What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-07 · 230 added, 319 removed, 218 unchanged (72% of the section changed)

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The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties.

See "Special Note Regarding Forward-Looking Statements" elsewhere in this Report and in the 2023 Annual Report, the section titled "Risk Factors" contained in ITEM 1A of Part I of the 2023 Annual Report and in the Quarterly Report on Form 10-Q in the section titled “Risk Factors” contained in ITEM 1A of Part II for the quarter ended June 30, 2024.

See "Special Note Regarding Forward-Looking Statements" elsewhere in this Report and in the 2024 Annual Report, the section titled "Risk Factors" contained in ITEM 1A of Part I of the 2024 Annual Report.

Our actual results may differ materially from those contained in any forward-looking statements.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three and nine months ended September 30, 2024, including the following topics:

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three months ended March 31, 2025, including the following topics:

• an overview of our business and strategy;

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Business Overview

We are committed to improving the sleep of more people, every night, all around the world.

As a leading designer, manufacturer, distributor and retailer of bedding products, we know how crucial a good night of sleep is to overall health and wellness.

Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.

We operate in two segments:

North America and International.

These segments are strategic business units that are managed separately based on geography.

Our North America segment consists of manufacturing and distribution subsidiaries and licensees located in the U.S., Canada and Mexico.

Our International segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico).

Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results.

We are the world's largest bedding company, dedicated to improving people's lives through better sleep.

With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in more than 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.

We operate in three segments:

Tempur Sealy North America, Tempur Sealy International and Mattress Firm.

These segments are strategic business units that are managed separately.

Our Tempur Sealy North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico (other than Mattress Firm retail and distribution locations).

Our Tempur Sealy International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico).

The Mattress Firm segment consists of retail stores and distribution centers located in the U.S.

Corporate operating expenses are not included in any of the segments and are presented separately as a reconciling item to consolidated results.

We evaluate segment performance based on net sales, gross profit and operating income.

For additional information refer to Note 12, "Business Segment Information," included in Part I, ITEM 1 of this Report.

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings consist of value-focused private label and OEM products.

Our products allow for complementary merchandising strategies and are sold through third-party retailers, our more than 750 company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

Our portfolio includes the most highly recognized brands in the industry, including Tempur-Pedic®, Sealy®, Stearns & Foster®, and Sleepy's®, and our global omni-channel platform enables us to meet consumers wherever they shop, offering a personal connection and innovation to provide a unique retail experience and tailored sleep solutions.

Our products allow for complementary merchandising strategies and are sold through third-party retailers, our company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

Our distribution model operates through an omni-channel strategy.

We distribute through two channels in each operating business segment:

We distribute through two channels in the Tempur Sealy North America and Tempur Sealy International operating business segments:

Wholesale and Direct.

We distribute through one channel in the Mattress Firm operating business segment:

Our Wholesale channel consists of third-party retailers, including third-party distribution, hospitality and healthcare.

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General Business and Economic Conditions

We believe the bedding industry is structured for sustained growth over the long term, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth.

We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth.

The industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

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As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth.

In the remainder of 2024, we expect a continuation of the current macroeconomic environment, which includes the impact of inflation and interest rate pressures on the consumer.

These macroeconomic pressures on the consumer continue to challenge the global bedding industry.

Ongoing geopolitical conflicts may also introduce further uncertainty for the consumer.

We expect to outperform the bedding industry, amid these macroeconomic headwinds, as a result of our successful new product launches and recent distribution gains in the U.S.

Definitive Agreement with Mattress Firm.

On May 9, 2023, Tempur Sealy International and Mattress Firm entered into a definitive agreement and plan of merger (the "Merger Agreement") for a pending business acquisition in which Tempur Sealy International, through a wholly-owned subsidiary, will acquire Mattress Firm in a transaction valued at approximately $4.0 billion.

The transaction is expected to be funded by approximately $2.7 billion of cash consideration and the issuance of 34.2 million shares of common stock, resulting in a total stock consideration value of $1.3 billion based on a closing share price of $37.62 as of May 8, 2023.

