Leslie's, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024, in Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q from the quarter ended March 29, 2025, and elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025, elsewhere in this Quarterly Report on Form 10-Q, and in our other filings with the SEC.

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 28, 2025 and June 29, 2024 refer to the 13 weeks ended June 28, 2025 and June 29, 2024. References to the nine months ended June 28, 2025 and June 29, 2024 refer to the 39 weeks ended June 28, 2025 and June 29, 2024.

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 January 3, 2026 and December 28, 2024 refer to the 13 weeks ended January 3, 2026 and December 28, 2024.

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 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.

Current wording

Founded in 1963 by Phil Leslie Jr. in Southern California, the Company today known simply as “Leslie’s” has over six decades of disruptive retail innovation in the $15 billion U.S. pool and spa care industry. Today, we are the largest and most trusted direct-to-consumer brand in our segment, serving residential consumers and pool professionals, and many of the largest commercial property operators in the country. With approximately 950 retail locations, an integrated, digitally forward omnichannel strategy, and a horizontally integrated, nationwide ecosystem under the Leslie’s and In the Swim® brands, among others, we have built a market-leading share of residential aftermarket product spend, based on 2024 industry analyst reports, and a physical network larger than the sum of our 20 largest competitors. We offer an extensive assortment of professional-grade products, the majority of which are exclusive to Leslie’s, manufacturer certified installation and repair services, and in some markets, weekly pool maintenance services. Our dedicated, knowledgeable team of associates, pool and spa care experts, and experienced service technicians, are passionate about empowering every single Leslie’s customer with the knowledge, products, and solutions necessary to confidently maintain and thoroughly 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 nearly 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. 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.

Current wording

We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue® system, leading to increased 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 recreational pool and spa industry. We then brought AccuBlue® direct to pool owners’ backyards with AccuBlue Home®, a pioneering app-enabled water testing device. 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

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“SG&A”), and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings (loss) per share.

Current wording

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“SG&A”), and operating loss. The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net loss, and Adjusted diluted loss per share.

Previous wording

We offer a broad range of products that consists of regularly purchased, non-discretionary pool and spa maintenance items such as chemicals, equipment, cleaning accessories and parts, as well as installation and repair services for pool and spa equipment. Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers and encouraging repeat visits from our existing consumers. Revenue from merchandise sales at retail locations is recognized at the point of sale, revenue from services is recognized when the services are rendered, and revenue from e-commerce merchandise sales is generally recognized upon shipment of the merchandise. Revenue is recorded net of related discounts and sales tax. Payment from retail customers is generally at the point of sale and payment terms for professional pool operator customers are based on our credit requirements and generally have terms of less than 60 days. When we receive payment from a consumer before the consumer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue or as a customer deposit until the sale or service is complete. Sales are impacted by weather, seasonality, product mix and availability, promotional and competitive activities, the spending habits of our consumers, as well as inflation and interest rates. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.

Current wording

We offer a broad range of products that consists of regularly purchased, non-discretionary pool and spa maintenance items such as chemicals, equipment, cleaning accessories and parts, as well as installation and repair services for pool and spa equipment. Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers and encouraging repeat visits from our existing consumers. Revenue from merchandise sales at retail locations is recognized at the point of sale, revenue from services is recognized when the services are rendered, and revenue from e-commerce merchandise sales is generally recognized upon shipment of the merchandise. Revenue is recorded net of related discounts and sales tax. Payment from retail customers is generally at the point of sale and payment terms for professional pool operator customers are based on our credit requirements and generally have terms of less than 60 days. When we receive payment from a consumer before the consumer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue or as a customer deposit until the sale or service is complete. Sales are impacted by weather, seasonality, product mix and availability, promotional and competitive activities, and the spending habits of our consumers, as well as inflation and interest rates. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.

