# Leslie's, Inc.: Form 10-Q for the period ended Dec 28, 2024

- Company: [Leslie's, Inc.](/companies/leslq.md) (CIK 1821806)
- Form: 10-Q
- Filed: 2025-02-06
- Accepted by EDGAR: Feb 6, 2025, 21:47 ET
- Period: 2024-12-28
- Accession: 0000950170-25-015474
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1821806/000095017025015474/lesl-20241228.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1821806/000095017025015474/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-12-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-09-29 to 2024-12-28 | $175.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-09-29 to 2024-12-28 | $127.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-09-29 to 2024-12-28 | $47.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-09-29 to 2024-12-28 | $87.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-09-29 to 2024-12-28 | −$39.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-09-29 to 2024-12-28 | $15.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-09-29 to 2024-12-28 | −$10.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-09-29 to 2024-12-28 | −$44.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-09-29 to 2024-12-28 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-09-29 to 2024-12-28 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-09-29 to 2024-12-28 | 185,022,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-09-29 to 2024-12-28 | −$105.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-09-29 to 2024-12-28 | $4.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-12-28 | $11.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-12-28 | $341.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-12-28 | $967.0m | us-gaap:Assets |
| Current liabilities | at 2024-12-28 | $194.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-12-28 | $1.19bn | us-gaap:Liabilities |
| Long-term debt | at 2024-12-28 | $750.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-12-28 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-12-28 | −$220.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,645 characters.

*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 and in our other filings with the SEC.*

*We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended December 28, 2024 and December 30, 2023 refer to the 13 weeks ended December 28, 2024 and December 30, 2023, respectively.*

### Our Company

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.

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.

We have a legacy of leadership and disruptive innovation. Since our founding in 1963, we have been the leading innovator in our category and have provided our consumers with the most advanced pool and spa care available. As we have scaled, we have leveraged our competitive advantages to strategically reinvest in our business and intellectual property to develop new value-adding capabilities. Over the course of our history, we have pioneered complimentary in-store water testing, offered complimentary in-store equipment repair services, introduced the industry’s first loyalty program, and developed an expansive platform of owned and exclusive brands. These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us.

### Key Factors and Measures We Use to Evaluate Our Business

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 per share.

### Sales

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.

### Comparable Sales and Comparable Sales Growth

We measure comparable sales growth as the increase or decrease in sales recorded by the comparable base in any reporting period, compared to sales recorded by the comparable base in the prior reporting period. The comparable base includes sales through our locations and through our e-commerce websites and third-party marketplaces. Comparable sales growth is a key measure used by management and our board of directors to assess our financial performance.

We consider a new or acquired location comparable in the first full month after it has completed one year of sales. Closed locations become non-comparable during their last partial month of operation. Locations that are relocated are considered comparable at the time the relocation is complete. Comparable sales is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies.

The number of new locations reflects the number of locations opened during a particular reporting period. New locations require an initial capital investment in location buildouts, fixtures, and equipment, which we amortize over time as well as cash required for inventory.

As of December 28, 2024, 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.

### Gross Profit and Gross Margin

Gross profit is equal to our sales less our cost of merchandise and services sold. Cost of merchandise and services sold reflects the direct cost of purchased merchandise, costs to package certain chemical products, including direct materials and labor, costs to provide services, including labor and materials, as well as distribution and occupancy costs. The direct cost of purchased merchandise includes vendor rebates. We recognize vendor rebates based on an estimated recognition pattern using historical data. Distribution costs include warehousing and transportation expenses, including costs associated with third-party fulfillment centers used to ship merchandise to our e-commerce consumers. Occupancy costs include the rent, common area maintenance, real estate taxes, and depreciation and amortization costs of all retail locations. These costs are significant and are expected to continue to increase proportionate to our growth.