On July 2, 2024, the FTC filed a complaint for temporary restraining order and preliminary injunction in the United States District Court for the Southern District of Texas (the "Court") and an administrative complaint (together with the complaint filed with the Court, the "Actions") to challenge our proposed acquisition of Mattress Firm.

On October 4, 2024, the Company filed a complaint in the Court seeking an injunction against the FTC's administrative proceeding.

Refer to Note 8, "Commitments and Contingencies" in the "Notes to Condensed Consolidated Financial Statements," under Part I, ITEM 1 of this Report for further details.

On September 23, 2024, we announced that we entered into a purchase agreement with MW SO Holdings Company, LLC (“Mattress Warehouse”), a leading independently owned bedding specialty retailer, for the sale of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers.

Mattress Warehouse is a multi-branded retailer offering a full array of mattresses at various price points.

We will continue to supply our Tempur-Pedic®, Stearns & Foster® and Sealy® products to the divested Mattress Firm and Sleep Outfitters stores.

The divestiture is subject to the closing of our acquisition of Mattress Firm and other customary closing conditions.

It is expected to close approximately one quarter after the closing of the Mattress Firm transaction.

We continue to believe that a successful litigation process can be completed in the coming months, which would allow the transaction to close in late 2024 or early 2025.

Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit.

The global bedding industry was challenged in 2024 due to certain macroeconomic pressures on the consumer, and we expect these pressures to continue throughout 2025.

Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, may also introduce further uncertainty for the consumer.

We have taken actions to mitigate the impact of the proposed tariffs, and we will implement pricing actions to mitigate the remaining impact.

The majority of our products sold are also manufactured in the U.S.

Accordingly, we believe the proposed tariffs will not have a material impact on our results of operations in 2025.

We expect to outperform the bedding industry as a result of our investments in new product launches and continued investments in innovation, quality, advertising and customer service.

Acquisition of Mattress Firm

On February 5, 2025, we completed the Mattress Firm Acquisition for an aggregate purchase price of approximately $5.2 billion, net of cash acquired of $0.3 billion.

The aggregate purchase price consisted of $3.1 billion in cash and approximately 34.2 million shares of common stock valued at $65.65 per share, which represents the simple average of the opening and closing price per share of our common stock on the NYSE on the trading day immediately prior to the date of acquisition, with the value of any fractional shares paid in cash.

In connection with the consummation of the merger, we borrowed $625.0 million on the Delayed Draw Term A Loan and $679.5 million of revolving commitments under our senior credit facility.

In addition, approximately $1,592.0 million of proceeds in respect of the Term B Loan were released from escrow.

The proceeds of this financing were collectively used to fund a portion of the cash consideration, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the merger.

Mattress Firm operates as a separate business segment.

Mattress Firm's financial results for the period from February 5, 2025 through March 31, 2025 (the "stub period") are included in our consolidated financial statements in the first quarter of 2025.

On May 1, 2025, we completed the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers, to Mattress Warehouse.

We do not expect the divestiture to have a material impact on our results of operations.

Product Launches

In 2024, we completed the launch of a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment.

This next-generation technology sets the standard for support, pressure relief and motion cancellation with Tempur material precisely responding to your body's weight, shape and temperature in a way no other mattress does.

This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.

In our International segment in 2024, we completed the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors.

This new line of products will broaden Tempur®'s price range with the super-premium price point ceiling maintained and the floor expanded into the premium category to broaden our global addressable market.

In 2025, we will launch an all-new collection of Sealy Posturepedic products.

This is a significant re-imagining of the Posturepedic collection and will feature new proprietary coil technology, a new aesthetic and an updated merchandising strategy.

In 2025, we launched an all-new collection of Sealy Posturepedic products in North America.

This reinvention of the Sealy Posturepedic® brand is strategically aimed at reigniting growth in the mid-to-entry level market, which has experienced outsized pressures relative to other price points in recent years.

The new collection incorporates innovative technologies, including our proprietary PrecisionFit™ coils which were expertly designed to provide superior support.

Results of Operations

A summary of our results for the three months ended September 30, 2024 include:

• Total net sales increased 1.8% to $1,300.0 million as compared to $1,277.1 million in the third quarter of 2023, with a decrease of 0.8% in the North America business segment and an increase of 12.4% in the International business segment.

