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 December 31, 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 January 27, 2023, the Registrant had 183,660,455 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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26

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 (including rising interest rates, recession fears, and inflationary pressures), geopolitical events or conflicts, and the housing market;

•disruptions in the operations of our distribution centers;

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

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

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

•our ability to obtain additional capital to finance operations;

•commodity price inflation and deflation;

•impacts on our business from epidemics, pandemics, or natural disasters;

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

•our ability to remediate the material weakness in our internal control over financial reporting or additional material weaknesses or other deficiencies in the future or to maintain effective disclosure controls and procedures and internal control over financial reporting; and

•other risks and uncertainties, including those listed in the section titled “Risk Factors” in our filings with the United States Securities and Exchange Commission (“SEC”).

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended October 1, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results or outcomes could differ materially from those described in the forward-looking statements.

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

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

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

LESLIE’S, INC.

CONDENSED Consolidated Balance Sheets

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

	December 31, 2022			October 1, 2022			January 1, 2022
	(Unaudited)			(Audited)			(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,691		$	112,293		$	53,341
Accounts and other receivables, net		46,375			45,295			39,353
Inventories		429,517			361,686			244,632
Prepaid expenses and other current assets		29,921			23,104			38,173
Total current assets		508,504			542,378			375,499
Property and equipment, net		75,049			78,087			65,883
Operating lease right-of-use assets		233,852			236,477			207,291
Goodwill and other intangibles, net		218,119			213,701			132,428
Deferred tax assets		—			1,268			2,327
Other assets		41,258			37,720			27,837
Total assets	$	1,076,782		$	1,109,631		$	811,265
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable and accrued expenses	$	182,763		$	266,972		$	188,824
Operating lease liabilities		63,251			60,373			56,873
Income taxes payable		480			12,511			411
Current portion of long-term debt		8,100			8,100			8,100
Total current liabilities		254,594			347,956			254,208
Deferred tax liabilities		676			—			—
Operating lease liabilities, noncurrent		174,954			179,835			153,834
Revolving Credit Facility		91,000			—			—
Long-term debt, net		778,133			779,726			784,527
Other long-term liabilities		3,060			65			—
Total liabilities		1,302,417			1,307,582			1,192,569
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.001 par value, 1,000,000,000 shares authorized and 183,564,172, 183,480,545, and 182,496,645 issued and outstanding as of December 31, 2022, October 1, 2022, and January 1, 2022, respectively.		184			183			182
Additional paid in capital		92,508			89,934			80,062
Retained deficit		(318,327	)		(288,068	)		(461,548	)
Total stockholders’ deficit		(225,635	)		(197,951	)		(381,304	)
Total liabilities and stockholders’ deficit	$	1,076,782		$	1,109,631		$	811,265

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
	December 31, 2022			January 1, 2022
Sales	$	195,104		$	184,824
Cost of merchandise and services sold		129,808			117,508
Gross profit		65,296			67,316
Selling, general and administrative expenses		92,281			79,785
Operating loss		(26,985	)		(12,469	)
Other expense:
Interest expense		13,360			6,863
Other expenses, net		—			389
Total other expense		13,360			7,252
Loss before taxes		(40,345	)		(19,721	)
Income tax benefit		(10,086	)		(5,270	)
Net loss	$	(30,259	)	$	(14,451	)
Earnings per share:
Basic	$	(0.16	)	$	(0.08	)
Diluted	$	(0.16	)	$	(0.08	)
Weighted average shares outstanding:
Basic		183,513			188,507
Diluted		183,513			188,507

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, October 2, 2021		189,821		$	190		$	204,711		$	(422,459	)	$	(217,558	)
Issuance of common stock under the Plan		176			—			100			—			100
Equity-based compensation		—			—			2,751			—			2,751
Repurchase and retirement of common stock		(7,500	)		(8	)		(127,500	)		(24,638	)		(152,146	)
Net loss		—			—			—			(14,451	)		(14,451	)
Balance, January 1, 2022		182,497		$	182		$	80,062		$	(461,548	)	$	(381,304	)
Balance, October 1, 2022		183,481		$	183		$	89,934		$	(288,068	)	$	(197,951	)
Issuance of common stock under the Plan		110			1			—			—			1
Equity-based compensation		—			—			2,993			—			2,993
Restricted stock units surrendered in lieu of withholding taxes		(27	)		—			(419	)		—			(419	)
Net loss		—			—			—			(30,259	)		(30,259	)
Balance, December 31, 2022		183,564		$	184		$	92,508		$	(318,327	)	$	(225,635	)

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)

