FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides Leslie's, Inc.'s Form 10-Q filing details, including registrant information and common shares outstanding - Filing Type: Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934[2](index=2&type=chunk) - Reporting Period: For the quarterly period ended January 2, 2021[2](index=2&type=chunk) Registrant Details | Detail | Value | | :--- | :--- | | Exact Name of Registrant | LESLIE'S, INC. | | State of Incorporation | Delaware | | Commission File Number | 001-39667 | | Trading Symbol | LESL | | Exchange Registered | The Nasdaq Global Select Market | | Filer Status | Non-accelerated filer | | Common Stock Outstanding (as of Feb 5, 2021) | 186,873,341 shares | Table of Contents Cautionary Note Regarding Forward-Looking Statements [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section warns that forward-looking statements carry risks, and actual results may differ materially from projections - Forward-looking statements are identified by words such as "anticipate," "believe," "expect," "intend," "may," "plan," "potential," "project," "should," "will," or "would"[8](index=8&type=chunk) - Actual results could differ materially due to factors including: growth strategies, supplier relationships, competition, weather, economic conditions, housing market, technology initiatives, personnel retention, regulatory changes, capital access, intellectual property, and the COVID-19 pandemic[8](index=8&type=chunk)[11](index=11&type=chunk) - The company undertakes no obligation to update forward-looking statements, except as required by law, and cautions against undue reliance on them[11](index=11&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Leslie's, Inc.'s unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and stockholders' deficit at various reporting dates Condensed Consolidated Balance Sheets (Amounts in Thousands) | As of | January 2, 2021 | October 3, 2020 | December 28, 2019 | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $104,077 | $157,072 | $1,938 | | Total current assets | $355,627 | $372,133 | $242,926 | | Total assets | $747,108 | $746,438 | $651,286 | | **Liabilities and Stockholders' Deficit** | | | | | Total current liabilities | $192,871 | $258,196 | $198,489 | | Long-term debt, net | $795,394 | $1,179,550 | $1,185,256 | | Total liabilities | $1,133,518 | $1,573,437 | $1,564,221 | | Total stockholders' deficit | $(386,410) | $(826,999) | $(912,935) | | Total liabilities and stockholders' deficit | $747,108 | $746,438 | $651,286 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's sales, expenses, and net loss for the reported three-month periods Condensed Consolidated Statements of Operations (Three months ended, Amounts in Thousands) | Metric | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Sales | $145,006 | $122,978 | | Cost of merchandise and services sold | $93,291 | $81,900 | | Gross profit | $51,715 | $41,078 | | Selling, general and administrative expenses | $77,489 | $59,721 | | Operating loss | $(25,774) | $(18,643) | | Interest expense | $11,516 | $22,417 | | Loss on debt extinguishment | $7,281 | — | | Net loss | $(30,257) | $(26,187) | | Net loss per share (Basic and diluted) | $(0.17) | $(0.17) | | Weighted average shares outstanding (Basic and diluted) | 176,989,755 | 156,500,000 | [Condensed Consolidated Statements of Stockholders' Deficit](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) This section outlines changes in the company's stockholders' deficit, including common stock and retained deficit Condensed Consolidated Statements of Stockholders' Deficit (Amounts in Thousands) | Item | Balance, September 28, 2019 | Balance, December 28, 2019 | Balance, October 3, 2020 | Balance, January 2, 2021 | | :--- | :--- | :--- | :--- | :--- | | Common Stock (Shares) | 156,500,000 | 156,500,000 | 156,500,000 | 186,618,446 | | Common Stock (Amount) | $157 | $157 | $157 | $187 | | Additional Paid in Capital (Deficit) | $(279,848) | $(279,251) | $(278,063) | $192,753 | | Retained Deficit | $(607,666) | $(633,841) | $(549,093) | $(579,350) | | Total Stockholders' Deficit | $(887,357) | $(912,935) | $(826,999) | $(386,410) | | Net loss (3 months ended) | — | $(26,187) | — | $(30,257) | | Issuance of common stock upon IPO, net of offering costs | — | — | — | $458,686 | | Equity-based compensation | $597 | $597 | $12,160 | $12,160 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three months ended, Amounts in Thousands) | Activity | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(119,294) | $(81,256) | | Net cash used in investing activities | $(302) | $(11,920) | | Net cash provided by financing activities | $66,601 | $4,215 | | Net decrease in cash and cash equivalents | $(52,995) | $(88,961) | | Cash