On a constant currency basis, which is a non-GAAP financial measure, total net sales increased 1.7%, with a decrease of 0.4% in the North America business segment and an increase of 10.5% in the International business segment.

• Gross margin was 45.4% as compared to 44.9% in the third quarter of 2023.

Adjusted gross margin, which is a non-GAAP financial measure, was 46.2% as compared to 45.9% in the third quarter of 2023.

• Operating income increased 10.2% to $201.8 million as compared to $183.2 million in the third quarter of 2023.

Adjusted operating income, which is a non-GAAP financial measure, increased 4.2% to $223.7 million as compared to $214.7 million in the third quarter of 2023.

• Net income increased 14.7% to $130.0 million as compared to $113.3 million in the third quarter of 2023.

Adjusted net income, which is a non-GAAP financial measure, increased 7.1% to $146.5 million as compared to $136.8 million in the third quarter of 2023.

• Earnings per diluted share ("EPS") increased 14.1% to $0.73 as compared to $0.64 in the third quarter of 2023.

Adjusted EPS, which is a non-GAAP financial measure, increased 6.5% to $0.82 as compared to $0.77 in the third quarter of 2023.

A summary of our results for the three months ended March 31, 2025 include:

• Total net sales increased 34.9% to $1,604.7 million as compared to $1,189.4 million in the first quarter of 2024, primarily driven by the inclusion of $593.7 million of Mattress Firm sales for the stub period, offset by the elimination of $130.1 million of sales from the Tempur Sealy North America segment to the Mattress Firm segment for the stub period.

• Gross margin was 36.2% as compared to 39.9% in the first quarter of 2024.

Adjusted gross margin, which is a non-GAAP financial measure, was 42.2% as compared to 40.1% in the first quarter of 2024.

• Operating income was $13.2 million as compared to $131.5 million in the first quarter of 2024, primarily driven by costs during the quarter related to the Mattress Firm Acquisition.

Adjusted operating income, which is a non-GAAP financial measure, was $182.8 million as compared to $149.4 million in the first quarter of 2024.

• Net loss was $(33.1) million as compared to net income of $76.3 million in the first quarter of 2024, primarily driven by the acquisition of Mattress Firm.

Adjusted net income, which is a non-GAAP financial measure, was $97.0 million as compared to $89.7 million in the first quarter of 2024.

• Loss per diluted share was $(0.17) as compared to earnings per diluted share ("EPS") $0.43 in the first quarter of 2024.

Adjusted EPS, which is a non-GAAP financial measure, was $0.49 as compared to $0.50 in the first quarter of 2024.

For a discussion and reconciliation of non-GAAP financial measures as discussed above to the corresponding GAAP financial results, refer to the non-GAAP financial information set forth below under the heading "Non-GAAP Financial Information."

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Refer to Part I, ITEM 3 of this Report for a discussion of our foreign currency exchange rate risk.

THREE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THE

THREE MONTHS ENDED SEPTEMBER 30, 2023

The following table sets forth the various components of our Condensed Consolidated Statements of Income and expresses each component as a percentage of net sales:

Three Months Ended September 30,

THREE MONTHS ENDED MARCH 31, 2025 COMPARED TO THE

THREE MONTHS ENDED MARCH 31, 2024

The following table sets forth the various components of our Condensed Consolidated Statements of (Loss) Income and expresses each component as a percentage of net sales:

Three Months Ended March 31,

(in millions, except percentages and per share amounts) 2025 2024

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Total other expense, net 62.5 3.9 34.0 2.9

Income before income taxes 170.6 13.1 150.7 11.8

Income tax provision (40.8) (3.1) (36.8) (2.9)

Net income before non-controlling interest 129.8 10.0 113.9 8.9

Net (loss) income attributable to non-controlling interest (0.2) — 0.6 —

Net income attributable to Tempur Sealy International, Inc.

(Loss) income before income taxes (49.3) (3.1) 97.5 8.2

Income tax benefit (provision) 16.5 1.0 (20.7) (1.7)

Net (loss) income before non-controlling interest (32.8) (2.0) 76.8 6.5

Net income attributable to non-controlling interest 0.3 — 0.5 —

Net (loss) income attributable to Somnigroup International Inc.

