Leslie’s, Inc. — Form 10-Q Summary
Business context and reporting period
Leslie’s sells pool and spa supplies and services through 936 company-operated locations in 37 states and online. The filing covers the 13 weeks ended January 2, 2021, compared with the 13 weeks ended December 28, 2019. The business is highly seasonal, with its strongest sales and earnings generally in fiscal Q3 and Q4.
Financial results
| Metric | Q1 2021 | Comparable prior period |
|---|---|---|
| Sales | $145.0 million | $123.0 million |
| Comparable sales growth | 15.7% | 3.4% |
| Gross profit / margin | $51.7 million / 35.7% | $41.1 million / 33.4% |
| SG&A | $77.5 million (53.4% of sales) | $59.7 million (48.6% of sales) |
| Operating loss | $25.8 million | $18.6 million |
| Net loss / diluted loss per share | $30.3 million / $0.17 | $26.2 million / $0.17 |
| Adjusted EBITDA | Loss of $0.2 million | Loss of $9.0 million |
| Adjusted net loss / adjusted loss per share | $10.6 million / $0.06 | $24.3 million / $0.16 |
Revenue rose 17.9%, primarily on higher consumer demand across product categories; management said increased residential pool and spa use and pandemic-related behavior supported sales. Gross margin expanded 225 basis points. Despite improvement in adjusted results, GAAP operating and net losses widened, and SG&A rose 29.8%.
Cash flow, debt and liquidity
- Operating cash flow was negative $119.3 million, compared with negative $81.3 million in the prior-year quarter. The company attributed the larger outflow chiefly to changes in accounts payable and accrued expenses, alongside seasonal inventory and working-capital needs.
- Investing cash flow was negative $0.3 million, versus negative $11.9 million. Financing cash flow was positive $66.6 million, reflecting IPO proceeds offset by debt repayment. Cash declined to $104.1 million from $157.1 million at October 3, 2020.
- In November 2020, the IPO raised $458.7 million net from 30 million shares sold at $17 per share. Leslie’s repaid its $390.0 million senior unsecured notes; remaining proceeds were designated for working capital and general corporate purposes.
- At January 2, 2021, the term loan principal was $809.1 million, with $795.4 million reported as long-term debt net of discounts and financing costs. The term loan matures in 2023; no excess-cash-flow repayment was due. No ABL borrowings were outstanding; the company reported $142.7 million of available ABL capacity after restrictions and letters of credit.
- Operating lease liabilities totaled $196.2 million in present value. The company reported compliance with debt facility covenants and no off-balance-sheet arrangements.
Material changes, outlook and risks
- The IPO and repayment of the high-interest notes reduced reported interest expense by $10.9 million year over year. The repayment also generated a $7.3 million debt-extinguishment loss.
- SG&A included $12.2 million of equity-based compensation, primarily related to vesting performance-based units, and $8.2 million of one-time IPO-related contractual payments. These items contributed to the increase in expenses.
- Management said cash, operating cash flow and ABL availability should be adequate for working capital, planned capital expenditures and debt service over the next 12 months. The filing provides no numerical earnings or revenue guidance.
- Management said pandemic-related changes in consumer behavior had favorably affected sales and could continue for the foreseeable future, but emphasized uncertainty about the pandemic’s duration, supply-chain effects, restrictions and future consumer behavior. All locations were open at the reporting date; temporary closures and restrictions had not materially affected the quarter.
- Key operating risks include seasonality and weather, competition, supplier and product availability, and variable-rate debt exposure. A 1 percentage-point interest-rate change was estimated to affect interest cost by about $8.1 million over the next 12 months; interest-rate caps covering $750 million of notional debt were set to expire in March 2021.
- Newly disclosed public-company risks include potential share-price pressure when IPO lock-ups expire, limited trading history, and a transition period to meet certain Nasdaq governance independence requirements. Approximately 73% of shares were subject to a 180-day lock-up scheduled to expire April 26, 2021, subject to possible early release.
- The company reported no material loss contingencies and did not expect ordinary-course litigation to materially affect its financial position or results. Management concluded disclosure controls were effective as of January 2, 2021.
Important facts for investors to verify
- Whether sales growth and margin gains persist beyond the seasonal, pandemic-affected quarter.
- How much of the reported loss and SG&A increase reflects recurring costs versus IPO-related compensation and one-time items; review the company’s non-GAAP reconciliations.
- Seasonal cash needs, supplier payment timing, and the extent to which ABL availability remains accessible under borrowing-base restrictions.
- Term-loan amortization and 2023 maturity refinancing risk, as well as interest-rate exposure after the caps expire.
- Potential share sales after lock-up expiry and progress toward Nasdaq governance requirements.