UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 02, 2022

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. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

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

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). Yes ☐ No ☒

As of August 1, 2022, the Registrant had 183,027,684 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Stockholders’ Deficit	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signatures		28

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•our ability to execute on our growth strategies;

•supply disruptions;

•our ability to maintain favorable relationships with suppliers and manufacturers;

•competition from mass merchants and specialty retailers;

•impacts on our business from the sensitivity of our business to weather conditions, changes in the economy, and the housing market;

•our ability to implement technology initiatives that deliver the anticipated benefits, without disrupting our operations;

•our ability to attract and retain senior management and other qualified personnel;

•regulatory changes and development affecting our current and future products;

•our ability to obtain additional capital to finance operations;

•commodity price inflation and deflation;

•impacts on our business from the COVID-19 pandemic;

•impacts on our business from cyber incidents and other security threats or disruptions; 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.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended October 2, 2021, elsewhere in this Quarterly Report on Form 10-Q, and in our other filings with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results or outcomes could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q, and, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

LESLIE’S, INC.

CONDENSED Consolidated Balance Sheets

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

	July 2, 2022			October 2, 2021			July 3, 2021
	(Unaudited)			(Audited)			(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	193,130		$	343,498		$	307,395
Accounts and other receivables, net		47,266			38,860			47,848
Inventories		361,391			198,789			224,526
Prepaid expenses and other current assets		30,542			20,564			28,615
Total current assets		632,329			601,711			608,384
Property and equipment, net		71,653			70,335			66,363
Operating lease right-of-use assets		221,694			212,284			169,001
Goodwill and other intangibles, net		155,663			129,020			127,740
Deferred tax assets		1,230			3,734			6,386
Other assets		34,422			25,148			18,238
Total assets	$	1,116,991		$	1,042,232		$	996,112
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable and accrued expenses	$	330,881		$	233,597		$	271,731
Operating lease liabilities		63,303			61,071			53,700
Income taxes payable		30,611			6,945			18,906
Current portion of long-term debt		8,100			8,100			8,100
Total current liabilities		432,895			309,713			352,437
Operating lease liabilities, noncurrent		161,473			160,037			118,941
Long-term debt, net		781,322			786,125			787,731
Other long-term liabilities		70			3,915			2,729
Total liabilities		1,375,760			1,259,790			1,261,838
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.001 par value, 1,000,000,000 shares authorized and 183,027,684, 189,821,011, and 189,284,566 issued and outstanding as of July 2, 2022, October 2, 2021, and July 3, 2021, respectively.		183			190			189
Additional paid in capital		87,050			204,711			201,085
Retained deficit		(346,002	)		(422,459	)		(467,000	)
Total stockholders’ deficit		(258,769	)		(217,558	)		(265,726	)
Total liabilities and stockholders’ deficit	$	1,116,991		$	1,042,232		$	996,112

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

2

LESLIE’S, INC.

CONDENSED Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	July 2, 2022			July 3, 2021		July 2, 2022		July 3, 2021
Sales	$	673,633		$	596,543	$	1,086,529	$	933,991
Cost of merchandise and services sold		370,026			312,845		629,977		526,895
Gross profit		303,607			283,698		456,552		407,096
Selling, general and administrative expenses		131,469			117,264		300,872		265,127
Operating income		172,138			166,434		155,680		141,969
Other expense:
Interest expense		6,847			7,399		20,659		27,041
Loss on debt extinguishment		—			—		—		9,169
Other (income) expenses, net		(143	)		861		407		1,917
Total other expense		6,704			8,260		21,066		38,127
Income before taxes		165,434			158,174		134,614		103,842
Income tax expense		42,448			39,372		33,519		21,749
Net income	$	122,986		$	118,802	$	101,095	$	82,093
Earnings per share:
Basic	$	0.67		$	0.63	$	0.55	$	0.45
Diluted	$	0.67		$	0.61	$	0.54	$	0.43
Weighted average shares outstanding:
Basic		182,937			188,264		184,707		184,021
Diluted		184,721			194,200		186,695		189,603

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

3

LESLIE’S, INC.

