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 30, 2023

OR

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

Commission File Number: 001-39667

LESLIE’S, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-8397425
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2005 East Indian School Road Phoenix, AZ	85016
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	LESL	The Nasdaq Global Select Market

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 26, 2024, the Registrant had 184,513,174 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 the 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	22
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, 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;

•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 including evolving legal standards and regulations 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 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 30, 2023 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, 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, 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.

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 30, 2023			September 30, 2023			December 31, 2022
	(Unaudited)			(Audited)			(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	8,394		$	55,420		$	2,691
Accounts and other receivables, net		22,488			29,396			46,375
Inventories		334,031			311,837			429,517
Prepaid expenses and other current assets		27,131			23,633			29,921
Total current assets		392,044			420,286			508,504
Property and equipment, net		92,405			90,285			75,049
Operating lease right-of-use assets		238,296			251,460			233,852
Goodwill and other intangibles, net		217,909			218,855			218,119
Deferred tax assets		15,988			7,598			—
Other assets		41,878			45,951			41,258
Total assets	$	998,520		$	1,034,435		$	1,076,782
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable	$	63,541		$	58,556		$	117,269
Accrued expenses and other current liabilities		69,854			90,598			65,494
Operating lease liabilities		63,078			62,794			63,251
Income taxes payable		—			5,782			480
Current portion of long-term debt		8,100			8,100			8,100
Total current liabilities		204,573			225,830			254,594
Deferred tax liabilities		—			—			676
Operating lease liabilities, noncurrent		179,413			193,222			174,954
Revolving Credit Facility		38,000			—			91,000
Long-term debt, net		771,718			773,276			778,133
Other long-term liabilities		3,464			3,469			3,060
Total liabilities		1,197,168			1,195,797			1,302,417
Commitments and contingencies
Stockholders’ deficit
Common stock, $0.001 par value, 1,000,000,000 shares authorized and 184,513,174, 184,333,670, and 183,564,172 issued and outstanding as of December 30, 2023, September 30, 2023, and December 31, 2022, respectively.		184			184			184
Additional paid in capital		101,547			99,280			92,508
Retained deficit		(300,379	)		(260,826	)		(318,327	)
Total stockholders’ deficit		(198,648	)		(161,362	)		(225,635	)
Total liabilities and stockholders’ deficit	$	998,520		$	1,034,435		$	1,076,782

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 30, 2023			December 31, 2022
Sales	$	173,960		$	195,104
Cost of merchandise and services sold		123,552			129,808
Gross profit		50,408			65,296
Selling, general and administrative expenses		86,878			92,281
Operating loss		(36,470	)		(26,985	)
Other expense:
Interest expense		17,071			13,360
Total other expense		17,071			13,360
Loss before taxes		(53,541	)		(40,345	)
Income tax benefit		(13,988	)		(10,086	)
Net loss	$	(39,553	)	$	(30,259	)
Earnings per share:
Basic	$	(0.21	)	$	(0.16	)
Diluted	$	(0.21	)	$	(0.16	)
Weighted average shares outstanding:
Basic		184,383			183,513
Diluted		184,383			183,513

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						Total
	Shares			Amount		Paid in Capital			Retained Deficit			Stockholders’ Deficit
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	)
Balance, September 30, 2023		184,334		$	184	$	99,280		$	(260,826	)	$	(161,362	)
Issuance of common stock under the Plan		221			—		—			—			—
Equity-based compensation		—			—		2,695			—			2,695
Restricted stock units surrendered in lieu of withholding taxes		(42	)		—		(428	)		—			(428	)
Net loss		—			—		—			(39,553	)		(39,553	)
Balance, December 30, 2023		184,513		$	184	$	101,547		$	(300,379	)	$	(198,648	)