and cash equivalents, end of period | $104,077 | $1,938 | | Supplemental Disclosure: Interest paid | $19,635 | $26,473 | | Supplemental Disclosure: Income taxes paid | $920 | $2,875 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [Note 1—Business and Operations](index=8&type=section&id=Note%201%E2%80%94Business%20and%20Operations) This note describes Leslie's, Inc.'s core business as a direct-to-consumer pool and spa care brand and its operational footprint - Leslie's, Inc. is the leading direct-to-consumer pool and spa care brand, marketing and selling maintenance items (chemicals, equipment, parts, cleaning accessories) and safety/recreational products[22](index=22&type=chunk) - The company operates through **936** company-operated locations in **37** states and e-commerce websites[22](index=22&type=chunk) [Note 2—Summary of Significant Accounting Policies](index=8&type=section&id=Note%202%E2%80%94Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies, including IPO details, stock split, and seasonality impacts - The interim condensed consolidated financial statements are prepared following U.S. GAAP and include all normal and recurring adjustments[23](index=23&type=chunk) - Initial Public Offering (IPO): Completed in November 2020, issuing **30,000,000** shares at **$17.00/share**, generating net proceeds of **$458.7 million**. Proceeds were used to repay **$390.0 million** Senior Unsecured Notes, with the remainder for working capital and general corporate purposes[24](index=24&type=chunk)[25](index=25&type=chunk) - Stock Split: A **156,500-for-1** stock split was effected on October 23, 2020, with all share and per share information adjusted accordingly[26](index=26&type=chunk) - Seasonality: Business is highly seasonal, with sales and earnings highest in fiscal third and fourth quarters (April-September) due to peak swimming pool use. Sales are substantially lower in the first and second quarters[35](index=35&type=chunk) [Note 3—Business Combinations](index=9&type=section&id=Note%203%E2%80%94Business%20Combinations) This note details the October 2019 acquisition of a hot tub, swim spa, and sauna retailer, expanding the company's presence - In October 2019, Leslie's acquired assets of a hot tub, swim spa, and sauna retailer, adding six locations in the Pacific Northwest and expanding its presence to **37** states. The acquisition did not materially impact financial position or results of operations[37](index=37&type=chunk) [Note 4—Goodwill and Other Intangibles, Net](index=9&type=section&id=Note%204%E2%80%94Goodwill%20and%20Other%20Intangibles,%20Net) This note presents the carrying amounts of goodwill and other intangible assets, along with amortization expenses Goodwill Carrying Amount (In thousands) | Period | Goodwill | | :--- | :--- | | January 2, 2021 | $93,295 | | October 3, 2020 | $93,295 | | December 28, 2019 | $92,821 | Other Intangible Assets (Net Carrying Amount, In thousands) | Category | January 2, 2021 | October 3, 2020 | December 28, 2019 | | :--- | :--- | :--- | :--- | | Trade name and trademarks (finite life) | $373 | $401 | $486 | | Trade name and trademarks (indefinite life) | $17,750 | $17,750 | $17,750 | | Non-compete agreements | $1,675 | $1,761 | $2,316 | | Consumer relationships | $6,715 | $7,082 | $8,202 | | Internally developed software | $518 | $566 | $756 | | Other | $33 | $42 | $67 | | Total | $27,064 | $27,602 | $29,577 | - Amortization expense for finite-lived intangible assets was **$0.5 million** for the three months ended January 2, 2021, and **$0.6 million** for both October 3, 2020, and December 28, 2019[39](index=39&type=chunk) - No impairment of goodwill or other intangible assets was recorded during the reported periods[39](index=39&type=chunk) [Note 5—Inventories](index=11&type=section&id=Note%205%E2%80%94Inventories) This note provides a breakdown of the company's inventory, including raw materials and finished goods Inventories (In thousands) | As of | January 2, 2021 | October 3, 2020 | December 28, 2019 | | :--- | :--- | :--- | :--- | | Raw materials | $2,577 | $1,967 | $1,237 | | Finished goods | $171,958 | $146,999 | $183,893 | | Total Inventories | $174,535 | $148,966 | $185,130 | [Note 6—Accrued Expenses](index=11&type=section&id=Note%206%E2%80%94Accrued%20Expenses) This note details the composition of accrued expenses, including payroll, occupancy, and interest Accrued Expenses (In thousands) | As of | January 2, 2021 | October 3, 2020 | December 28, 2019 | | :--- | :--- | :--- | :--- | | Accrued payroll and employee benefits | $19,394 | $32,420 | $12,529 | | Occupancy expenses | $3,150 | $3,573 | $5,992 | | Interest | $489 | $9,377 | $12,887 | | Sales taxes | $7,970 | $11,164 | $5,540 | | Self-insurance reserves | $5,993 | $6,518 | $6,607 | | Customer deposits | $9,304 | $13,286 | $3,317 | | All other current liabilities | $12,786 | $24,829 | $7,509 | | Total | $59,086 | $101,167 | $54,381 | [Note 7—Long-Term Debt](index=12&type=section&id=Note%207%E2%80%94Long-Term%20Debt) This note outlines the company's long-term debt obligations, including term loans and the ABL Credit Facility Long-Term Debt Obligations (In thousands) | Debt Type | Effective Interest Rate (Jan 2, 2021) | January 2, 2021 | October 3, 2020 | December 28, 2019 | | :--- | :--- | :--- | :--- | :--- | | Term Loan—due on August 16, 2023 | 3.65% | $809,093 | $811,178 | $819,520 | | Senior Unsecured Notes—due on August 16, 2024 | N/A (repaid) | — | $390,000 | $390,000 | | ABL Credit Facility | 2.50% | — | — | $6,300 | | Total long-term debt | | $809,093 | $1,201,178 | $1,215,820 | | Long-term debt, net | | $795,394 | $1,179,550 | $1,185,256 | - The **$390.0 million** Senior Unsecured Notes were paid in full on November 3, 2020, resulting in a **$7.3 million** loss on debt extinguishment[50](index=50&type=chunk) - No amounts were outstanding on the **$200.0 million** ABL Credit Facility as of January 2, 2021, and October 3, 2020[48](index=48&type=chunk) - The company uses interest rate cap agreements to manage variability of cash flows related to floating rate indebtedness, capping LIBOR at **3.00%** for a notional amount of **$750.0 million** through March 2021[52](index=52&type=chunk) [Note 8—Leases](index=13&type=section&id=Note%208%E2%80%94Leases) This note describes the company's operating lease commitments for facilities and associated rent expenses - The company leases store, office, distribution, and manufacturing facilities under operating leases expiring through September 2031[54](index=54&type=chunk) Future Annual Minimum Lease Payments (As of January 2, 2021, In thousands) | Fiscal Year | Amount | | :--- | :--- | | Remainder of fiscal 2021 | $51,836 | | 2022 | $60,421 | | 2023 | $48,158 | | 2024 | $35,187 | | 2025 | $21,093 | | Thereafter | $15,946 | | Total | $232,641 | | Present value of future minimum lease payments | $196,194 | | Long-Term lease obligations | $139,796 | - Rent expense was **$17.0 million** for the three months ended January 2, 2021, up from **$15.8 million** in the prior year period[56](index=56&type=chunk) [Note 9—Income Taxes](index=13&type=section&id=Note%209%E2%80%94Income%20Taxes) This note details the effective income tax rate and factors influencing its change for the reported periods - Effective income tax rate was **32.1%** for the three months ended January 2, 2021, compared to **36.4%** for the three months ended December 28, 2019[57](index=57&type=chunk) - The change in effective tax rate is primarily due to a decrease in the valuation allowance for interest limitation carryforward and state taxes[57](index=57&type=chunk) [Note 10—Commitments & Contingencies](index=13&type=section&id=Note%2010%E2%80%94Commitments%20%26%20Contingencies) This note addresses legal proceedings, self-insurance, standby letters of credit, and future purchase commitments - The company is involved in routine legal proceedings but does not expect them to have a material effect on its financial position or results of operations[58](index=58&type=chunk)[59](index=59&type=chunk) - Self-insurance retention features for workers' compensation, general liability, and employee medical plans are up to **$0.4 million** per event[60](index=60&type=chunk) - Standby letters of credit outstanding totaled **$11.6 million** as of January 2, 2021, to secure self-insurance obligations[60](index=60&type=chunk) Future Minimum Purchase Commitments (As of January 2, 2021, In thousands) | Fiscal Year | Amount | | :--- | :--- | | Remainder of fiscal 2021 | $106,067 | | 2022 | $76,389 | | 2023 | $72,731 | | 2024 | $55,698 | | 2025 | $34,446 | | Thereafter | $5,687 | | Total | $351,018 | [Note 11—Related Party Transactions](index=14&type=section&id=Note%2011%E2%80%94Related%20Party%20Transactions) This note discusses management fees paid to private equity sponsors and the termination of the management services agreement - Management fees paid or accrued to private equity sponsors were **$0.4 million** for the three months ended January 2, 2021, down from **$1.3 million** in the prior year period[63](index=63&type=chunk) - The management services agreement terminated in October 2020 following the initial public offering[63](index=63&type=chunk) [Note 12—Net Loss Per Share](index=14&type=section&id=Note%2012%E2%80%94Net%20Loss%20Per%20Share) This note presents the weighted average common shares outstanding used in calculating basic and diluted net loss per share Weighted Average Common Shares Outstanding (Three months ended) | Item | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Weighted average common shares outstanding, basic | 176,989,755 | 156,500,000 | | Weighted average number of common and dilutive potential common shares outstanding | 176,989,755 | 156,500,000 | - Stock options and restricted stock units (**4,604,118** for Jan 2, 2021; **5,949,305** for Dec 28, 2019) were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive[64](index=64&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Leslie's, Inc.'s financial condition and results of operations, covering key metrics, comparability factors, and liquidity [Our Company](index=15&type=section&id=Our%20Company) This section describes Leslie's as the leading direct-to-consumer pool and spa care brand with a resilient revenue model - Leslie's is the largest direct-to-consumer brand in the U.S. pool and spa care industry, operating **936** branded locations and a robust digital platform[69](index=69&type=chunk) - The company offers professional-grade products (chemicals, equipment, parts, cleaning accessories) and services (installation, repair), with over **80%** of its assortment being non-discretionary[69](index=69&type=chunk)[70](index=70&type=chunk) - Leslie's has a highly predictable, recurring revenue model with **57** consecutive years of sales growth, demonstrating resilience across various market environments, including the Great Recession and COVID-19[70](index=70&type=chunk) - Key innovations include complimentary in-store water testing (AccuBlue® system), in-store equipment repair, the industry's first loyalty program, and an expansive platform of owned and exclusive brands[71](index=71&type=chunk) [Key Factors and Measures We Use to Evaluate Our Business](index=15&type=section&id=Key%20Factors%20and%20Measures%20We%20Use%20to%20Evaluate%20Our%20Business) This section outlines the GAAP and non-GAAP financial measures used to evaluate the company's business performance - Key GAAP measures include sales, gross profit and gross margin, selling, general and administrative expenses (SG&A), and operating income[73](index=73&type=chunk) - Key non-GAAP measures include comparable sales, comparable sales growth, adjusted EBITDA, adjusted net income, and adjusted net income per share[73](index=73&type=chunk) - Sales growth is primarily driven by comparable sales growth and expansion of locations. Revenue from merchandise sales is recognized at point of sale or shipment, and services when rendered[74](index=74&type=chunk) - Comparable sales growth measures the increase or decrease in sales from the comparable base (locations, e-commerce, third-party marketplaces) year-over-year. A new or acquired location becomes comparable after **52** weeks of sales[75](index=75&type=chunk)[76](index=76&type=chunk) - Gross profit is sales less cost of merchandise and services sold, including direct costs, packaging, labor, distribution, and occupancy costs. Gross margin is gross profit as a percentage of sales[79](index=79&type=chunk)[80](index=80&type=chunk) - SG&A includes retail location operating expenses (payroll, supplies, card processing) and corporate general and administrative expenses (payroll, marketing, insurance, professional services)[82](index=82&type=chunk) - Operating income is gross profit less SG&A, used to assess business productivity and expense management[83](index=83&type=chunk) - Adjusted EBITDA and Adjusted Net Income are non-GAAP measures used by management and investors to evaluate financial performance, excluding certain non-recurring or non-cash items[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) [Factors Affecting the Comparability of our Results of Operations](index=17&type=section&id=Factors%20Affecting%20the%20Comparability%20of%20our%20Results%20of%20Operations) This section discusses factors impacting the comparability of financial results, including COVID-19, acquisitions, and public company expenses [Impact of COVID-19](index=18&type=section&id=Impact%20of%20COVID-19) This note details the operational and financial impacts of the COVID-19 pandemic on the company's business - Leslie's maintained operations as an 'essential' business during the COVID-19 pandemic, providing essential products and services for home and business safety and sanitization[90](index=90&type=chunk) - The company implemented extensive safety measures, including employee symptom monitoring, PPE distribution, enhanced cleaning, social distancing, contactless payments, and remote work plans[92](index=92&type=chunk)[94](index=94&type=chunk) - COVID-19 favorably impacted sales due to increased residential pool and spa use, accelerating secular trends in consumer behavior[101](index=101&type=chunk) - The full impact of COVID-19 remains uncertain, with potential for