Okay, great. Good morning, everyone. Welcome to the Baird Conference in person. Thank you all for showing up. I'm Peter Benedict, a senior research analyst covering retail, consumer products, and services. Really pleased to have the management team with Leslie's with us this morning. Leslie's is the largest consumer-facing omni-channel brand in the U.S. aftermarket pool and spa care industry. They operate over 950 stores across 38 states. Joining us from the company, we have CEO Mike Egeck and CFO Steve Weddell. Mike is gonna start off with some opening slides and remarks, and then we're gonna kick into some Q&A. During the conversation, if you have any questions, you can email me on the iPad, sessiontwo@rwbaird.com, and we'll do our best to work it into the conversation. With that, I'll turn over to Mike Egeck. Thanks, Peter. Thanks everyone in the room for joining us today and also those joining via webcast. It's great to be here. This is actually Steve and mine's first live conference on the Leslie's IR site to supplement this discussion. Also note on there, page two is the requisite disclaimers. I'm gonna start by saying I know top of mind for many of you is now that Memorial Day has passed, and we're into the start of the pool season, how's business trending? There's two things I wanna point out about the start of this year's pool season. First of all, many of you will remember last year, at the start of the season, there was a pervasive, I'm gonna say, and a significant media coverage of the chlorine shortage. That media coverage really drove a spike in business. In Q3 of last year, our Q3 chlorine sales doubled, and we had an all-time record bang. This year, in comparison, it's been a relatively slow start to the season due to the cold and wet weather in the Northeast, which I'm sure many of you are familiar with. Also out on the West Coast, it's been an unseasonably cool start to the season. Both of these factors are not largely kind. As we've discussed before, the beginning of the season and also the end of the season can move a few weeks either way. The important thing to understand is that demand is recurring in nature, so even with those moves, it doesn't impact the entirety of the season. This is what we'd like to point out. Q3, our Q3 historically is 60%-70% of our second half profitability. Last year in Q3 with the chlorine media coverage and that spike, it was toward the high end of that range. This year, given the factors we've just discussed, we expect our Q3 to be the lower midpoint of that range. To be clear, this doesn't change anything in our full year guidance that I would offer on May 5th. With that out of the way, Steve, I'd like to cover a few slides. For those of you who aren't familiar with Leslie's, we are the largest DTC brand in the pool and spa care industry. We operate now 970 physical locations, which is more than our 20 largest competitors combined. Our digital sales across our proprietary and marketplace sites are 5x larger than our next largest digital competitor. We've grown every year since we were founded, and we went public in October 2020. Our fiscal 2021 record year, which ended October 2, 2021. Sales growth of 21% to $1.3 billion and adjusted EBITDA growth of 48% to $271 million. Fiscal 2021 was our 58th consecutive year of growth, which is something the company is very proud of. When we think about the business and what makes us unique in the space, there's really three pillars. The first is that we operate in one of the most advantaged consumer products industries. It's large. It's based on 14 million bodies of water, and it generates about $14 billion in aftermarket sales. It has non-discretionary, recurring, annuity-like demand because once you put a pool in the ground, you have to maintain it. There are really no other options. It has predictable growth. The install base has grown every year for 52 years. To take advantage of that industry dynamics, we built a consumer-centric, integrated network of assets and capabilities that are unmatched in scale and reach, and that allows us to provide total pool and spa care solutions to all consumers, whatever their need and wherever, whenever, and however they want to engage with us. Important to note, none of our competitors have that capability. The third unique pillar is that despite being the largest DTC brand in the space, we have significant white space opportunity to be able to address across all the consumer groups we address and of all the channels we operate in. We've got the talent, capabilities, and six tangible growth initiatives to take advantage of those opportunities. I'm gonna have Steve come up and go over the financials. Yep. Thanks, Mike. I'm gonna cover some financials real quick. First half highlights on slide six. You can see we generated strong results in the first half of the year. Sales are up 22% to a record $413 million with broad-based