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 30, 2023			December 31, 2022
Operating Activities
Net loss	$	(39,553	)	$	(30,259	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,330			8,503
Equity-based compensation		2,695			2,993
Amortization of deferred financing costs and debt discounts		560			502
Provision for doubtful accounts		140			10
Deferred income taxes		(8,389	)		1,944
Loss on asset dispositions		61			6
Changes in operating assets and liabilities:
Accounts and other receivables		6,767			(1,090	)
Inventories		(22,194	)		(64,770	)
Prepaid expenses and other current assets		(3,498	)		(6,429	)
Other assets		3,981			(3,601	)
Accounts payable		4,985			(39,187	)
Accrued expenses and other current liabilities		(19,616	)		(41,622	)
Income taxes payable		(5,782	)		(12,031	)
Operating lease assets and liabilities, net		(361	)		622
Net cash used in operating activities		(71,874	)		(184,409	)
Investing Activities
Purchases of property and equipment		(10,739	)		(5,697	)
Business acquisitions, net of cash acquired		—			(8,540	)
Proceeds from asset dispositions		40			488
Net cash used in investing activities		(10,699	)		(13,749	)
Financing Activities
Borrowings on Revolving Credit Facility		39,500			91,000
Payments on Revolving Credit Facility		(1,500	)		—
Repayment of long-term debt		(2,025	)		(2,025	)
Payments of employee tax withholdings related to restricted stock vesting		(428	)		(419	)
Net cash provided by financing activities		35,547			88,556
Net decrease in cash and cash equivalents		(47,026	)		(109,602	)
Cash and cash equivalents, beginning of period		55,420			112,293
Cash and cash equivalents, end of period	$	8,394		$	2,691
Supplemental Information:
Cash paid for interest	$	16,489		$	12,593
Cash paid for income taxes, net of refunds received		183			1

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

5

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 30, 2023.

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. 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 30, 2023 and December 31, 2022 refer to the 13 weeks ended December 30, 2023 and December 31, 2022, respectively.

Use of Estimates

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

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

Seasonality

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

Summary of Other Significant Accounting Policies

There have been no changes to our Significant Accounting Policies since our Annual Report on Form 10-K for the year ended September 30, 2023. 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 30, 2023.

6

Recent Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (“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.

Note 3 —Goodwill and Other Intangibles, Net

Goodwill

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

	December 30, 2023		September 30, 2023		December 31, 2022
Balance at beginning of the period	$	180,698	$	173,513	$	173,513
Acquisitions, net of measurement period adjustments		—		7,185		2,650
Balance at the end of the period	$	180,698	$	180,698	$	176,163

Other Intangible Assets

Other intangible assets consisted of the following as of December 30, 2023 (in thousands, except weighted average remaining useful life):

	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		9.6	$	22,100	$	(3,834	)	$	18,266
Trade name and trademarks (indefinite life)	Indefinite			9,350		—			9,350
Non-compete agreements		5.1		2,260		(1,214	)		1,046
Consumer relationships		7.2		15,400		(6,980	)		8,420
Other intangibles		4.8		4,000		(3,871	)		129
Total			$	53,110	$	(15,899	)	$	37,211

Other intangible assets consisted of the following as of September 30, 2023 (in thousands, except weighted average remaining useful life):

	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks (finite life)		9.8	$	26,740	$	(7,958	)	$	18,782
Trade name and trademarks (indefinite life)	Indefinite			9,350		—			9,350
Non-compete agreements		5.4		8,683		(7,585	)		1,098
Consumer relationships		7.4		24,100		(15,317	)		8,783
Other intangibles		5.1		6,620		(6,476	)		144
Total			$	75,493	$	(37,336	)	$	38,157

7

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

Amortization expense was $0.9 million for the three months ended December 30, 2023 and December 31, 2022, respectively. No impairment of goodwill or other intangible assets was recorded during the three months ended December 30, 2023 and December 31, 2022, respectively.

The following table summarizes the estimated future amortization expense related to finite-lived intangible assets on our condensed consolidated balance sheet as of December 30, 2023 (in thousands):

	Amount
Remainder of fiscal 2024	$	2,782
2025		3,632
2026		3,385
2027		3,262
2028		3,154
Thereafter		11,646
Total	$	27,861

Note 4—Accounts and Other Receivables, Net

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

	December 30, 2023			September 30, 2023			December 31, 2022
Vendor and other rebates receivable	$	6,532		$	6,818		$	27,521
Customer receivables		13,400			18,334			15,969
Other receivables		4,229			5,900			4,512
Allowance for doubtful accounts		(1,673	)		(1,656	)		(1,627	)
Total	$	22,488		$	29,396		$	46,375

Note 5—Inventories

Inventories consisted of the following (in thousands):

	December 30, 2023		September 30, 2023		December 31, 2022
Raw materials	$	4,633	$	3,076	$	7,987
Finished goods		329,398		308,761		421,530
Total	$	334,031	$	311,837	$	429,517