CONDENSED Consolidated Statements of Stockholders’ Deficit

(Amounts in Thousands)

(Unaudited)

	Common Stock						Additional Paid in Capital			Retained			Total Stockholders’
	Shares			Amount			(Deficit)			Deficit			Deficit
Balance, April 3, 2021		186,885		$	187		$	194,605		$	(585,802	)	$	(391,010	)
Issuance of common stock upon initial public offering, net of offering costs		2,400			2			—			—			2
Equity-based compensation		—			—			6,480			—			6,480
Net income		—			—			—			118,802			118,802
Balance, July 3, 2021		189,285		$	189		$	201,085		$	(467,000	)	$	(265,726	)
Balance, April 2, 2022		182,784		$	183		$	83,074		$	(468,988	)	$	(385,731	)
Issuance of common stock under the Plan		244			—			1,049			—			1,049
Equity-based compensation		—			—			2,927			—			2,927
Net income		—			—			—			122,986			122,986
Balance, July 2, 2022		183,028		$	183		$	87,050		$	(346,002	)	$	(258,769	)
	Common Stock						Additional Paid in Capital			Retained			Total Stockholders’
	Shares			Amount			(Deficit)			Deficit			Deficit
Balance, October 3, 2020		156,500		$	157		$	(278,063	)	$	(549,093	)	$	(826,999	)
Issuance of common stock upon initial public offering, net of offering costs		30,000			30			458,557			—			458,587
Issuance of common stock under the Plan		2,785			2			—			—			2
Equity-based compensation		—			—			20,591			—			20,591
Net income		—			—			—			82,093			82,093
Balance, July 3, 2021		189,285		$	189		$	201,085		$	(467,000	)	$	(265,726	)
Balance, October 2, 2021		189,821		$	190		$	204,711		$	(422,459	)	$	(217,558	)
Issuance of common stock under the Plan		707			1			1,377			—			1,378
Equity-based compensation		—			—			8,462			—			8,462
Repurchase and retirement of common stock		(7,500	)		(8	)		(127,500	)		(24,638	)		(152,146	)
Net income		—			—			—			101,095			101,095
Balance, July 2, 2022		183,028		$	183		$	87,050		$	(346,002	)	$	(258,769	)

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

4

LESLIE’S, INC.

CONDENSED Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

	Nine Months Ended
	July 2, 2022			July 3, 2021
Operating Activities
Net income	$	101,095		$	82,093
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		22,880			19,205
Equity-based compensation		8,462			20,591
Amortization of deferred financing costs and debt discounts		1,483			1,551
Provision for doubtful accounts		723			134
Deferred income taxes		2,504			197
Loss (gain) on disposition of assets		271			(1,668	)
Loss on debt extinguishment		—			9,169
Changes in operating assets and liabilities:
Accounts and other receivables		(9,129	)		(16,501	)
Inventories		(146,196	)		(74,401	)
Prepaid expenses and other current assets		(9,075	)		6,289
Other assets		(9,429	)		(15,696	)
Accounts payable and accrued expenses		91,145			73,350
Income taxes payable		23,666			17,049
Operating lease assets and liabilities, net		(5,742	)		(3,397	)
Net cash provided by operating activities		72,658			117,965
Investing Activities
Purchases of property and equipment		(25,927	)		(17,799	)
Business acquisitions, net of cash acquired		(40,670	)		(6,806	)
Proceeds from disposition of fixed assets		414			2,429
Net cash used in investing activities		(66,183	)		(22,176	)
Financing Activities
Borrowings on revolving credit facility		45,000			—
Payments on revolving credit facility		(45,000	)		—
Repayment of long-term debt		(6,075	)		(394,110	)
Issuance of long-term debt		—			907
Payment of deferred financing costs		—			(9,579	)
Proceeds from options exercised		1,378			—
Repurchase and retirement of common stock		(152,146	)		—
Proceeds from issuance of common stock upon initial public offering, net		—			458,587
Net cash (used in) provided by financing activities		(156,843	)		55,805
Net (decrease) increase in cash and cash equivalents		(150,368	)		151,594
Cash and cash equivalents, beginning of period		343,498			155,801
Cash and cash equivalents, end of period	$	193,130		$	307,395
Supplemental Information:
Interest	$	19,409		$	29,549
Income taxes, net of refunds received		7,442			4,503

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

5

LESLIE’S, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Business and Operations

Leslie’s, Inc. (“Leslie’s,” “we,” “our,” “us,” “its,” or the “Company”) is the leading direct-to-consumer pool and spa care brand. We market and sell pool and spa supplies and related products and services, which primarily consist of maintenance items such as chemicals, equipment and parts, and cleaning accessories, as well as safety, recreational, and fitness-related products. We currently market our products through 979 company-operated locations in 39 states and e-commerce websites.