$ (33.1) (2.0) % $ 76.3 6.5 %

Earnings per common share:

(Loss) earnings per common share:

Basic $ (0.17) $ 0.44

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Diluted 198.9 178.0

Three Months Ended September 30,

Three Months Ended March 31,

2025 2024 2025 2024 2025 2024 2025 2024

(in millions) Consolidated North America International

(in millions) Consolidated Tempur Sealy North America Tempur Sealy International Mattress Firm

Net sales by channel

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The change in net sales was driven by the following:

• North America net sales decreased $8.4 million, or 0.8%, primarily driven by continued macroeconomic pressures impacting U.S.

consumer behavior.

Net sales in the Wholesale channel decreased $6.7 million, or 0.8%.

Net sales in the Direct channel decreased $1.7 million, or 1.2%, as compared to the third quarter of 2023.

• International net sales increased $31.3 million, or 12.4%, primarily driven by the success of new product launches.

• Tempur Sealy North America net sales decreased $194.9 million, or 21.6%.

Net sales in the Wholesale channel decreased $192.4 million, primarily driven by a 16.7% decline from the elimination of intercompany sales to Mattress Firm of $130.1 million and an 8.0% decline from continued macroeconomic pressures impacting U.S.

consumer behavior of $62.3 million.

Net sales in the Direct channel decreased $2.5 million, or 2.0%, as compared to the first quarter of 2024.

• Tempur Sealy International net sales increased $16.5 million, or 5.7%, primarily driven by the success of new product launches.

On a constant currency basis, International net sales increased 7.7%.

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Net sales in the Direct channel increased 7.3% on a constant currency basis.

Three Months Ended September 30,

• Mattress Firm net sales were $593.7 million for the stub period.

Three Months Ended March 31,

(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change

North America $ 426.7 42.0 % $ 430.4 42.0 % — %

International 163.2 57.3 % 143.3 56.6 % 0.7 %

Tempur Sealy North America $ 240.0 34.0 % $ 336.7 37.4 % (3.4) %

Tempur Sealy International 149.3 49.0 % 137.6 47.7 % 1.3 %

Mattress Firm 191.2 32.2 % — — % 32.2 %

Consolidated gross margin $ 580.5 36.2 % $ 474.3 39.9 % (3.7) %

Costs associated with net sales are recorded in cost of sales and include the costs of producing, shipping, warehousing, receiving and inspecting goods during the period, as well as depreciation and amortization of long-lived assets used in the manufacturing process.

Cost of sales also includes retail store occupancy costs such as rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

Our gross margin is primarily impacted by the relative amount of net sales contributed by our premium or value products.

Our value products have a significantly lower gross margin than our premium products.

If sales of our value priced products increase relative to sales of our premium priced products, our gross margins will be negatively impacted in both our North America and International segments.

If sales of our value priced products increase relative to sales of our premium priced products, our gross margins will be negatively impacted across all segments.

Our gross margin is also impacted by fixed cost leverage based on manufacturing unit volumes;

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participation in our retail cooperative advertising programs;

and costs associated with new product introductions.

vendor incentives earned on supply agreements, retail store fixed cost leverage based on unit volumes and costs associated with new product introductions.

Future changes in raw material prices could have a significant impact on our gross margin.

Our margins are also impacted by the growth in our Wholesale channel as sales in our Wholesale channel are at wholesale prices, whereas sales in our Direct channel are at retail prices.

Gross margin improved 50 basis points.

The primary drivers of changes in gross margin by segment are discussed below:

• North America gross margin was flat as compared to the third quarter of 2023.

The factors impacting gross margin were primarily driven by the unfavorable mix of new OEM distribution of 150 basis points, offset by favorable commodity costs of 80 basis points and operational efficiencies.

• International gross margin improved 70 basis points.

The improvement in gross margin was primarily driven by operational efficiencies of 60 basis points.

OPERATING EXPENSES

Selling and marketing expenses include advertising and media production associated with the promotion of our brands, other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials and sales force compensation.