8

Note 6—Prepaid Expenses and Other Current Assets

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

	December 30, 2023		September 30, 2023		December 31, 2022
Prepaid insurance	$	4,702	$	1,236	$	6,812
Prepaid occupancy costs		1,976		1,967		2,004
Prepaid sales tax		1,843		4,060		1,753
Prepaid inventory		—		—		771
Prepaid other		6,592		6,239		4,382
Other current assets		12,018		10,131		14,199
Total	$	27,131	$	23,633	$	29,921

Note 7—Accrued Expenses and Other Current Liabilities

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

	December 30, 2023		September 30, 2023		December 31, 2022
Accrued payroll and employee benefits	$	14,493	$	18,558	$	13,154
Customer deposits		4,491		7,356		7,505
Interest		603		581		579
Inventory related accruals		7,821		13,843		11,254
Loyalty and deferred revenue		7,264		6,785		6,157
Sales tax		4,043		9,146		4,528
Self-insurance reserves		10,024		9,138		8,417
Other accrued liabilities		21,115		25,191		13,900
Total	$	69,854	$	90,598	$	65,494

As of December 30, 2023, September 30, 2023, and December 31, 2022, capital expenditures included in other accrued liabilities were $0.7 million, $1.5 million, and $0.4 million, respectively.

Note 8—Long-Term Debt, Net

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

	Effective Interest Rate (1)				December 30, 2023			September 30, 2023			December 31, 2022
Term Loan		8.21	%	(2)	$	787,725		$	789,750		$	795,825
Revolving Credit Facility		7.25	%	(3)		38,000			—			91,000
Total long-term debt						825,725			789,750			886,825
Less: current portion of long-term debt						(8,100	)		(8,100	)		(8,100	)
Less: noncurrent Revolving Credit Facility						(38,000	)		—			(91,000	)
Less: unamortized discount						(2,191	)		(2,316	)		(2,684	)
Less: deferred financing charges						(5,716	)		(6,058	)		(6,908	)
Total long-term debt, net					$	771,718		$	773,276		$	778,133

(1)Effective interest rates as of December 30, 2023.

(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.

9

Term Loan

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

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

Revolving Credit Facility

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

As of December 30, 2023, we had $38.0 million outstanding on our Revolving Credit Facility. No amounts were outstanding on the Revolving Credit Facility as of September 30, 2023. The amount available under our Revolving Credit Facility was reduced by $10.6 million and $11.4 million of existing standby letters of credit as of December 30, 2023 and September 30, 2023, respectively.

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 December 30, 2023, September 30, 2023, and December 31, 2022.

Future Debt Maturities

The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of December 30, 2023 (in thousands):

	Amount
Remainder of fiscal 2024	$	4,050
2025		48,125
2026		8,100
2027		8,100
2028		757,350
Thereafter		—
Total	$	825,725

Note 9—Income Taxes

Our effective income tax rate was 26.1% for the three months ended December 30, 2023, compared to 25.0% for the three months ended December 31, 2022. The difference between the statutory rate and our effective rate for the three months ended December 30, 2023 and December 31, 2022 was primarily attributable to state taxes. Our effective income tax rate can fluctuate due to factors including valuation allowances, changes in tax laws, federal and state audits, and the impact of other discrete items.

10

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 Chief Executive Officer and our former Chief Financial Officer. The 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. 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.

We are defendants in lawsuits or potential claims encountered in the normal course of business. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the resolution of lawsuits, investigations and claims, the ultimate outcome may differ from the estimates. We do not expect that the resolutions of any of these matters will have a material effect on our condensed consolidated financial position or results of operations. We did not record any material loss contingencies as of December 30, 2023, September 30, 2023, and December 31, 2022, respectively.

Our workers’ compensation insurance program, general liability insurance program, and employee group medical plan have self-insurance retention features of up to $0.4 million per event as of December 30, 2023, September 30, 2023, and December 31, 2022, respectively. We had standby letters of credit outstanding in the amount of $10.6 million as of December 30, 2023 for the purpose of securing such obligations under our workers’ compensation self-insurance programs.

Note 11—Related Party Transactions

On December 14, 2021, the Company entered into a share repurchase agreement with Bubbles Investor Aggregator, L.P. and Explorer Investment Pte. Ltd. (together, the “Selling Stockholders”), each a greater than 5% beneficial owner of the Company’s common stock at the time of the transaction, providing for the repurchase by the Company from the Selling Stockholders of an aggregate of 7.5 million shares of common stock, conditioned on the closing of a contemporaneous secondary public offering (the “Offering”). The price per share of repurchased common stock paid by the Company was $20.25, which represents the per share price at which shares of common stock were sold to the public in the Offering less the underwriting discount. The repurchase transaction closed on December 16, 2021. See Note 12—Share Repurchase Program for detailed information regarding our share repurchase program.

