar events could create these types of uncertainties and negatively impact our business for the short- or long-term in ways that cannot presently be predicted.

 

 

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.

28


Table of Contents

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

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

None.

(b) Changes to Procedures for Recommending Director Nominees

Not applicable.

(c) Trading Plans

During the quarter ended March 29, 2025, 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).

29


Table of Contents

Item 6. Exhibits.

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

Exhibit

Filing Date/

Period End Date

3.1

 

Seventh Amended and Restated Certificate of Incorporation, effective as of March 12, 2025

 

8-K

 

3.1

 

3/17/2025

10.1*

 

Offer Letter, dated as of March 12, 2025, by and between Leslie’s Poolmart, Inc. and Tony Iskander

 

 

 

 

 

 

10.2*

 

Offer Letter, dated as of March 13, 2025, by and between Leslie’s Poolmart, Inc. and Naomi Cramer

 

 

 

 

 

 

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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

 

 

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Schema Document With Embedded Linkbase Documents

 

 

 

 

 

 

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.

30


Table of Contents

SIGNATURES

Pursuant to the requirements of the 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: May 8, 2025

By:

/s/ Anthony Iskander

Anthony Iskander

Interim Chief Financial Officer and Treasurer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

31