Leslie's, Inc.

Good afternoon and welcome to the fiscal second quarter 2025 earnings conference call for Lesley's. At this time, all participants are in a listen-only mode. Following the prepared remarks, management will conduct a question and answer session. If you require any operator assistance during the conference call, please press star zero on the telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's investor relations website. I will now turn the call over to Elizabeth Eisleben, Senior Vice President, Investor and Public Relations.

Good afternoon, and thank you for joining us today to discuss our fiscal second quarter that ended March 29th and the progress we're making across our strategic initiatives. I'm joined today by Jason McDonald, our Chief Executive Officer, and Tony Iskander, our Interim Chief Financial Officer and Treasurer. Following their prepared remarks, we will open the call to address your questions. Unless otherwise stated, all references to quarterly or annual performance refer to our fiscal reporting period, and all references to comparisons made are versus the prior fiscal year reporting period. I'd like to remind everyone that comments made today may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. All statements other than statements of historical facts are forward-looking statements, including, but not limited to, estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words. Additional information about factors that could cause actual results to differ can be found under the caption forward-looking statements and risk factors in our most recent annual report on Form 10-K and subsequent filings made with the Commission. In addition, during our call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures is included in our press release, which was furnished to the Securities Exchange Commission today and posted to our investor relations website. Now, I'd like to turn the call over to Jason.

