Leslie's(LESL) - 2021 Q1 - Quarterly Report

FORM 10-Q Filing Information Registrant Information 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] - Reporting Period: For the quarterly period ended January 2, 2021[2] 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 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] - 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][11] - The company undertakes no obligation to update forward-looking statements, except as required by law, and cautions against undue reliance on them[11] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Leslie's, Inc.'s unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Balance Sheets 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 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 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 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 This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1—Business and Operations 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] - The company operates through 936 company-operated locations in 37 states and e-commerce websites[22] Note 2—Summary of Significant Accounting Policies 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] - 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][25] - 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] - 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] Note 3—Business Combinations 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] Note 4—Goodwill and Other Intangibles, Net 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] - No impairment of goodwill or other intangible assets was recorded during the reported periods[39] Note 5—Inventories 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 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 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] - No amounts were outstanding on the $200.0 million ABL Credit Facility as of January 2, 2021, and October 3, 2020[48] - 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] Note 8—Leases 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] 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] Note 9—Income Taxes 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] - The change in effective tax rate is primarily due to a decrease in the valuation allowance for interest limitation carryforward and state taxes[57] Note 10—Commitments & Contingencies 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][59] - Self-insurance retention features for workers' compensation, general liability, and employee medical plans are up to $0.4 million per event[60] - Standby letters of credit outstanding totaled $11.6 million as of January 2, 2021, to secure self-insurance obligations[60] 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 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] - The management services agreement terminated in October 2020 following the initial public offering[63] Note 12—Net Loss Per Share 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Leslie's, Inc.'s financial condition and results of operations, covering key metrics, comparability factors, and liquidity Our Company 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] - 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][70] - 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] - 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] Key Factors and Measures We Use to Evaluate Our Business 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] - Key non-GAAP measures include comparable sales, comparable sales growth, adjusted EBITDA, adjusted net income, and adjusted net income per share[73] - 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] - 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][76] - 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][80] - SG&A includes retail location operating expenses (payroll, supplies, card processing) and corporate general and administrative expenses (payroll, marketing, insurance, professional services)[82] - Operating income is gross profit less SG&A, used to assess business productivity and expense management[83] - 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][85][86][87] Factors Affecting the Comparability of our Results of Operations This section discusses factors impacting the comparability of financial results, including COVID-19, acquisitions, and public company expenses Impact of COVID-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] - The company implemented extensive safety measures, including employee symptom monitoring, PPE distribution, enhanced cleaning, social distancing, contactless payments, and remote work plans[92][94] - COVID-19 favorably impacted sales due to increased residential pool and spa use, accelerating secular trends in consumer behavior[101] - The full impact of COVID-19 remains uncertain, with potential for further operational restrictions or supply chain disruptions[92] Business Acquisitions 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] - 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] Incremental Public Company Expenses 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] - These costs are generally expensed under Selling, General and Administrative (SG&A) expenses[94] Results of Operations 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] - Gross profit increased by 25.9% to $51.7 million, and gross margin improved by 225 basis points to 35.7%[102] - 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] - 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] - Net loss increased to $30.3 million, while net loss per share remained flat at $(0.17)[106] - 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] - 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] Seasonality and Quarterly Fluctuations 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] - In fiscal year 2020, 77% of sales and 109% of adjusted EBITDA were generated in the third and fourth quarters[109] - 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] - Weather is a principal external factor, with hot weather increasing purchases and services, while cool or rainy weather can reduce consumption and sales[111] Liquidity and Capital Resources 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] 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] - The ABL Credit Facility was amended in August 2020, extending maturity to August 2025 and increasing borrowing capacity to $200 million[115] - 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] - The company expects current liquidity to be adequate for working capital, capital expenditures, and debt service for the next 12 months[118] 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] - 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] - 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] Contractual Obligations and Other Commitments 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] Off-Balance Sheet Arrangements 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] Critical Accounting Policies and Estimates 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] - 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] Recent Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate fluctuations and inflation impacts Interest Rate Risk 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] - 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] - 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] - 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] Impact of Inflation 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] - Management believes these strategies enable them to substantially mitigate negative impacts of inflation[134] Item 4. Controls and Procedures 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 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] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required under the Securities Exchange Act of 1934[135] Changes in Internal Control over Financial Reporting 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] - Reserves for probable and estimable claims were not significant as of January 2, 2021[139] - 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] Item 1A. Risk Factors 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] - Risk of an active trading market for common stock not being sustained, potentially leading to a material decline in stock price[141] - 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] - 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][144] - 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][146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities during the reporting period - No defaults upon senior securities[148] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[149] Item 5. Other Information This section indicates no other information to report - No other information to report[150] Item 6. Exhibits 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] Signatures Signature of Authorized Officer 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][156][157]