strength across the three consumer groups. Residential pool up about 15%, pro pool up 27%, residential hot tub up 68%. Comp sales of 16% on a two-year stack basis, that's a 48. Gross profit for the first half was a record $153 million, with margin rates expanding 40 basis points to 37%. Adjusted EBITDA was positive $10 million. Historically, if you look back, this business has been kind of flat to sometimes negative in the first half. Pleased with the positive $10 million start to the year. Most of our earnings obviously come in the back half. If you look on the right-hand side, you can see as well from an M&A perspective, we completed 2 transactions this year, and we have three more under LOI. With those completed, we will have 8 transactions in the last year and a half. I've talked a lot about it being a key lever of growth for our business and certainly have some momentum behind us. On slide seven, cover some guidance based on what we provided back on May 5th. You can see sales growth of 17%-20%, which compares favorably to our long-term growth algorithm of mid to high single digits. Gross profit guidance implies a small improvement in gross margin, which compares to our long-term growth algorithm of flat to positive 25 basis points. Adjusted EBITDA increase of 16%-22% year-on-year, which compares favorably to our long-term growth algorithm of low double digits. And finally, adjusted net income growth of 20%-27%, which compares to our long-term growth algorithm of mid to high teens. With that, I'll turn it back over to Peter, and we'll get started on the Q&A. Perfect. Thank you, guys. I guess just following up on Mike's comments, 60%-65% of second half profits probably flow into the third quarter this year, versus maybe 70% last year. How do we think about that from a revenue standpoint? Is it gonna be a similar split there, or can you give us a sense of maybe the revenue split, 3Q, 4Q, as you see it? Yeah, I think that's pretty. Can we get this mic on, please? Thank you. You wanna answer that? There you go. Oh, I'm on. Perfect. Yeah, I think you can look at that 67%, 60%-70% historically in Q3. Last year was at the high end for what we talked about, the reasons we talked about. This year, it'll be toward the lower end, and you can see that pretty much up and down the P&L. Okay. All right, great. Thank you. I guess the other question would just be maybe on inventory. I mean, inventory's been a popular topic in retail for the last couple of weeks. How does inventory look for you guys? How do you feel about that given the flow of business? Sure. Yeah, we made a strategic decision last year to heavily invest in inventory. To remember, most of the inventory that we have is nondiscretionary. It's not subject to fashion risk or obsolescence. If you look at the end of Q2, our fiscal Q2, effectively the end of March, up $70 million or up 25%. We work very hard with, and closely with our vendors to procure effectively as much inventory as we can to meet the heightened demand that we see today, and it's a competitive advantage. Feel very good with our inventory position today. Do expect there'll be some spot outages, though. I think supply chain's still a little challenged and with certain vendors and we're working through it, but feel very good, you know, going into season. Okay, great. Before we dive a little bit more into the business, there's kinda three macro questions we're gonna try to ask each of our companies that are presenting with us over the course of the next three days. Just get a quick response here, and then we'll get into the more detail. First is on inflation. Maybe how would you characterize the overall pace of inflation in your business today versus maybe a few months ago? Is it accelerating, decelerating, or pretty much the same? Yes. We've seen acceleration over the last six months and over the last few months as well. We do feel like it's gonna peak in the current quarter. You know, we've seen inflation in our business for the last year and a half, but I think fairly idiosyncratic with some of the products that we have, primarily chemicals and major equipment. But as we said, we feel like it's gonna stabilize with where we're at going into the back half of the year. Great. Supply chain. How would you characterize the current state of your supply chain versus a few months ago? Is the flow of product any better, worse- Yep. pretty much the same? Yeah, great question as well. Tighter than pre-pandemic, much better than last year. Again, back on inventory. Still good with product flow. Still have our opportunities, but that's typical as we get into season. Great. The last is on consumer behavior. You guys are very needs-based recurring revenue, but are there any notable changes you've observed in your consumer and how they've behaved here over the last few months? Yeah, good question. We really haven't seen any significant change, and