Previous wording

As of June 28, 2025, we operated over 1,000 locations in 39 states across the United States. We owned 27 locations and leased the remainder of our locations. Our initial lease terms are typically five years with options to renew for multiple successive five-year periods. We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review the performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability. Our limited investment costs in individual locations and our ability to transfer sales to our extensive network of remaining locations and e-commerce websites allows us to improve profitability as a result of any strategic closures.

Current wording

As of January 3, 2026, we operated approximately 950 locations in 38 states across the United States. We owned 27 locations and leased the remainder of our locations. Our initial lease terms are typically five years with options to renew for multiple successive five-year periods. We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review the performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability. Our limited investment costs in individual locations and our ability to transfer sales to our extensive network of remaining locations and e-commerce websites allows us to improve profitability as a result of any strategic closures.

Previous wording

Operating income (loss) is gross profit less SG&A. Operating income (loss) excludes interest expense, loss on debt extinguishment, income tax expense (benefit), and other (income) expenses, net. We use operating income (loss) as an indicator of the productivity of our business and our ability to manage expenses.

Current wording

Operating loss is gross profit less SG&A. Operating loss excludes interest expense and income tax expense (benefit). We use operating loss as an indicator of the productivity of our business and our ability to manage expenses.

Previous wording

Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Current wording

Adjusted net loss and Adjusted diluted loss per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net loss and Adjusted diluted loss per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

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

Current wording

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

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, tariffs, supply chain disruptions, labor market constraints, high rates of inflation, high interest rates, general economic slowdown, and potential failures among financial institutions. New or increased tariffs and other barriers to trade, especially in light of comments and executive orders made by the U.S. presidential administration, could further impact or exacerbate these conditions. The United States has announced tariffs on imports from most countries, including significant tariffs on imports from Canada, Mexico and China. In response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. There is substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended, and the impacts of such actions on the Company’s business. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict, tariffs or trade policies or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation, tariffs, 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

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

Current wording

Additional uncertainties that can impact our results of operations are consumer purchasing patterns and consumer cost-consciousness. In the past, we believe some customers stockpiled chemicals, resulting in unexpected changes in demand. As a result of such behavior, our revenue may be higher than normal during the periods of stockpiling and may be lower than normal during the periods after stockpiling has occurred.

Previous wording

We derived our condensed consolidated statements of operations for the three and nine months ended June 28, 2025 and June 29, 2024 from our condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts and percentages):

Current wording

We derived our consolidated statements of operations for the three months ended January 3, 2026 and December 28, 2024 from our 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 and percentages):

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 28, 2025 and June 29, 2024 (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 January 3, 2026 and December 28, 2024 (in thousands). Adjusted net loss reported for the three months ended December 28, 2024 reflects a correction of an immaterial error in the “tax effects of these adjustments” amount reported in the first quarter of 2025.

Previous wording

Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and SG&A in our condensed consolidated statements of operations.

Current wording

Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and SG&A in our consolidated statements of operations.

Previous wording

Represents charges related to equity-based compensation and our related payroll tax expense, which are reported in SG&A in our condensed consolidated statements of operations.

Current wording

Represents charges related to equity-based compensation and our related payroll tax expense, which are reported in SG&A in our consolidated statements of operations.

Previous 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.

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. Also included are costs related to the closure of the 80 stores and one distribution center announced, and substantially completed, in the first quarter of 2026. These items are reported in SG&A in our consolidated statements of operations.

Previous 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.

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 consolidated statements of operations.

Previous wording

Represents non-cash change in valuation allowance for deferred taxes. This item is reported in income tax (expense) benefit in our condensed consolidated statements of operations.

Current wording

Represents a non-cash change in valuation allowance for deferred taxes. This item is reported in income tax expense (benefit) in our consolidated statements of operations.

Previous wording

Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax benefit in our condensed consolidated statements of operations.

Current wording

Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax expense in our consolidated statements of operations. The prior period amount has been corrected for an immaterial error reported for the period ended December 28, 2024.

