Leslies Inc

Previous wording

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 June 29, 2024 and July 1, 2023 refer to the 13 weeks ended June 29, 2024 and July 1, 2023, respectively. References to the nine months ended June 29, 2024 and July 1, 2023 refer to the 39 weeks ended June 29, 2024 and July 1, 2023, respectively.

Current wording

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 28, 2024 and December 30, 2023 refer to the 13 weeks ended December 28, 2024 and December 30, 2023, respectively.

Previous wording

We are the largest and most trusted direct-to-consumer brand in the $15 billion United States pool and spa care industry, serving residential and professional consumers. 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 platform. 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.

Current wording

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.

Previous wording

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. Consumers receive the benefit of extended vendor warranties on purchased products from our locations and on installations or repairs from our certified in-field technicians. 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. Due to the non-discretionary nature of our products and services, our business has historically delivered strong growth and profitability in challenging market environments, including through the Great Recession and the COVID-19 pandemic.

Current wording

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.

Previous wording

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-added capabilities. We 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.

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

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 and 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.

Current wording

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.

Previous wording

Adjusted EBITDA is defined as earnings before interest (including amortization of debt issuance costs), taxes, depreciation and amortization, management fees, equity-based compensation expense, loss (gain) on debt extinguishment, loss (gain) on asset and contract dispositions, executive transition costs, severance, costs related to equity offerings, 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.

Current wording

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.

Previous wording

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude management fees, equity-based compensation expense, loss (gain) on debt extinguishment, loss (gain) on asset and contract dispositions, executive transition costs, severance, costs related to equity offerings, strategic project costs, merger and acquisition costs, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

Current wording

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 per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

Previous wording

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, rising rates of inflation, rising 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. Significant disruption to our supply chain for products we sell, as a result of COVID-19, geopolitical conflict 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 persistent inflation and high 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.

Current wording

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, high rates of inflation, rising 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. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict 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.

Previous wording

We derived our condensed consolidated statements of operations for the three and nine months ended June 29, 2024 and July 1, 2023 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):

Current wording

We derived our condensed consolidated statements of operations for the three months ended December 28, 2024 and December 30, 2023 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):

Previous wording

The tables below provide a reconciliation from our net income (loss) to Adjusted EBITDA and net income (loss) to Adjusted net income (loss) for the three and nine months ended June 29, 2024 and July 1, 2023 (in thousands).

Current wording

The tables below provide a reconciliation from our net (loss) to Adjusted EBITDA and net (loss) to Adjusted net (loss) for the three months ended December 28, 2024 and December 30, 2023 (in thousands).

Previous wording

Represents non-recurring costs, such as third-party consulting costs related to first-generation technology initiatives, replacements of systems that have been 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.

Current wording

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.

Previous wording

Includes certain senior executive transition costs and severance associated with completed corporate restructuring activities across the organization, losses (gains) 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.

Current wording

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.

Previous wording

Sales decreased to $569.6 million for the three months ended June 29, 2024, from $610.9 million in the prior year period, a decrease of $41.3 million, or 6.8%. The decrease was primarily driven by a reduction in average order value of approximately 5.0% due to chemical pricing actions and a decrease in transaction volume of 1.7%. Comparable sales decreased $21.6 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $2.6 million in the period.

Current wording

Sales increased to $175.2 million for the three months ended December 28, 2024, from $174.0 million in the prior year period, an increase of $1.3 million, or 0.7%. The increase was primarily driven by increased transaction volume of 2.0%, partially offset by a reduction in average order value of approximately 1.3% due to the mix of products sold. Comparable sales increased $0.4 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $0.9 million in the period.

Previous wording

Net Income (Loss) and Diluted Earnings per Share

Current wording

Net Loss and Diluted Earnings per Share

Previous wording

Net income decreased to $60.7 million for the three months ended June 29, 2024 compared to $72.5 million in the prior year period, an decrease of $11.9 million. Net loss was $13.5 million for the nine months ended June 29, 2024 compared to net income of $10.8 million in the prior year period, a change of $24.3 million. These changes in net income (loss) were primarily due to decreases in gross profit, partially offset by a reduction in selling, general and administrative expense. Diluted earnings per share was $0.33 for the three months ended June 29, 2024 compared to $0.39 in the prior year period. Diluted earnings per share was $(0.07) for the nine months ended June 29, 2024 compared to diluted earnings per share of $0.06 in the prior year period.

