DEF: Leslie's, Inc. Seeks Shareholder Approval for Reverse Stock Split to Regain Nasdaq Compliance

Leslie's, Inc. is seeking shareholder approval for a reverse stock split with ratios ranging from 1-for-10 to 1-for-30 to increase its common stock price and regain compliance with Nasdaq's minimum bid price requirement.

Summary

• A special meeting of shareholders will be held virtually on September 10, 2025, at 12:00 P.M. Eastern Time.
• Shareholders will vote on a proposal to adopt and approve a series of five alternative amendments to the Certificate of Incorporation to effect a reverse stock split at ratios of 1-for-10, 1-for-15, 1-for-20, 1-for-25, or 1-for-30.
• The Board of Directors will have sole discretion to determine the specific ratio and timing of the reverse stock split, if approved, at any time prior to the one-year anniversary of the shareholder approval date.
• The proposal also includes a proportionate decrease in the number of authorized shares of common stock (e.g., from 1,000,000,000 to 100,000,000 for a 1-for-10 split).
• The primary purpose of the reverse stock split is to increase the per share price of common stock to regain compliance with Nasdaq Listing Rule 5450(a)(1), which requires a minimum closing price of $1.00 per share.
• The company was notified by Nasdaq on April 30, 2025, of non-compliance due to its average closing price being less than $1.00 per share over 30 consecutive trading days.
• The company has 180 calendar days from the Nasdaq notification (until October 21, 2025) to regain compliance.
• Shareholders who would otherwise hold fractional shares as a result of the reverse stock split will receive a cash payment in lieu of such shares.
• The Board of Directors unanimously recommends voting FOR both the Reverse Split Proposal and the Adjournment Proposal.

Sentiment

Score: 4

Explanation: The filing addresses a critical issue (Nasdaq non-compliance) with a proposed solution (reverse stock split). While the solution aims to resolve the problem, it carries significant risks, including no guarantee of sustained price increase, potential liquidity issues, and stricter delisting rules from Nasdaq. The necessity of this action stems from a negative underlying condition (low stock price).

Positives

• Expected to proportionately increase the per share price of common stock, aiming to regain compliance with Nasdaq's minimum bid price requirement.
• May encourage interest and trading in common stock by long-term investors, indexes, or funds with certain eligibility criteria that avoid lower-priced stocks.
• An increased share price can make common stock eligible for investment by brokerage houses and institutional investors with internal policies prohibiting investment in low-priced stocks.
• May be beneficial for capital raising purposes and provide flexibility in using common stock as consideration in strategic transactions.

Negatives

• Cannot assure that the Reverse Stock Split, if implemented, will increase the price of common stock and have the desired effects, as the outcome is unpredictable.
• The market price of common stock may not increase in proportion to the reduction in shares and could still decrease due to factors unrelated to the split, such as financial results, market conditions, interest rates, or government actions.
• If the trading price subsequently declines, the percentage decline as an absolute number and as a percentage of overall market capitalization may be greater than it would have been without the Reverse Stock Split.
• May adversely affect the liquidity of common stock due to a reduced number of outstanding shares.
• Could increase the number of shareholders owning 'odd lots' (less than 100 shares), which may be more difficult to sell and incur higher brokerage commissions and transaction costs.
• Recent amendments to Nasdaq Listing Rule (effective January 15, 2025) limit the conditions for regaining compliance after a reverse stock split; if the price falls below $1.00 within one year, the company will not be granted a new compliance period and will face delisting proceedings.

Risks

• Cannot assure that the Reverse Stock Split, if implemented, will increase the price of common stock and have the desired effects, as the history of similar stock splits for similarly situated companies is varied.
• The market price of common stock may decrease due to factors unrelated to the Reverse Stock Split, including company performance, market conditions, interest rates, and government actions.
• If the trading price subsequently declines, the percentage decline as an absolute number and as a percentage of overall market capitalization may be greater than it would have been in the absence of the Reverse Stock Split.
• The Reverse Stock Split may adversely affect the liquidity of common stock due to a lower number of outstanding shares.
• An increase in the number of shareholders who own odd lots (less than 100 shares) may make their shares more difficult to sell and incur higher transaction costs, further adversely affecting liquidity.
• Recent amendments to the Nasdaq Listing Rule (effective January 15, 2025) state that if the stock price falls below $1.00 per share within one year after a reverse stock split implemented to regain compliance, the company will not be granted a new compliance period and Nasdaq will move forward with delisting proceedings.