further operational restrictions or supply chain disruptions[92](index=92&type=chunk) [Business Acquisitions](index=18&type=section&id=Business%20Acquisitions) This note describes the October 2019 acquisition of a hot tub, swim spa, and sauna retailer, expanding the company's footprint - In October 2019, Leslie's acquired a retailer of hot tub, swim spa, and sauna supplies and services, adding six locations in the Pacific Northwest[93](index=93&type=chunk) - This acquisition expanded the company's physical presence to **37** states but did not have a material impact on its financial position or results of operations[93](index=93&type=chunk) [Incremental Public Company Expenses](index=18&type=section&id=Incremental%20Public%20Company%20Expenses) This note highlights new ongoing expenses incurred as a newly public company, primarily impacting SG&A - As a newly public company, Leslie's incurs significant ongoing expenses not present as a private company, including director and officer liability insurance, accounting, auditing, Sarbanes-Oxley compliance, legal, and investor relations costs[94](index=94&type=chunk) - These costs are generally expensed under Selling, General and Administrative (SG&A) expenses[94](index=94&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including sales, gross profit, SG&A, and net loss for the period Key Financial and Operational Data (Three months ended, Amounts in Thousands, except per share) | Metric | January 2, 2021 | December 28, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales | $145,006 | $122,978 | $22,028 | 17.9% | | Cost of merchandise and services sold | $93,291 | $81,900 | $11,391 | 13.9% | | Gross profit | $51,715 | $41,078 | $10,637 | 25.9% | | Selling, general and administrative expenses | $77,489 | $59,721 | $17,768 | 29.8% | | Operating loss | $(25,774) | $(18,643) | $(7,131) | 38.3% | | Interest expense | $11,516 | $22,417 | $(10,901) | -48.6% | | Loss on debt extinguishment | $7,281 | — | $7,281 | N/A | | Net loss | $(30,257) | $(26,187) | $(4,070) | 15.5% | | Net loss per share (Basic and diluted) | $(0.17) | $(0.17) | $0.00 | 0.0% | | Comparable sales growth | 15.7% | 3.4% | 12.3% | 361.8% | | Adjusted EBITDA | $(243) | $(9,004) | $8,761 | -97.3% | | Adjusted net loss | $(10,619) | $(24,314) | $13,695 | -56.3% | | Adjusted net loss per share | $(0.06) | $(0.16) | $0.10 | -62.5% | - Sales increased by **17.9%** to **$145.0 million**, driven by a **15.7%** comparable sales increase due to higher consumer demand across all product categories, partly attributed to COVID-19 accelerating secular trends[101](index=101&type=chunk) - Gross profit increased by **25.9%** to **$51.7 million**, and gross margin improved by **225 basis points** to **35.7%**[102](index=102&type=chunk) - SG&A expenses rose by **29.8%** to **$77.5 million**, primarily due to a **$11.6 million** increase in non-cash equity-based compensation and **$8.2 million** in one-time payments related to the IPO[103](index=103&type=chunk) - Total other expense decreased by **$3.8 million**, mainly due to **$10.9 million** lower interest expense, partially offset by a **$7.3 million** loss on debt extinguishment from repaying Senior Unsecured Notes[104](index=104&type=chunk) - Net loss increased to **$30.3 million**, while net loss per share remained flat at **$(0.17)**[106](index=106&type=chunk) - Adjusted EBITDA improved significantly to a loss of **$0.2 million** from a loss of **$9.0 million**, driven by increased comparable sales and improved gross margin[107](index=107&type=chunk) - Adjusted net loss improved to **$10.6 million** from **$24.3 million**, and adjusted net loss per share improved to **$(0.06)** from **$(0.16)**[108](index=108&type=chunk) [Seasonality and Quarterly Fluctuations](index=21&type=section&id=Seasonality%20and%20Quarterly%20Fluctuations) This section explains the highly seasonal nature of the business, with peak sales and earnings in the fiscal third and fourth quarters - The business is highly seasonal, with sales and earnings peaking in the fiscal third and fourth quarters (April-September) due to peak swimming pool use[109](index=109&type=chunk) - In fiscal year 2020, **77%** of sales and **109%** of adjusted EBITDA were generated in the third and fourth quarters[109](index=109&type=chunk) - Inventory and accounts payable build up during the fiscal first and second quarters in anticipation of the peak selling season, leading to peak borrowing during the second quarter[110](index=110&type=chunk) - Weather is a principal external factor, with hot weather increasing purchases and services, while cool or rainy weather can reduce consumption and sales[111](index=111&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's primary liquidity sources, cash