Note 2—Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

We prepared the accompanying interim condensed consolidated financial statements following United States generally accepted accounting principles (“GAAP”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. The interim condensed consolidated financial statements include the accounts of Leslie’s, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. These interim condensed consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended October 2, 2021.

Fiscal Periods

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended July 2, 2022 and the three months ended July 3, 2021 refer to the 13 weeks ended July 2, 2022 and July 3, 2021, respectively. References to the nine months ended July 2, 2022 and the nine months ended July 3, 2021 refer to the 39 weeks ended July 2, 2022 and July 3, 2021, respectively.

Use of Estimates

To prepare financial statements that conform to GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Our most significant estimates relate to inventory obsolescence reserves, lease assumptions, vendor rebate programs, loyalty program, income taxes, sales returns, self-insurance, valuation of intangible assets and goodwill, and intangible asset impairment evaluations. We continually review our estimates and make adjustments as necessary, but actual results could be significantly different from what we expected when we made these estimates.

Prior Period Reclassifications

Reclassifications of certain immaterial prior period amounts have been made to conform to current period presentation.

Fair Value Measurements

We use fair value measurements to record fair value of certain assets and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value.

As of July 2, 2022 and October 2, 2021, we held no assets that are required to be measured at fair value on a recurring basis.

The fair value of our amended and restated term loan credit agreement (“Term Loan”) due in 2028 (see Note 9—Long-Term Debt, Net) was determined to be $756.4 million and $802.9 million as of July 2, 2022 and October 2, 2021, respectively. 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.

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term maturity of these instruments.

There were no transfers between levels in the fair value hierarchy during the three and nine months ended July 2, 2022 and July 3, 2021, respectively.

6

Seasonality

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

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (“Topic 740”): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions related to intraperiod tax allocations, foreign subsidiaries and interim reporting that are present within existing GAAP rules. The ASU also provides updated guidance regarding the tax treatment of certain franchise taxes, goodwill and nontaxable entities, among other items. In addition, ASU 2019-12 clarifies that the effect of a change in tax laws or rates should be reflected in the annual effective tax rate computation during the interim period that includes the enactment date. We adopted ASU 2019-12 as of October 3, 2021, (as of the beginning of the current annual period) and its adoption did not have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which includes certain amendments to improve, simplify, and provide consistency for recognition and measurement of acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments require that an acquirer recognize and measure such contract assets and contract liabilities under Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. The amendments also allow for election of certain practical expedients, which are applied on an acquisition-by-acquisition basis. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including for any interim period, and if elected, the amendments are applied retrospectively for any acquisitions that occurred in the fiscal year of interim adoption. We adopted ASU 2021-08 during the second quarter of fiscal 2022 and its adoption did not have a material impact on our consolidated financial statements.

Note 3—Business Combinations

The following acquisitions did not have a material impact on our financial position or results of operations. Our condensed consolidated financial statements include the results of operations of these acquisitions from the date of acquisition. The total purchase consideration was allocated to the tangible and intangible assets acquired and the liabilities assumed at their estimated fair values as of each acquisition date, with the excess recorded to goodwill. The goodwill resulting from these acquisitions is expected to be deductible for income tax purposes. During the measurement periods, which will not exceed one year from each closing, we will continue to obtain information to assist us in finalizing the acquisition date fair values. Any qualifying changes to our preliminary estimates will be recorded as adjustments to the respective assets and liabilities, with any residual amounts allocated to goodwill.

Fiscal 2022 Acquisitions

During the nine months ended July 2, 2022, we acquired three businesses for an aggregate purchase price of $40.7 million, inclusive of a contingent consideration of up to $1.0 million if certain performance metrics are achieved within one year of the closing date. These acquisitions expanded our pool and spa footprint and added