Current wording

Net loss increased to $44.6 million for the three months ended December 28, 2024 compared to $39.6 million in the prior year period, an increase of $5.0 million. The change in net loss were primarily due to decreases in gross profit combined with a slight increase in selling, general and administrative expense. Diluted earnings per share was $(0.24) for the three months ended December 28, 2024 compared to $(0.21) in the prior year period.

Previous wording

Adjusted EBITDA decreased to $109.5 million for the three months ended June 29, 2024 compared to $129.0 million in the prior year period, a decrease of $19.5 million. Adjusted EBITDA decreased to $65.8 million for the nine months ended June 29, 2024 compared to $108.7 million in the prior year period, a decrease of $42.9 million. These decreases were primarily due to decreases in gross profit.

Current wording

Adjusted EBITDA decreased to $(29.3) million for the three months ended December 28, 2024 compared to $(24.4) million in the prior year period, a decrease of $4.9 million. The decrease was primarily due to decreases in gross profit.

Previous wording

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. 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.

Current wording

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.

Previous wording

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 time around pool openings and closings, and therefore, our total sales and timing of our sales.

Current wording

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.

Previous wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $74.4 million and $55.4 million as of June 29, 2024 and September 30, 2023, respectively. We had no amounts outstanding on our Revolving Credit Facility as of June 29, 2024 and September 30, 2023.

Current wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $11.6 million and $108.5 million as of December 28, 2024 and September 28, 2024, respectively. As of December 28, 2024, we had $40.0 million outstanding on our Revolving Credit Facility. We had no amounts outstanding on our Revolving Credit Facility as of September 28, 2024.

Previous wording

As of June 29, 2024, outstanding standby letters of credit totaled $10.9 million and, after considering borrowing base restrictions, we had $239.1 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of June 29, 2024, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.

Current wording

As of December 28, 2024, outstanding standby letters of credit totaled $11.9 million and, after considering borrowing base restrictions, we had $198.1 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of December 28, 2024, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.

Previous wording

Cash Provided by (Used in) Operating Activities

Current wording

Cash Used in Operating Activities

Previous wording

Net cash provided by operating activities was $60.4 million for the nine months ended June 29, 2024 compared to net cash used in operating activities of $74.8 million in the prior year period, an increase of $135.2 million. The increase was primarily driven by changes in working capital related to reductions in accounts payable of $50.4 million and product inventories of $9.6 million.

Current wording

Net cash used in operating activities was $105.1 million for the three months ended December 28, 2024 compared to $71.9 million in the prior year period, an increase of $33.2 million. The increase was primarily driven by changes in working capital related to reductions in accrued expenses of $28.1 million, accounts payable of $11.4 million, combined with increases in product inventories of $38.6 million.

Previous wording

Net cash used in investing activities was $34.2 million for the nine months ended June 29, 2024 compared to $40.9 million in the prior year period, a decrease of $6.7 million. This decrease was primarily driven by a decrease in investments for business acquisitions of $15.5 million, partially offset by an increase in purchases of property and equipment of $7.6 million.

Current wording

Net cash used in investing activities was $4.6 million for the three months ended December 28, 2024 compared to $10.7 million in the prior year period, a decrease of $6.1 million. This decrease was primarily driven by a decrease in purchases of property and equipment during the period.

Previous wording

Cash (Used in) Provided by Financing Activities

Current wording

Cash Provided by Financing Activities

Previous wording

Net cash used in financing activities for the nine months ended June 29, 2024 was $7.1 million compared to net cash provided by financing activities of $22.8 million in the prior year period, a decrease of $29.9 million. This decrease was primarily driven by lower borrowings on our Revolving Credit Facility during the period.

Current wording

Net cash provided by financing activities for the three months ended December 28, 2024 was $12.8 million compared to $35.5 million in the prior year period, a decrease of $22.7 million. This decrease was primarily driven by higher repayment of long-term debt during the period.

Previous wording

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. As of June 29, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 12—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Current wording

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. As of December 28, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 11—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Previous wording

There have been no material changes to our contractual obligations and other commitments during the three months and nine ended June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Current wording

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

Previous wording

There have been no material changes to our critical accounting estimates during the three and nine months ended June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Current wording

There have been no material changes to our critical accounting estimates during the three months ended December 28, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.