position, and available borrowing capacity - Primary liquidity sources are net cash from operating activities and availability under the ABL Credit Facility[114](index=114&type=chunk) Cash and Cash Equivalents (In millions) | As of | Amount | | :--- | :--- | | January 2, 2021 | $104.1 | | October 3, 2020 | $157.1 | - No outstanding borrowings under the ABL Credit Facility as of January 2, 2021, and October 3, 2020[115](index=115&type=chunk) - The ABL Credit Facility was amended in August 2020, extending maturity to August 2025 and increasing borrowing capacity to **$200 million**[115](index=115&type=chunk) - As of January 2, 2021, the company had **$142.7 million** of available borrowing capacity under the ABL Credit Facility, after considering **$11.6 million** in standby letters of credit[119](index=119&type=chunk) - The company expects current liquidity to be adequate for working capital, capital expenditures, and debt service for the next **12** months[118](index=118&type=chunk) Summary of Cash Flows (Three months ended, In thousands) | Activity | January 2, 2021 | December 28, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(119,294) | $(81,256) | | Net cash used in investing activities | $(302) | $(11,920) | | Net cash provided by financing activities | $66,601 | $4,215 | | Net decrease in cash and cash equivalents | $(52,995) | $(88,961) | - Net cash used in operating activities increased by **$38.0 million** to **$119.3 million**, primarily due to changes in working capital related to accounts payable and accrued expenses[121](index=121&type=chunk) - Net cash used in investing activities decreased by **$11.6 million** to **$0.3 million**, driven by a decrease in acquisitions and property/equipment investments, and proceeds from asset sales[122](index=122&type=chunk) - Net cash provided by financing activities increased by **$62.4 million** to **$66.6 million**, mainly from **$458.7 million** IPO proceeds, offset by **$390.0 million** repayment of Senior Unsecured Notes and a **$6.3 million** decrease in ABL Credit Facility borrowings[123](index=123&type=chunk) [Contractual Obligations and Other Commitments](index=23&type=section&id=Contractual%20Obligations%20and%20Other%20Commitments) This section notes no material changes to contractual obligations, except for the repayment of Senior Unsecured Notes - No material changes to contractual obligations occurred during the three months ended January 2, 2021, except for the **$390.0 million** repayment of Senior Unsecured Notes in November 2020[125](index=125&type=chunk) [Off-Balance Sheet Arrangements](index=23&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements as of the reporting date - The company did not have any off-balance sheet arrangements as of January 2, 2021[127](index=127&type=chunk) [Critical Accounting Policies and Estimates](index=23&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section states that no material changes occurred in critical accounting policies and estimates during the period - The condensed consolidated financial statements require estimates and assumptions affecting reported amounts, which are evaluated on an ongoing basis[128](index=128&type=chunk) - No material changes to critical accounting policies and estimates occurred during the **13** weeks ended January 2, 2021, from those disclosed in the Annual Report on Form 10-K for fiscal year ended October 3, 2020[129](index=129&type=chunk) [Recent Accounting Pronouncements](index=23&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for information regarding recent accounting pronouncements - Information regarding recent accounting pronouncements is provided in Note 2 to the condensed consolidated financial statements[131](index=131&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate fluctuations and inflation impacts [Interest Rate Risk](index=24&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations on its variable-rate borrowings - The company is exposed to interest rate fluctuations on its variable-rate borrowings, including the ABL Credit Facility and Term Loan[133](index=133&type=chunk) - As of January 2, 2021, **$809.1 million** of variable rate loans were outstanding under the Term Loan, with no outstanding variable rate debt under the ABL Credit Facility[133](index=133&type=chunk) - A **1%** increase or decrease in the effective interest rate would cause an approximate **$8.1 million** increase or decrease in interest cost over the next **12** months[133](index=133&type=chunk) - Interest rate cap agreements with a total notional amount of **$750 million** cap LIBOR at **3.00%** through March 31, 2021, to mitigate rising interest rate risk[133](index=133&type=chunk) [Impact of Inflation](index=24&type=section&id=Impact%20of%20Inflation) This