Gross margin is gross profit as a percentage of our sales. Gross margin is impacted by merchandise costs, pricing and promotions, product mix and availability, inflation, and service costs, which can vary. Our proprietary brands, custom-formulated products, and vertical integration provide us with cost savings, as well as greater control over product availability and quality as compared to other companies in the industry. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in sales. The components of our cost of merchandise and services sold may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

### Selling, General, and Administrative Expenses

Our SG&A includes selling and operating expenses across our retail locations and digital platform, and our corporate-level general and administrative expenses. Selling and operating expenses at retail locations include payroll, bonus and benefit costs for personnel, supplies, and credit and debit card processing costs. Corporate expenses include payroll, bonus, and benefit costs for our corporate and field support functions, equity-based compensation, marketing and advertising, insurance, utilities, occupancy costs related to our corporate office facilities, professional services, and depreciation and amortization for all assets, except those related to our retail locations and distribution operations, which are included in cost of merchandise and services sold. Selling and operating expenses generally vary proportionately with sales and the change in the number of locations. In contrast, general and administrative expenses are generally not directly proportional to sales and the change in the number of locations but may increase over time to support our growth and public company obligations. The components of our SG&A may not be comparable to the components of similar measures of other companies.

### Operating Income (Loss)

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.

### Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest (including amortization of debt issuance costs), taxes, depreciation and amortization, equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, and other non-recurring, non-cash or discrete items. Adjusted EBITDA is a key measure used by management and our board of directors to assess our financial performance. Adjusted EBITDA is also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other companies using similar measures.

Adjusted EBITDA is not a recognized measure of financial performance under GAAP but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance in isolation from, or as a substitute for, net income (loss), cash flows from operations or cash flow data, all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

### Adjusted Net Income (Loss) and Adjusted Diluted Earnings per Share

Adjusted net income (loss) and Adjusted diluted earnings 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 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.

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, change in valuation allowance for deferred taxes, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

### Factors Affecting the Comparability of our Results of Operations

Our reported results have been affected by, among other events, the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.

### Impact of Macroeconomic Events and Uncertainties

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, high rates of inflation, rising interest rates, general economic slowdown, and potential failures among financial institutions. The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, in spite of restrictions on the operation of our locations and distribution facilities. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high ticket items, which can result in corresponding declines in sales and/or gross profit.

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.

### Results of Operations

We derived our condensed consolidated statements of operations for the three months ended December 28, 2024 and December 30, 2023 from our condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts):

| Statements of Operations Data: | Three Months Ended December 28, 2024 | December 30, 2023 |
| --- | ---: | ---: |
| Sales | $175,228 | $173,960 |
| Cost of merchandise and services sold | 127,511 | 123,552 |
| Gross profit | 47,717 | 50,408 |
| Selling, general and administrative expenses | 87,417 | 86,878 |
| Operating loss | (39,700) | (36,470) |
| Other expense: |  |  |
| Interest expense | 15,763 | 17,071 |
| Total other expense | 15,763 | 17,071 |
| Loss before taxes | (55,463) | (53,541) |
| Income tax benefit | (10,899) | (13,988) |
| Net loss | $(44,564) | $(39,553) |
| Earnings per share |  |  |
| Basic | $(0.24) | $(0.21) |
| Diluted | $(0.24) | $(0.21) |
| Weighted average shares outstanding |  |  |
| Basic | 185,022 | 184,383 |
| Diluted | 185,022 | 184,383 |
| Percentage of Sales(1) | (%) | (%) |
| Sales | 100.0 | 100.0 |
| Cost of merchandise and services sold | 72.8 | 71.0 |
| Gross margin | 27.2 | 29.0 |
| Selling, general and administrative expenses | 49.9 | 49.9 |
| Operating loss | (22.7) | (21.0) |
| Other expense: |  |  |
| Interest expense | 9.0 | 9.8 |
| Total other expense | 9.0 | 9.8 |
| Loss before taxes | (31.7) | (30.8) |
| Income tax benefit | (6.2) | (8.0) |
| Net loss | (25.4) | (22.7) |
| **Other Financial and Operations Data:** |  |  |
| Number of new and acquired locations, net | — | (1) |
| Number of locations open at end of period | 1,021 | 1,007 |
| Comparable sales growth(2) | 0.2% | (11.7)% |
| Adjusted EBITDA(3) | $(29,319) | $(24,420) |
| Adjusted EBITDA as a percentage of sales(3) | (16.7)% | (14.0)% |
| Adjusted net loss(3) | $(41,292) | $(36,763) |
| Adjusted diluted earnings per share | $(0.22) | $(0.20) |