Previous wording

SG&A for the three months ended June 28, 2025 was $129.6 million compared to $131.1 million in the prior year period, a decrease of $1.6 million, or 1.2%. The decrease in SG&A was primarily related to decreased merchant fees of $2.9 million, $1.5 million for direct store expenses, and $0.6 million for marketing fees, partially offset by $3.0 million of increased other operating expenses.

Current wording

SG&A for the three months ended January 3, 2026 was $85.7 million compared to $87.4 million in the prior year period, a decrease of $1.7 million, or 2.0%. The decrease in SG&A was primarily related to decreases of merchant fees in $1.4 million, $1.1 million of labor and fringe costs, $0.6 million in direct store expenses, and $0.3 million in other operating expenses. Partially offsetting the decrease is $0.9 million of marketing fees and $0.8 million in technology costs.

Previous wording

Income tax expense increased to $30.8 million for the three months ended June 28, 2025 compared to $18.9 million in the prior year period, an increase of $11.9 million. Income tax expense increased to $7.0 million for the nine months ended June 28, 2025 compared to a benefit of $9.2 million in the prior year period, an increase of $16.2 million. The increases were primarily attributable to the change in valuation allowance.

Current wording

Income tax expense increased to $0.7 million for the three months ended January 3, 2026 compared to a benefit of $10.9 million in the prior year period, an increase of $11.6 million. The increases were primarily attributable to the change in valuation allowance and use of the discrete effective tax rate method in the prior year period.

Previous wording

The effective income tax rate was 58.7% and (10.4)% for the three and nine months ended June 28, 2025, respectively, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance. The effective income tax rate was 23.8% and a benefit of 40.7% for the three and nine months ended June 29, 2024, and included net income tax expenses attributable to equity-based compensation awards.

Current wording

The effective income tax rate was (0.8)% for the three months ended January 3, 2026, and included net income tax expenses attributable to state taxes and the change in valuation allowance. The effective income tax rate was 19.7% for the three months ended December 28, 2024, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance related to our interest expense limitation.

Previous wording

Net income for the three months ended June 28, 2025 was $21.7 million compared to $60.7 million in the prior year period, a decrease of $38.9 million. The changes in net income during the three months ended June 28, 2025, was primarily due to decreases in gross profit due to lower sales. Net loss for the nine months ended June 28, 2025 was $(74.2) million compared to $(13.5) million in the prior year period, an increase of $60.7 million. The changes in net loss during the nine months ended June 28, 2025 was primarily due to decreases in gross profit due to lower sales combined with increases in SG&A.

Current wording

Net loss for the three months ended January 3, 2026 was $83.0 million compared to $44.6 million in the prior year period, a decrease of $38.4 million. The changes in net loss during the three months ended January 3, 2026, were primarily due to decreases in gross profit due to lower sales, impairment charges in the current year, and a tax benefit in the prior year that was not repeated in the current year due to the valuation allowance.

Previous wording

Adjusted EBITDA for the three months ended June 28, 2025 was $81.6 million compared to $109.5 million in the prior year period, a decrease of $27.9 million. The changes in Adjusted EBITDA during the three months ended June 28, 2025, were primarily due to decreases in gross profit due to lower sales. Adjusted EBITDA for the nine months ended June 28, 2025 was $16.2 million compared to $65.8 million in the prior year period, a decrease of $49.6 million. The decrease in Adjusted EBITDA during the nine months ended June 28, 2025 was primarily due to decreases in gross profit combined with increases in SG&A.

Current wording

Adjusted EBITDA for the three months ended January 3, 2026 was $(40.3) million compared to $(29.3) million in the prior year period, a decrease of $11.0 million. The changes in Adjusted EBITDA during the three months ended January 3, 2026, were primarily due to decreases in gross profit driven by unfavorable sales mix compared to the prior year and lower product margins on our core chemical products.

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 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.

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 flows. 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 timing 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. Further, we generally close locations after our peak selling season ends.