we think that's for two reasons. You know, the recurring nondiscretionary nature of the demand, right? Once you put the pool in, you have to maintain it. Pool owners tend to be middle class, upper middle class, or higher, and we haven't seen inflation really impact them yet. Got it. Okay, great. Let's talk a little bit about the pool industry. Maybe give us a sense for the key macro dynamics that investors need to think about, what drives demand in the sector. We're thinking installed base, population trends, usage. What could you set the stage there for us? Yeah. There's really five big macro secular trends that are driving demand in the industry. The first is people continue to invest in their homes and backyards. Second is they're wanting a healthy outdoor lifestyle, of which a pool is part of that. The third is, and this is important and significant, is the migration to the Sun Belt. You know, when you look at population trends across the country, the West and the South are growing 10 times faster than the Midwest or the Northeast. Work from home or hybrid schedules, where people are just spending more time in their homes and using their pools more often, very important to us. The pandemic really just heightened everybody's sense of safety and sanitization, particularly around families. Our AccuBlue water testing, which actually puts a number on pool safety, and it's proprietary and unique to us, really, really a distinct advantage, and it gives pool owners that peace of mind that they can invite families, friends, put their own kids into a pool. Couple other interesting things we've seen lately is that, with people spending more time at home, there has been, for our business, a little bit of shift back to do it yourself. You know, people are home, they're spending more time with their pool, and they're taking an increased interest in the safety and sanitization of that pool, so a little more increase in DIY. With that, we also see people shopping in the specialty channel a little bit more. There's been some specialty share capture from mass. It makes sense if you're doing it yourself, because in the specialty channel, you can get that expert advice, you can get the education, you can get that hands-on experience. In mass and club channel, that's not really available. All right. That's helpful. A lot of investors ask us about the state of the Trichlor market, implications for chlorine tab prices. I mean, you've talked a lot about it, but maybe give us your view of the situation. You gave a good update on the last earnings call, but I think it'd be helpful for this group to hear your view of it and what your crystal ball says about the outlook. Yeah. We get this question a lot, and it's a little bit complicated, so I'll apologize to begin with. This much for sure, chlorine prices are still elevated, and supply is still constrained. By prices being elevated, we mean two years ago, a 35-lb bucket of chlorine tabs, which will get a mid-sized pool through a pool season, was $99. Today, that's $199. The question is, you know, top of everybody's mind, what happens when that reverses? Our view on that is that there's several factors in play that could keep them elevated. To understand this, you gotta go back a little bit and understand that what consumers call chlorine tabs are actually Trichlor, and Trichlor is made out of three components. There's the raw chlorine, there's caustic soda, and there's urea. Those get combined to make Trichlor granules, and then those granules get compacted into the tabs. There was a plant fire in 2020 that took a lot of the Trichlor capacity out of the market. That was the first shortage situation and the first increases in prices. What we're seeing now is that the actual raw chlorine component is also in a constrained supply and increasing cost situation. Two things going on there. One of the major manufacturers took about 7% of raw chlorine production in North America offline. Then the other is that raw chlorine also goes into PVC, and with the housing industry being strong, it's competing with its use in Trichlor, and it's a higher value in PVC. You take those two together, and now all of a sudden, the raw chlorine that's available to North American manufacturers is down 20%. The way to get that gets made up is with imports, but imports are very expensive, combination of tariffs, anti-dumping duties, and also specialized shipping and transportation. Urea, the other component in Trichlor, happens to be that the major exporter is Russia, so that has its own challenges. We've seen urea quadruple in price. It's now come down some, but it's been very volatile. When you take all that together, the plant that was down should come online sometime late this year. When it does, any absolute increase in Trichlor to the market is gonna have to use either imported Trichlor or high-cost imported chlorine. When you take all