Thanks, Elizabeth. I'm excited to have you on the team. I want to begin by thanking the entire Lesley's team for the urgency, resiliency, and customer-first mindset they demonstrated in our second quarter. We recognize that much of the progress we're making will take time to become fully evident in our results. The amount of change we're driving across the business is significant and would not be possible without the unwavering dedication across every team in our organization. As we prepare for peak pool season, We are executing against our key initiatives that we believe will enable the successful transformation of our business. Our diligence in executing strategic initiatives is beginning to yield earlier improvements across the business. The team is energized as we came together to deliver bottom line results consistent with our expectations laid out last quarter, despite a softer than planned top line in the quarter. Before I turned to second quarter performance, and updates on our transformation, I want to welcome Tony Iskander. Tony began working with Lesley's in late 2024 as a senior finance and accounting consultant before being appointed our interim CFO. We recognize we are at a critical time in this transformation journey, and Tony will be invaluable as we deliver against our top capital priority of debt reduction and position the company for long-term value creation. We're grateful for the swift improvements Tony's driving across the organization. Keeping with the perform while we transform mindset that you've heard about on our prior calls, today I will discuss how we performed in the second quarter, including an update on how our strategic initiatives are progressing. Then, turning to transform, I will share our next set of strategic initiatives under the three pillars we've previously outlined including customer centricity, convenience, and asset utilization. I will then turn the call over to Tony to dive deeper into our financial performance and reaffirmed expectations for the balance of the year. Finally, Tony will introduce a fourth pillar of cost optimization, which is all about continuous improvement and driving accelerated EBITDA growth. Starting with the second quarter performance, Sales were softer than expected, with weaker foot traffic in February driven by significantly colder temperatures than usual, resulting in a decline of 6% year-over-year. Looking at sales by our business units on a year-over-year basis, pro pool sales continued to outpace total company sales and were down 2%. Residential pool sales declined 9%, and hot tub sales increased 4% year-over-year. With that said, by leveraging the expertise of our store team and enhanced reliability, we continued to deliver positive growth on conversion rate, which improved 174 basis points versus prior year. Importantly, looking at performance after water test is performed with our proprietary AccuBlue technology, we increased total conversion by over 450 basis points. We believe our strategic initiatives, including in-stock rate improvements, are showing early signs of contributions to our conversion rate, which I'll touch on in a bit. Turning to our adjusted EBITDA performance in the quarter, I am pleased with the team's ability to take action and control costs, delivering adjusted EBITDA within our guide at a loss of $36 million. As a reminder, the second quarter only represents approximately 13% of our annual sales. Our ability to achieve adjusted EBITDA guidance, even with some top-line softness, is a proof point of the early progress we're making as a team. Moving to our strategic initiatives, which remain centered around customer centricity, convenience, and asset utilization, I want to provide updates on, one, optimizing inventory and utilizing local fulfillment centers or LFCs, two, winning in pro, and three, optimizing DIY omnichannel to build loyalty. Starting first with optimizing inventory and utilizing LFCs, I'm thrilled to share that all 26 LFCs we announced last quarter are operational and were completed on time under budget, and are already having a positive impact on our customers. Importantly, by utilizing existing locations, these strategic assets require minimal capital investment, as you'll hear from Tony shortly. Serving as mini hubs, our LFCs support our focus on precision inventory and helping to improve in-stock levels. A component of optimizing inventory includes our focus on our never-out SKUs, that are most critical for serving both residential and professional customers. In the second quarter, we achieved more than 99% in stock levels in these never-end SKUs. This is a 170 basis point improvement compared to the end of the first quarter and an impressive 620 basis point improvement since the beginning of the year. This is a key factor in our ability to improve conversion rate. Importantly, while improving in stock rates, we continued to reduce inventory by 12%, and inventory turns improved 8% versus prior year. By operating with a precision inventory mindset, we believe we can extend this momentum through peak pool season. As we look to the future, we believe there are additional opportunities to further optimize our inventory, which will improve cash flow and support our top capital priority of reducing debt. Furthermore, we also expect our LFCs will allow us to enhance and optimize our go-to-market strategy in the future, inclusive of our omnichannel approach, store footprint, and distribution centers. Moving to our second initiative, Grow and Pro, our momentum is building as evidenced in year-over-year improvement in pro sales in our second quarter, which delivered a 700 basis point improvement from the 9% decline in the second quarter of the prior year. A key driver to this improvement is our team's focus on growing pro share and establishing new partner contracts across our entire footprint. We believe we will further capitalize on the significant share opportunity across our more than 1,000 stores as we improve speed, convenience, and inventory availability for pro customers. Through the rollout of personalized strategic communications to the pro, coupled with our refreshed marketing initiatives, we believe we're taking the right steps to grow pro heading into the pool season. Our third strategic initiative, as we discussed last quarter, is optimizing DIY omnichannel to build loyalty. We added new functionality and capabilities to Leslie's website and our mobile app in the second quarter, which are significantly improving the user experience. In February, we launched enhanced service scheduling capabilities, enabling both store team members and customers to see estimated costs and reduce processing time. which together resulted in large increase in online service appointments. Specific to the redesigned app, it now provides an integrated platform with best-in-class search and shopping options. In addition, with improved speed for the customer, they are utilizing new features such as hands-free voice search to easily order pool supplies. We believe these enhancements began to have an immediate impact on the DIY customer experience and strengthen Leslie's position as a trusted expert in pool care. Now, as we look forward to the balance of 2025 and strengthening our foundation for future success, I want to introduce a new set of transform initiatives that support our strategic pillars of customer centricity, convenience, and asset utilization. One, building Leslie's brand. Two, launching our enhanced pool perks loyalty program, as well as improved personalization. And three, adding same-day delivery capabilities. First, our team is focused on building Lesley's brand through more efficient marketing programs to help drive traffic and improve marketing spend effectiveness. Specifically, we are leveraging marketing mix modeling to ensure we optimize our investment as we reduce costs in this critical area with more efficient and higher returning marketing initiatives. With this approach, we recently launched We Are Pool People, a new marketing campaign which has been rolled out nationwide and features some of our own expert team members. We look forward to building on the strength of this campaign to increase brand awareness during our highest volume quarters. Our second new initiative is the launch of our enhanced pool perks loyalty program. As the first nationwide retail pool loyalty program in America, our program is well known amongst pool owners with more than 80% of our DIY transactions are with Pool Perks members. However, this program has had minimal updates since its initial launch years ago and provides a great opportunity for us to grow with and reward our most loyal customers with enhanced benefits. We launched the new pool perks program in April, introducing loyalty tiers for the first time and is now integrated for customers within our mobile app. As customers grow within our loyalty tiers, they can now earn additional benefits as they increase their spend with Lesley's and trust us with a higher share of their pool care solutions. Moving from a perks member to a perks elite or our highest tier, the perks MVP, allows customers to earn rewards faster while providing unique and curated offers. Importantly, through the introduction of loyalty tiers, we are also able to deliver cost savings for Lesleys. To further support our new pool parks program, we're now leveraging both zero and first party data to introduce personalization within our marketing efforts. This allows us to better serve customers by communicating more precisely. We can target DIY customers with what they need when they need it. A great example of this is water testing. With our proprietary AccuBlue system, we're giving customers a personalized report based on the size and composition of their pool. Utilizing their latest water test, we're able to give the customer a chemical prescription for exactly what their pool needs. This offering allows the customer to complete their basket with a total solution, helping to drive increased UPT through product bundles that include specialty and base chemicals often needed together. Through new marketing capabilities, we can now also provide offers on products we know are needed for the pool conditions, yet they have not purchased at Lesley's recently. Building on our proprietary AccuBlue technology, our AccuBlue home system is another example of how we're delivering convenience to our customers. Since launching in May, 2023, This in-home technology was previously only available to purchase online, resulting in an opportunity to build awareness and expand penetration. In the second quarter, we started the rollout and are now featuring AccuBlue Home in approximately 100 stores with plans to expand nationwide. This product allows customers to see firsthand how easy it is to achieve the benefits. of a clean, safe, and beautiful pool with accurate water testing capabilities from the comfort of their own home. Ultimately, this system drives customer convenience while increasing their loyalty and total spend with Leslie's. Finally, our third initiative is another great example of our commitment to customer convenience. With this focus, I want to highlight the addition of same day delivery capabilities, which we believe will improve asset utilization and enhance our ability to serve customers faster. Knowing our proximity to pools is a great competitive advantage. We first began to improve our competitive position through the addition of strategically located LFCs. These have allowed us to improve our inventory availability and speed to serve the customer. I'm pleased to announce that we've recently signed an agreement with Uber to launch same-day delivery services across our store network for pro and DIY customers. I'm excited to launch same-day delivery with Uber this summer as it will further bolster our focus on customer centricity, convenience, and asset utilization with an omni-channel total solution approach and further differentiating Leslie's in the market while driving cost optimization. As we move forward, we are reimagining Lesley's core value proposition. We aren't just looking at Lesley's as a thousand stores and a network of distribution centers. Rather, Lesley's is a dynamic network that can respond quickly to any customer need by leveraging our differentiated assets, and we believe we can do this better than anyone in the industry. I am committed to optimizing our entire asset footprint to ensure we're strengthening Lesley's for the customers today and building the company for long-term profitable growth. I will now turn it over to Tony to discuss performance in the quarter, provide our outlook for the second half of the year, and introduce our cost optimization pillar. Tony?