We also include in selling and marketing expense certain new product development costs, including market research and new product testing.

General, administrative and other expenses include salaries and related expenses, IT, professional fees, depreciation and amortization of long-lived assets not used in the manufacturing process, expenses for administrative functions and research and development costs.

Three Months Ended September 30,

2024 2023 2024 2023 2024 2023 2024 2023

(in millions) Consolidated North America International Corporate

Operating expenses:

Advertising expenses $ 119.3 $ 119.0 $ 98.2 $ 102.9 $ 21.1 $ 16.1 $ — $ —

Other selling and marketing expenses 152.7 153.9 83.2 85.1 65.7 63.8 3.8 5.0

General, administrative and other expenses 118.6 122.2 52.0 46.9 27.2 28.0 39.4 47.3

Total operating expenses $ 390.6 $ 395.1 $ 233.4 $ 234.9 $ 114.0 $ 107.9 $ 43.2 $ 52.3

Operating expenses decreased $4.5 million, or 1.1%, and decreased 90 basis points as a percentage of net sales.

The primary drivers of changes in operating expenses by segment are explained below:

• North America operating expenses decreased $1.5 million, or 0.6%, and increased 10 basis points as a percentage of net sales.

The decrease in operating expenses was primarily driven by decreases in advertising, offset by incremental bad debt expense related to retailer bankruptcies.

• International operating expenses increased $6.1 million, or 5.7%, and decreased 260 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by investments in growth initiatives.

• Corporate operating expenses decreased $9.1 million, or 17.4%.

The decrease in operating expenses was primarily driven by decreased variable compensation expense and transaction costs related to the pending acquisition of Mattress Firm.

Research and development expenses for the three months ended September 30, 2024 were $7.0 million compared to $8.2 million for the three months ended September 30, 2023, an decrease of $1.2 million, or 14.6%.

OPERATING INCOME

Three Months Ended September 30,

(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change

North America $ 193.3 19.0 % $ 195.5 19.1 % (0.1) %

International 51.7 18.2 % 40.0 15.8 % 2.4 %

Corporate expenses (43.2) (52.3)

Total operating income $ 201.8 15.5 % $ 183.2 14.3 % 1.2 %

Operating income increased $18.6 million and operating margin improved 120 basis points.

The primary drivers of changes in operating income and operating margin by segment are discussed below:

• North America operating income decreased $2.2 million and operating margin declined 10 basis points.

The decline in operating margin was primarily driven by operating expense deleverage of 10 basis points.

• International operating income increased $11.7 million and operating margin improved 240 basis points.

The improvement in operating margin was driven by operating expense leverage of 260 basis points and the improvement in gross margin of 70 basis points, partially offset by Asia joint venture performance of 90 basis points.

• Corporate operating expenses decreased $9.1 million, which positively impacted our consolidated operating margin.

INTEREST EXPENSE, NET

Three Months Ended September 30,

(in millions, except percentages) 2024 2023 % Change

Interest expense, net $ 30.8 $ 32.6 (5.5) %

Interest expense, net, decreased $1.8 million, or 5.5%.

The decrease in interest expense, net, was primarily driven by reduced average levels of outstanding variable rate debt.

INCOME TAX PROVISION

Three Months Ended September 30,

(in millions, except percentages) 2024 2023 % Change

Income tax provision $ 40.8 $ 36.8 10.9 %

Effective tax rate 23.9 % 24.4 %

Our income tax provision includes income taxes associated with taxes currently payable and deferred taxes and includes the impact of net operating losses for certain of our foreign operations.

Our income tax provision increased $4.0 million due to an increase in income before income taxes.

Our effective tax rate for the three months ended September 30, 2024 as compared to the prior year declined by 50 basis points.

The effective tax rates as compared to the U.S.

federal statutory rates for the three months ended September 30, 2024 and 2023 included a net favorable impact of other discrete items.