(1) Components may not add to totals due to rounding.

(2) See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors and Measures We Use to Evaluate Our Business.”

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

|  | Three Months Ended December 28, 2024 | December 30, 2023 |
| --- | ---: | ---: |
| Net loss | $(44,564) | $(39,553) |
| Interest expense | 15,763 | 17,071 |
| Income tax benefit | (10,899) | (13,988) |
| Depreciation and amortization expense(1) | 8,237 | 8,330 |
| Equity-based compensation expense(2) | 1,741 | 2,728 |
| Strategic project costs(3) | 172 | 123 |
| Executive transition costs and other(4) | 231 | 869 |
| Adjusted EBITDA | $(29,319) | $(24,420) |

|  | Three Months Ended December 28, 2024 | December 30, 2023 |
| --- | ---: | ---: |
| Net loss | $(44,564) | $(39,553) |
| Equity-based compensation expense(2) | 1,741 | 2,728 |
| Strategic project costs(3) | 172 | 123 |
| Executive transition costs and other(4) | 231 | 869 |
| Change in valuation allowance(5) | 2,219 | — |
| Tax effects of these adjustments(6) | (1,091) | (930) |
| Adjusted net loss | $(41,292) | $(36,763) |

(1) Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and selling, general and administrative in our condensed consolidated statements of operations.

(2) 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.

(3) 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.

(4) 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.

(5) Represents non-cash change in valuation allowance for deferred taxes that management does not believe are indicative of our ongoing operations. This item is reported in income tax (benefit) expense in our consolidated statements of operations and we note they may reoccur in the future,

(6) 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 (benefit) in our condensed consolidated statements of operations.

### Selected Financial Information

### Sales

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

### Gross Profit and Gross Margin

Gross profit decreased to $47.7 million for the three months ended December 28, 2024 from $50.4 million in the prior year period, a decrease of $2.7 million, or 5.3%. Gross margin decreased to 27.2% compared to 29.0% in the prior year period, which represents a decrease of 180 basis points. The decline in rate was mainly due to 95 basis points of increased inventory adjustements as we optimize inventory and 75 basis points of deleverage on occupancy costs and distribution center costs.

### Selling, General and Administrative Expenses

SG&A increased to $87.4 million during the three months ended December 28, 2024 from $86.9 million in the prior year period, an increase of $0.5 million, or 0.6%. The increase in SG&A was primarily related to an increase in consulting and professional fees of $1.2 million partially offset by decreased payroll related expenses of $0.6 million.

### Interest Expense

Interest expense decreased to $15.8 million for the three months ended December 28, 2024 from $17.1 million in the prior year period, a decrease of $1.3 million. This decrease was due to lower interest rates on our Term Loan.

### Income Taxes

Income tax benefit decreased to $10.9 million for the three months ended December 28, 2024 compared to $14.0 million in the prior year period, a decrease of $3.1 million. The change in the three months ended December 28, 2024 compared to the prior year period was primarily attributable to the change in valuation allowance related to our interest expense limitation.

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. The effective income tax rate was 26.1% for the three months ended December 30, 2023, and included net income tax expenses attributable to equity-based compensation awards.