	Three Months Ended
	December 31, 2022			January 1, 2022
Operating Activities
Net loss	$	(30,259	)	$	(14,451	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,503			9,241
Equity-based compensation		2,993			2,751
Amortization of deferred financing costs and debt discounts		502			496
Provision for doubtful accounts		10			249
Deferred income taxes		1,944			1,407
Loss on disposition of assets		6			17
Changes in operating assets and liabilities:
Accounts and other receivables		(1,090	)		(742	)
Inventories		(64,770	)		(43,723	)
Prepaid expenses and other current assets		(6,429	)		(17,593	)
Other assets		(3,601	)		(2,741	)
Accounts payable and accrued expenses		(80,809	)		(48,528	)
Income taxes payable		(12,031	)		(6,534	)
Operating lease assets and liabilities, net		622			(5,408	)
Net cash used in operating activities		(184,409	)		(125,559	)
Investing Activities
Purchases of property and equipment		(5,697	)		(5,402	)
Business acquisitions, net of cash acquired		(8,540	)		(5,146	)
Proceeds from disposition of fixed assets		488			21
Net cash used in investing activities		(13,749	)		(10,527	)
Financing Activities
Borrowings on Revolving Credit Facility		91,000			—
Repayment of long-term debt		(2,025	)		(2,025	)
Proceeds from options exercised		—			100
Repurchase and retirement of common stock		—			(152,146	)
Payments of employee tax withholdings related to restricted stock vesting		(419	)		—
Net cash provided by (used in) financing activities		88,556			(154,071	)
Net decrease in cash and cash equivalents		(109,602	)		(290,157	)
Cash and cash equivalents, beginning of period		112,293			343,498
Cash and cash equivalents, end of period	$	2,691		$	53,341
Supplemental Information:
Interest	$	12,593		$	6,725
Income taxes, net of refunds received		1			(50	)

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 992 company-operated locations in 39 states and e-commerce websites.

Note 2—Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

We prepared the accompanying interim condensed consolidated financial statements following United States generally accepted accounting principles (“GAAP”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. The interim condensed consolidated financial statements include the accounts of Leslie’s, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. These interim condensed consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended October 1, 2022.

Fiscal Periods

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended December 31, 2022 and the three months ended January 1, 2022 refer to the 13 weeks ended December 31, 2022 and January 1, 2022, respectively.

Use of Estimates

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

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

Seasonality

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

Summary of Other Significant Accounting Policies

There have been no updates to our Significant Accounting Policies since our Annual Report on Form 10-K for the year ended October 1, 2022. For more information regarding our Significant Accounting Policies and Estimates, see Note 2—Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended October 1, 2022.

6

Recent Accounting Pronouncements

In March 2020, January 2021 and December 2022, the FASB issued ASU No. 2020-04, 2021-01 and 2022-06, respectively, regarding Reference Rate Reform (collectively “Topic 848”). This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates, and particularly, the risk of cessation of the London Inter-Bank Offer Rate (“LIBOR”) related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of LIBOR is expected to be June 30, 2023. In addition, Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance is effective upon issuance and may be applied through December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. In anticipation of its adoption and based on management’s initial evaluation of the projected impact to our condensed consolidated financial statements, we do not estimate there to be a material impact.

Note 3—Business Combinations

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

Fiscal 2023 Acquisition

During the three months ended December 31, 2022, we acquired a business for a purchase price of $8.5 million. This acquisition expanded our pool and spa footprint and added five new locations across Florida and Louisiana. The purchase accounting for this acquisition has not yet been completed.

Fiscal 2022 Acquisitions

In fiscal 2022, we acquired six businesses for an aggregate purchase price of $107.7 million, inclusive of contingent consideration of up to $4.0 million if certain performance metrics are achieved within one to three years of the respective closing dates. These acquisitions expanded our pool and spa footprint and added 27 new locations as well as expanded our manufacturing capabilities. The following table sets forth the preliminary purchase price allocation of these acquisitions, net of immaterial measurement period adjustments, in the aggregate (in thousands). The purchase accounting for four of the six acquisitions is complete.

	Total
Total purchase consideration, net of cash acquired	$	107,663
Fair value of assets acquired and liabilities assumed:
Inventories		20,050
Finite-lived intangible assets		15,200
Other assets and liabilities, net		1,692
Total assets acquired, net of liabilities assumed		36,942
Goodwill	$	70,721

Note 4 —Goodwill and Other Intangibles, Net

Goodwill

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

	December 31, 2022		October 1, 2022		January 1, 2022
Balance at beginning of the period	$	173,513	$	101,114	$	101,114
Acquisitions, net of measurement period adjustments		2,650		72,399		4,675
Balance at the end of the period	$	176,163	$	173,513	$	105,789

7

Other Intangible Assets

Other intangible assets consisted of the following as of December 31, 2022 (in thousands, except weighted average remaining useful life):

	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		10.5	$	27,140	$	(6,224	)	$	20,916
Trade name and trademarks (indefinite life)	Indefinite			9,350		—			9,350
Non-compete agreements		6.1		8,683		(7,431	)		1,252
Consumer relationships		7.7		24,100		(13,879	)		10,221
Other intangibles		5.8		6,620		(6,403	)		217
Total			$	75,893	$	(33,937	)	$	41,956

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

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

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

	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		6.5	$	5,940	$	(5,311	)	$	629
Trade name and trademarks (indefinite life)	Indefinite			17,750		—			17,750
Non-compete agreements		7.2		8,633		(7,174	)		1,459
Consumer relationships		6.3