those factors together, you know, we think there's a scenario where prices would remain elevated through 2023 and maybe longer. Yeah. It's a long response. No, no. Sorry. You do a nice job of breaking it down. That's why we asked. The last sector question I have, people ask a lot about saltwater sanitation systems. You know, the penetration of saltwater pools out there and then what that means if someone goes to a saltwater pool system. Is that good for Leslie's? Bad? Are you indifferent? Yeah. No, it's we are indifferent. When you think about saltwater pool penetration, kinda high teens. Certainly from build, remodel, you're seeing more interest in it. There are many ways to sanitize your pool, UV, ozone, mineral based, salt, traditional Trichlor. We find when Trichlor tabs are available, consumers tend to gravitate towards it. When you think about cost of a saltwater pool, to install a salt chlorine generator, it's about $2,000-$2,500. You're spending $700-$1,000 on a salt cell every three, five, seven years. You know, in many ways, it is billed out as kind of a maintenance-free pool. There's a lot of balancing that's required to make sure that chlorine being produced as you break the salt down into the sodium and the chlorine, to make sure that it's being effective. You know, for us, we've set ourselves up that we can serve all these customers. You come into our store, you do a water test. We can test your water if you have a traditional chlorine tab pool or a saltwater pool or other forms of sanitization. We've actually found in Leslie's that saltwater customers are actually some of our better customers. They spend more, which makes sense when you think about the cost of putting a system like that in place in your pool. I think you tend to spend more money on the equipment as well as some of the balancers as you test your water on a regular basis. Right. No, thanks for that. When we first did our due diligence on Leslie's, prior to the IPO, I think we were struck by just how resilient the business is. Sure. We, you know, we were new to the pool industry and so maybe talk a little bit about how Leslie's and the pool industry has performed through past economic downturns. Yeah. It's actually really interesting. If you go back to our earnings deck that we had back in May, page 14, we talked about over the last 21 years, and I'll break it down in a little bit more detail. Sales CAGR of 7%, EBITDA CAGR of 14%. If you look at that during 2006-2009, business was up 16%. EBITDA was up 47%, comps every year positive. Out of the 21 years, 17 positive comp years. The non-positives were -1% three times and -2% the fourth time. EBITDA up 19 out of 21 years. When you think about rising rates, higher inflation, declining consumer spending, decline in pool builds, decline in housing starts, all these macro indicators that I think are on people's minds today and for the right reasons, this business is one that has just performed through. Again, you get back to that aftermarket, 14 million bodies of water, 80% non-discretionary. It's not an option to take care of your pool. If you don't sanitize it, if you don't move the water, if you don't filter it, you're gonna have an algae problem. You need even more help. It's a different business, and it's the reason why the business has grown 58 years in a row. Yeah. Clearly good business, but we look at the competitive landscape. You're the big national player. There's really no material number two there. It's a lot of small mom and pops and regionals. Talk about the competitive landscape in residential, and then maybe a thought on, you know, where you think you can take your units and what's the unit growth opportunity. Yeah. You know, I mentioned earlier, even though we're the largest, brand in the space, DTC brand, there is a lot of white space opportunities. We have internal studies and external studies that show 700 underserved residential markets and 200 underserved pro markets. The way we look at those markets is once they're identified, we go in with three options. First option is to build a Leslie's residential store, build a Leslie's pro store, and the third option is to geo-target it, geo-fence it with, digital capabilities, and go after the consumers with our digital sites. Those aren't mutually exclusive. You know, depending on the opportunity, we can do all three. The other option when we go in is to look at those sites for M&A, right? It's interesting. The largest shareholder in the pool and spa space is actually 8,000 independent specialty retailers. They tend to be quite small, one to three units. I'm gonna generalize this, but it's pretty accurate. Tends to be husband and wife teams who've been in the business for a number of years. Their children aren't interested in taking over the business. Even though the pool industry's had two great years, it's been tough on independent operators. First year, they're