section describes how the company manages inflation impacts through supplier relationships and pricing strategies - The company actively manages inflation impacts, including tariffs, through strong supplier relationships, vendor negotiation, price and promotion management, and strategic inventory purchases[134](index=134&type=chunk) - Management believes these strategies enable them to substantially mitigate negative impacts of inflation[134](index=134&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) This section covers management's evaluation of disclosure controls and procedures, noting the absence of internal control changes for a newly public company [Management's Evaluation of Disclosure Controls and Procedures](index=24&type=section&id=Management's%20Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures as evaluated by the CEO and CFO - The CEO and CFO concluded that the design and operation of disclosure controls and procedures were effective as of January 2, 2021[135](index=135&type=chunk) - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required under the Securities Exchange Act of 1934[135](index=135&type=chunk) [Changes in Internal Control over Financial Reporting](index=24&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section explains the absence of disclosure on internal control changes due to SEC rules for newly public companies - This report does not include disclosure of changes in internal control over financial reporting due to a transition period established by SEC rules for newly public companies[136](index=136&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses routine legal proceedings and claims, with no expected material adverse effect on financial position or operations - The company is subject to routine legal proceedings and claims in the normal course of business[139](index=139&type=chunk) - Reserves for probable and estimable claims were not significant as of January 2, 2021[139](index=139&type=chunk) - Management believes that the ultimate liability from these matters will not have a material adverse effect on the company's business, financial position, results of operations, or cash flows[139](index=139&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section outlines risks including stock market sustainability, potential stock price decline from future sales, and rights of major stockholders - No material changes from risk factors disclosed in the Annual Report on Form 10-K for the year ended October 3, 2020, except for those presented[140](index=140&type=chunk) - Risk of an active trading market for common stock not being sustained, potentially leading to a material decline in stock price[141](index=141&type=chunk) - Future sales of shares by existing stockholders, especially after lock-up agreements expire (April 26, 2021, for ~**73%** of shares), could cause the stock price to decline[142](index=142&type=chunk) - L Catterton and GIC Pte. Ltd. have the right to engage or invest in businesses similar to Leslie's, and their directors/officers have no duty to offer such corporate opportunities to Leslie's[143](index=143&type=chunk)[144](index=144&type=chunk) - The company lost its "controlled company" status as of November 11, 2020, and is relying on a one-year transition period to comply with Nasdaq's corporate governance requirements, meaning stockholders may not have the same protections during this period[145](index=145&type=chunk)[146](index=146&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[147](index=147&type=chunk) [Item 3. Defaults Upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates no defaults upon senior securities during the reporting period - No defaults upon senior securities[148](index=148&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[149](index=149&type=chunk) [Item 5. Other Information](index=26&type=section&id=Item%205.%20Other%20Information) This section indicates no other information to report - No other information to report[150](index=150&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Exhibits include the Fifth Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Certifications of Principal Executive and Financial Officers, and various Inline XBRL documents[152](index=152&type=chunk) Signatures [Signature of Authorized Officer](index=28&type=section&id=Signature%20of%20Authorized%20Officer) This section contains the signature of Steven M. Weddell, CFO, confirming the report's due authorization and filing - The report was signed on February 8, 2021, by Steven M. Weddell, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of LESLIE'S, INC[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 3, 2020 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 j ...