Note 12—Share Repurchase Program

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, expiring December 31, 2024. The amount, price, manner, and timing of repurchases are determined by the Company in its discretion and depends on a number of factors, including legal requirements, price, economic and market conditions, the Company’s financial condition, capital requirements, cash flows, results of operations, future business prospects, and other factors our management may deem relevant. The share repurchase program may be amended, suspended, or discontinued at any time. Shares may be repurchased from time-to-time using a variety of methods, including on the open market and/or in privately negotiated transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, as part of accelerated share repurchases, and other methods.

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

As of December 30, 2023, approximately $147.7 million remained available for future purchases under our share repurchase program.

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

	Three Months Ended
	December 30, 2023		December 31, 2022
Total number of shares repurchased		—		27
Total amount paid for shares repurchased	$	—	$	419

11

Note 13—Equity-Based Compensation

Equity-Based Compensation

2020 Omnibus Incentive Plan

In October 2020, we adopted the Leslie’s, Inc. 2020 Omnibus Incentive Plan (the “Plan”). The Plan provides for the grant of awards such as non-qualified stock options to purchase Leslie’s common stock (each, a “Stock Option”), restricted stock units (“RSUs”) and performance stock units (“PSUs”) which may settle in Leslie’s, Inc. common stock to our directors, executives, and eligible employees of the Company. The vesting of the Company’s outstanding and unvested Stock Options, RSUs, and PSUs is contingent upon each holder’s continued service through the date of each applicable vesting event. As of December 30, 2023, we had approximately 6.4 million shares of common stock available for future grants under the Plan.

As of December 30, 2023, the aggregate unamortized value of all outstanding equity-based compensation awards was approximately $24.6 million, which is expected to be recognized over a weighted average period of approximately 2.7 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 summarizes our Stock Option activity under the Plan during the three months ended December 30, 2023 (in thousands, except per share amounts):

	Number of Options			Weighted Average Exercise Price
Outstanding, Beginning		3,308		$	18.10
Granted		—			—
Exercised		—			—
Forfeited/Expired		(230	)		19.23
Balance, Ending		3,078		$	18.02
Vested and exercisable as of December 30, 2023		2,352		$	17.78

	As of December 30, 2023
Aggregate intrinsic value of options outstanding	$	—
Unamortized value of unvested stock options	$	3,115
Weighted average years that expense is expected to be recognized		0.9
Weighted average remaining contractual years outstanding		7.2

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 three months ended December 30, 2023 (in thousands, except per share amounts):

	Number of RSUs/PSUs			Weighted Average Grant Date Fair Value
Outstanding, Beginning		2,084		$	11.92
Granted		1,638			5.43
Vested		(221	)		8.49
Forfeited		(133	)		15.22
Balance, Ending		3,368		$	8.86

During the three months ended December 30, 2023, 0.4 million PSUs were granted 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. The Company assesses the attainment of target payout rates each reporting period. Equity-based compensation expense is recognized for awards deemed probable of vesting.

12

In December 2022, the Company granted 0.3 million PSUs subject to the Company achieving certain adjusted net income and sales performance targets on a cumulative basis during each of the fiscal years 2023, 2024, and 2025. The criteria are based on a range of these performance targets in which participants may earn between 0% to 200% of the base number of awards granted. As of December 30, 2023, the performance targets had not been met for the PSUs to vest, and no PSUs had vested as of such date.

	As of December 30, 2023
Unamortized value of unvested RSUs/PSUs	$	21,505
Weighted average period (years) expense is expected to be recognized		2.9

During the three months ended December 30, 2023 and December 31, 2022, equity-based compensation expense was $2.7 million and $3.0 million, respectively. Equity-based compensation expense is reported in selling, general, & administrative expenses (“SG&A”) in our condensed consolidated statements of operations.

Note 14—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
	December 30, 2023			December 31, 2022
Numerator:
Net loss	$	(39,553	)	$	(30,259	)
Denominator:
Weighted average shares outstanding - basic		184,383			183,513
Effect of dilutive securities:
Stock Options		—			—
RSUs		—			—
Weighted average shares outstanding - diluted		184,383			183,513
Basic earnings per share	$	(0.21	)	$	(0.16	)
Diluted earnings per share	$	(0.21	)	$	(0.16	)

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):