Previous wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $42.7 million as of June 28, 2025, $74.4 million as of June 29, 2024, and $108.5 million as of September 28, 2024. As of June 28, 2025, we had $20.0 million outstanding on our Revolving Credit Facility. We had no amounts outstanding on our Revolving Credit Facility as of June 29, 2024 and September 28, 2024.

Current wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $3.6 million as of January 3, 2026 and $11.6 million as of December 28, 2024. Outstanding borrowings on our Revolving Credit Facility were $25.0 million as of January 3, 2026 and $40.0 million as of December 28, 2024. We had no amounts outstanding on our Revolving Credit Facility as of October 4, 2025.

Previous wording

Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, and debt service over the next 12 months and thereafter. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, then we may need to obtain additional equity or debt financing. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, whether the terms will be satisfactory to us.

Current wording

Based on our growth plans and strategic initiatives, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic initiatives and acquisitions, and debt service over the next 12 months and thereafter. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, then we may need to obtain additional equity or debt financing. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, whether the terms will be satisfactory to us.

Previous wording

As of June 28, 2025, outstanding standby letters of credit totaled $11.8 million and, after considering borrowing base restrictions, we had $218.2 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of June 28, 2025, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan.

Current wording

As of January 3, 2026, outstanding standby letters of credit totaled $11.1 million, and after considering borrowing base restrictions, we had $128.3 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of January 3, 2026, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan.

Previous wording

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

Current wording

During the quarter ended January 3, 2026 the Company received downgraded credit rating from Standard and Poor’s (“S&P”) Global Ratings (CCC from CCC+).

Previous wording

Net cash used in operating activities was $(39.4) million for the nine months ended June 28, 2025 compared to net cash provided by operating activities of $60.4 million in the prior year period, a decrease of $99.8 million. The decrease was primarily driven by changes in working capital related to increased product inventories of $48.5 million combined with reduced accrued expenses of $15.5 million, partially offset by increased accounts payable of $24.0 million.

Current wording

Net cash used in operating activities was $81.1 million for the three months ended January 3, 2026 compared to $105.1 million in the prior year period, a decrease of $24.0 million. The decrease was primarily driven by a strategic decrease in inventory of $28.4 million.

Previous wording

Net cash used in investing activities was $18.9 million for the nine months ended June 28, 2025 compared to $34.2 million in the prior year period, a decrease of $15.3 million. This decrease was primarily driven by lower investments in purchases of property and equipment of $15.3 million.

Current wording

Net cash used in investing activities was $4.3 million for the three months ended January 3, 2026 compared to $4.6 million in the prior year period, a decrease of $0.3 million. This decrease was driven by lower investments in purchases of property and equipment.

Previous wording

Net cash used in financing activities for the nine months ended June 28, 2025 was $7.5 million compared to $7.1 million in the prior year period, an increase of $0.4 million. This increase was primarily driven by higher repayments of long-term debt, partially offset by higher borrowings on the Revolving Credit Facility, which had not been repaid in full as of June 28, 2025.

Current wording

Net cash provided by financing activities for the three months ended January 3, 2026 was $24.7 million compared to $12.8 million in the prior year period, an increase of $11.9 million. This increase was due to a $27.0 million principal payment made during the three months ended December 28, 2024, partially offset by $15.0 million of decreased borrowings on the revolving credit facility in the current period.

Previous wording

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

Current wording

There have been no material changes to our contractual obligations and other commitments during the three months ended January 3, 2026 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

Previous wording

The preparation of our condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024. We base these estimates on historical results and various other assumptions we believe to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

Current wording

The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025. We base these estimates on historical results and various other assumptions we believe to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

Previous wording

Except as indicated below, there have been no material changes to our critical accounting estimates during the nine months ended June 28, 2025 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Current wording

There have been no material changes to our critical accounting estimates during the three months ended January 3, 2026 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 4, 2025.

Previous wording

For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.