dealing with the pandemic, right? Instead of just running their little shop or their couple stores, now they're trying to find PPE and figure out how to do curbside service or how to get ahold of the local county officials to make sure that they can stay open as an essential business. Then the next two years, they're fighting the larger companies like ourselves for supply, and they're finding it difficult to get products. It's a very prime M&A landscape right now with the independent specialty retailers. Yeah. Let's pivot over to customer acquisition and loyalty, two kind of big initiatives for you guys. Maybe give us a sense of the background of these initiatives, where you kinda stand today and what's the outlook? Yeah. It was really in 2020, started looking into business and establishing our six strategic growth initiatives. The first two are really to grow the consumer file, basically add customers, whether through acquisition or retention or reactivation, and to deepen our relationships with them, meaning have them buy more from us, very simply. Average revenue per consumer. You know, it's been very satisfying these last two years, our progress there. I'll say there was a lot of low-hanging fruit, right? The company had really just focused on direct mail marketing and not a lot of it. We switched to digital and social marketing. There was a loyalty program, the only one in the industry, but we updated it with our Pool Perks program, which we launched in May of 2021. The results from those kind of low-hanging opportunities were pretty rapid. Since beginning of 2020, our active consumer file has grown 35%, our loyalty file has grown 50%, and our average revenue per consumer has grown 18%. I mean, in just kind of the simplest terms, we like to break it down simply in the business as we talk to the associates and our marketing teams, you know, we've got more people spending more with us. Now, lately, if you've listened to our last earnings release, those had both been growing at a double-digit pace. They're now starting to decelerate a little bit. That's expected. In our long-term growth algorithm that we put out with the IPO, you know, we really expect to get 100-300 basis points of growth from each of those initiatives over the long term. Because there was a lot of low-hanging fruit there, you know, we were able to come out of the gate really strong. It's a gratifying result, I'm gonna say, to date. Sure. Absolutely. One other thing that struck us during the initial due diligence was the importance of in-store water tests. I had no idea that that was even a thing. Maybe talk about AccuBlue in-store. Why is that a key differentiator for Leslie's? Why is that really a competitive lever for you? Yeah. I'll tell a personal story on this one because before I took the position with Leslie's, I went out and secret shopped with my wife to see what was going on. We've had pools. You know, typically, you test pools. They put those little test strips, reagents, right, in a little test tube of water, and they hold it up. Some of our competitors talk about the theater of the water test. They kinda go like this and tell you, "You need some chlorine," or, "You need this algaecide." What we have is a digitized, gamified water testing system that prints out step-by-step instructions, how much needs to be added at what time, in what order. It's really like a prescription, is the best way to think about it. The real key to it, we've discovered, is that it gives you a pool score from 0 to 100. Here's where I get back to shopping the first time with my wife. I'm walking around the store, you know, trying to pace off linear feet, you know, how much of each type of product's in the store, what's it look like, you know, are the associates paying attention? Meanwhile, she's getting the water tested, and I hear this, "Oh, my God." I turn around, and our water score was 30. Anyway, we walked out with $250 worth of chemicals. Now we have someone who takes care of our pool. My wife goes every week and has the water tested and hands it to our pool guy like a report card and says, "We're gonna have to have this score over 85. It's just part of our deal." That certainty, putting a number on a pool score versus kind of the ambiguity of test strips, the color that fade over time and are incredibly inaccurate, that's it has been a total game changer for us in the industry. It's really at the base of our competitive advantage because that's what allows us to give a total pool solution. When we think of our end product is a clean, safe, beautiful pool. Mm-hmm. It's not about just selling products. We've got lots of competitors who can sell products. The expert advice, the water testing, the prescription that gets you the desired end product, clean, safe, beautiful pool, that's what's important, and that's what AccuBlue allows us to do. Sounds fantastic. Up until really the last