Future Outlook

The company expects the reverse stock split to proportionately increase the per share price of its common stock, aiming to regain compliance with Nasdaq's minimum bid price requirement. It also anticipates increased interest from long-term and institutional investors, and potential benefits for future capital raising and strategic transactions. However, the company cautions that the effect on market price cannot be predicted, and external factors or a subsequent price decline could still adversely affect the stock.

Management Comments

• We use words such as may, will, likely, anticipates, believes, expects, estimates, future, intends, continue, maintain, remain, goal, target, recurring, and similar expressions to identify forward-looking statements.
• Our Board believes that if the number of votes cast at the Special Meeting is insufficient to adopt and approve the Reverse Split Proposal, it is in the best interests of the Company and our shareholders to enable the Board to determine at such time whether to continue soliciting votes in order to obtain a sufficient number of additional votes in favor of the Reverse Split Proposal.
• Our Board unanimously recommends that shareholders vote FOR the Reverse Split Proposal; and FOR the Adjournment Proposal.

Industry Context

This filing reflects a common challenge faced by publicly traded companies whose stock price falls below exchange listing requirements. A reverse stock split is a standard corporate action taken to address such deficiencies and maintain listing status, which is crucial for liquidity and investor access. The recent amendment to Nasdaq's Listing Rule regarding reverse splits indicates a broader trend of exchanges tightening compliance measures to prevent repeated non-compliance.

Comparison to Industry Standards

• NA The filing does not provide specific comparisons to other companies' reverse stock split outcomes or industry benchmarks beyond general statements about the varied history of similar stock splits for similarly situated companies.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Will own a reduced number of shares with a proportionately higher per-share price; fractional shares will be cashed out. Proportionate voting rights and other rights will remain the same. May face higher transaction costs if they hold odd lots.
• Potential Investors: An increased share price may attract long-term investors, institutional investors, indexes, and funds that have policies against investing in low-priced stocks.
• Company: Aims to maintain its Nasdaq listing, which is crucial for market access, liquidity, and overall business opportunities.
• Employees (holding equity awards): Equity awards granted under the Incentive Plan (stock options, restricted stock units, performance units) will be proportionally adjusted to maintain their economic value.

Next Steps

• Shareholders are encouraged to vote on the Reverse Split Proposal and the Adjournment Proposal at the Special Meeting on September 10, 2025.
• If the Reverse Split Proposal is approved, the Board will determine the specific reverse stock split ratio and timing, and may implement it at any time prior to the one-year anniversary of shareholder approval.
• If implemented, a Certificate of Amendment will be filed with the Secretary of State of Delaware to effect the reverse stock split.
• A public announcement will be made regarding the determination of the Reverse Stock Split ratio if the Board chooses to implement it.
• The company must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period (until October 21, 2025) to regain Nasdaq compliance.

Key Dates

Recommendation

The proposed reverse stock split is a necessary defensive measure to maintain Nasdaq listing compliance, addressing a critical issue for the company. While it aims to increase the per-share price and potentially attract a broader investor base, there is no guarantee of sustained price appreciation or improved liquidity, and new Nasdaq rules introduce additional risk if the price falls again. Given the reactive nature of this action and the inherent uncertainties, a 'hold' recommendation is appropriate. Investors should monitor the company's operational performance and the sustained impact of the split on its market valuation and liquidity before considering further investment.

Keywords

Reverse Stock Split, Nasdaq Compliance, Stock Price, Shareholder Meeting, Corporate Governance, SEC Filing, LESL, Leslies Inc, Capital Raise, Liquidity, Delisting Risk