### Net Loss and Diluted Earnings per Share

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

Adjusted net loss increased to $41.3 million for the three months ended December 28, 2024 compared to $36.8 million in the prior year period, an increase of $4.5 million. Adjusted diluted earnings per share was $(0.22) for the three months ended December 28, 2024 compared to $(0.20) in the prior year period.

### Adjusted EBITDA

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

### Seasonality and Quarterly Fluctuations

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.

We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season. We negotiate extended payment terms with certain of our primary suppliers as we receive merchandise in December through March, and we pay for merchandise in April through July.

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.

We generally open new locations before our peak selling season begins and we generally close locations after our peak selling season ends. We expect that our quarterly results of operations will fluctuate depending on the timing and amount of sales contributed by new locations.

### Liquidity and Capital Resources

### Overview

Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, debt service requirements, and repurchases of shares of our common stock with internally generated cash on hand and through our Revolving Credit Facility.

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

Our primary working capital requirements are for the purchase of inventory, payroll, rent, other facility costs, distribution costs, and general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by seasonality and the timing of inventory purchases.

Our capital expenditures are primarily related to infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems, ongoing location improvements, expenditures related to our distribution centers, and new location openings. We expect to fund capital expenditures from net cash provided by operating activities.

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, share repurchases, 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.

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

### Summary of Cash Flows

A summary of our cash flows from operating, investing, and financing activities is presented in the following table (in thousands):

|  | Three Months Ended December 28, 2024 | December 30, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(105,078) | $(71,874) |
| Net cash used in investing activities | (4,648) | (10,699) |
| Net cash provided by financing activities | 12,836 | 35,547 |
| Net decrease in cash and cash equivalents | $(96,890) | $(47,026) |

### Cash Used in Operating Activities

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

### Cash Used in Investing Activities

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

### Cash Provided by Financing Activities

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

### Share Repurchase Program

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, which expired on December 31, 2024. As of December 28, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 11—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

### Contractual Obligations and Other Commitments

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

### Critical Accounting Estimates

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.

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

### Recent Accounting Pronouncements

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.

## Market risk

As filed, 435 characters.

### Interest Rate Risk

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

### Impact of Inflation and Deflation

There have been no material changes in our exposure to inflation or deflation from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

## Controls and procedures

As filed, 4,506 characters.

### Management’s Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the appropriate time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of December 28, 2024. Based on that evaluation, our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) have concluded that the design and operation of our disclosure controls and procedures were ineffective as the material weaknesses in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024 were not yet remediated as of December 28, 2024.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 28, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

### Ongoing Remediation Efforts

As previously disclosed in Part II, Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended September 28, 2024, and September 30, 2023, we are in the process of implementing a plan to address these material weaknesses in internal control over financial reporting that were initially disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

We are enhancing the execution of existing inventory controls as follows:

- backfilling open roles with individuals who have the requisite accounting and internal controls knowledge and experience to complement the existing accounting team;
- assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards; and
- examining and enhancing the procedures regarding the completeness and accuracy of data utilized in computing inventory reserves.

We are enhancing the design and execution of existing controls and creating new controls as needed regarding vendor rebates as follows:

- enhancing controls to detect potential material misstatements in the data utilized to calculate vendor rebates earned and the timing of vendor rebate income recognition;
- implementing and enhancing controls related to technical accounting reviews of top vendor rebate agreements prior to contract execution;
- backfilling open roles with individuals who have the requisite accounting and internal controls knowledge and experience to complement the existing accounting team; and
- assessing the specific training needs for newly hired and existing personnel and developing and delivering training programs designed to uphold our internal control standards.

The actions we are taking are subject to continued senior management review as well as audit committee oversight. We intend to remediate these material weaknesses as soon as possible, and we believe the measures described above will help remediate the material weakness and strengthen our internal control over financial reporting. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We anticipate that our remediation activities will be completed during fiscal year 2025. We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of our remediation measures as described above or as described in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

## Risk factors

As filed, 140 characters.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended September 28, 2024.

Filed Feb 6, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-015474. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.