couple years, there wasn't a lot of omni-channel sophistication or even tie-in between stores and online. It's kinda come together maybe at the right time, but you're still in your early stages. Talk maybe about Leslie's Connect, your omni-channel positioning, and what that can do for you, going forward. Yeah. You know, personally, I came out of the apparel industry and a lot of sporting goods and outdoor apparel. You know, for those of you that follow that industry, omni-channel, it's certainly not new news, right? It's been in place for a while. In the pool industry, there really wasn't anyone with those capabilities. We set off on a you know, long-term plan to get omni-channel capabilities. The full suite, buy online, pickup in store, buy online, return in store, ship from store, ship to store. As we're working on this, the pandemic hits. Now all of a sudden, buy online, pick up in store, ship from store, ship to store, all those become critically important as we're trying to manage inventory and ship from our stores, do curbside service. We accelerate our efforts there, worked very nicely for the last couple years. Peter, to your point, we're still pretty early stage there, and we will continue to work on it. We call those omni-channel capabilities Leslie's Connect. Our app's an important part of that process, as is our sites. Feel good about the progress we've made. We certainly did it at the right time, but still more work to do there. Pro is just 15% of your sales, but it is one of those growth pillars for you. Maybe talk about how you're going after the Pro. A lot of people in the audience are probably familiar with Pool Corporation, so maybe I'd give people a sense for maybe how you're going after Pro versus how they, you know, how they do it, in your Pro affiliate program, what kind of success you're seeing there. Yeah, good question. An interesting evolution for the company. You know, I've been there two and a half years. Steve, five, six years? Six. Yep. For years before that, the company actually treated the Pro customers as competitors 'cause they defined themselves as a DIY business. In 2016, the company got into the Pro business with an acquisition of a small chain in Las Vegas. What we do with our acquisitions is we're buying a business and we're buying talent, but we're also buying a window into new capabilities. We learned about the Pro business from there. In 2020, we really formalized our Pro initiative, which has three parts. One is to open Pro stores or convert residential stores to Pro stores. The second one is what we call our Pro affiliate, Pro partner program. The third is a Pro website. We're moving pretty quickly here. We now operate 77 Pro stores. We have over 2,500 Pro partner contracts, and the website is up and running. So good start. Our space in Pro is Pool Corporation's large company, does a tremendous job servicing, in particular, the larger Pros. We've really focused on the smaller Pros, one to three trucks, maybe 500 to 200 pools. We did a lot of focus group work with those professionals. What came out really clearly was what's most important to them is speed and convenience, right? Basically being where the pools are. That's our whole real estate strategy. You know, 80% of the pools in the continental U.S. are within 20 miles of a Leslie's store. These operators are not that sophisticated, right? They carry their inventory in their truck or in their van, and when they need something, they need it right now. With almost a thousand locations, we are just, by definition, almost always the closest store for a Pro. Once we've kind of embraced them and put up the site and given them the Pro affiliate membership, which is preferred pricing, some co-branding opportunities, and also importantly, referrals, 'cause we get a lot of people coming in the store asking for Pros, that's proven to be a good combination. Well. Yeah, real quick. It's important to note, too, that the Pro stores aren't that much larger than residential stores. Pro consumers can shop in Pro stores as well as residential. Same pricing, a little bit smaller inventory selection. And residential consumers can shop in both as well. We've actually found that residential consumers, we've seen higher growth in Pro locations than surrounding stores in the district, in like combination of longer hours, better inventory selection, larger inventory selection, and they're shopping more in the Pro shop, right? You know, it it's one where we're identifying more opportunities to convert faster, because it's powerful for both the Pro consumer as well as residential consumers as well. Well, terrific. Well, listen, I've got several more questions, but we've run out of time. We will cap it there. We do have a breakout session, so if folks wanna jump over to that and ask some questions, that's great. Let's thank Mike and Steve for joining us today. Thank you. Thank you.