NINE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THE

NINE MONTHS ENDED SEPTEMBER 30, 2023

The following table sets forth the various components of our Condensed Consolidated Statements of Income and expresses each component as a percentage of net sales:

Nine Months Ended September 30,

(in millions, except percentages and per share amounts) 2024 2023

Net sales $ 3,723.0 100.0 % $ 3,754.9 100.0 %

Cost of sales 2,066.3 55.5 2,139.0 57.0

Gross profit 1,656.7 44.5 1,615.9 43.0

Selling and marketing expenses 813.2 21.8 799.8 21.3

General, administrative and other expenses 347.4 9.3 344.2 9.2

Equity income in earnings of unconsolidated affiliates (10.5) (0.3) (13.4) (0.4)

Operating income 506.6 13.6 485.3 12.9

Other expense, net:

Interest expense, net 98.5 2.6 99.0 2.6

Other income, net (0.5) — (0.2) —

Total other expense, net 98.0 2.6 98.8 2.6

Income before income taxes 408.6 11.0 386.5 10.3

Income tax provision (95.5) (2.6) (93.5) (2.5)

Net income before non-controlling interest 313.1 8.4 293.0 7.8

Net income attributable to non-controlling interest 0.7 — 2.0 0.1

Net income attributable to Tempur Sealy International, Inc.

$ 312.4 8.4 % $ 291.0 7.7 %

Earnings per common share:

Basic $ 1.80 $ 1.69

Diluted $ 1.75 $ 1.64

Weighted average common shares outstanding:

Basic 173.6 172.1

Diluted 178.1 177.0

Nine Months Ended September 30,

2024 2023 2024 2023 2024 2023

(in millions) Consolidated North America International

Net sales by channel

Wholesale $ 2,818.1 $ 2,876.4 $ 2,510.1 $ 2,585.4 $ 308.0 $ 291.0

Direct 904.9 878.5 384.7 374.7 520.2 503.8

Total net sales $ 3,723.0 $ 3,754.9 $ 2,894.8 $ 2,960.1 $ 828.2 $ 794.8

Net sales decreased 0.8%, and on a constant currency basis decreased 1.0%.

The change in net sales was driven by the following:

• North America net sales decreased $65.3 million, or 2.2%.

Net sales in the Wholesale channel decreased $75.3 million, or 2.9%, primarily driven by continued macroeconomic pressures impacting U.S.

consumer behavior.

Net sales in the Direct channel increased $10.0 million, or 2.7%, primarily driven by strength in our e-commerce business.

• International net sales increased $33.4 million, or 4.2%, primarily driven by the success of new product launches.

On a constant currency basis, International net sales increased $26.4 million, or 3.3%.

Net sales in the Wholesale channel increased 6.4% on a constant currency basis.

Net sales in the Direct channel increased 1.6% on a constant currency basis.

Nine Months Ended September 30,

(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change

North America $ 1,189.3 41.1 % $ 1,177.8 39.8 % 1.3 %

International 467.4 56.4 % 438.1 55.1 % 1.3 %

Consolidated gross margin $ 1,656.7 44.5 % $ 1,615.9 43.0 % 1.5 %

Gross margin improved 150 basis points.

Gross margin declined 370 basis points.

The primary drivers of changes in gross margin by segment are discussed below:

• North America gross margin improved 130 basis points.

The improvement in gross margin was primarily driven by favorable commodity costs of 130 basis points and operational efficiencies of 70 basis points.

These improvements were partially offset by the unfavorable mix of new OEM distribution of 100 basis points.

• International gross margin improved 130 basis points.

The improvement in gross margin was primarily driven by operational efficiencies of 80 basis points and favorable commodity costs of 50 basis points.

• Tempur Sealy North America gross margin declined 340 basis points.

The decline in gross margin was primarily driven by operating expense deleverage of 120 basis points and commodity cost inflation.

Additionally, we incurred $78.0 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition, which contributed to the decline in gross margin.

These declines were partially offset by the elimination of intercompany sales to Mattress Firm of 530 basis points, operational efficiencies of 120 basis points and favorable mix of 110 basis points.

• Tempur Sealy International gross margin improved 130 basis points.

The improvement in gross margin was primarily driven by decreased product launch costs.

• Mattress Firm gross margin was 32.2% for the stub period.

OPERATING EXPENSES

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We also include in selling and marketing expense certain new product development costs, including market research and new product testing.

Nine Months Ended September 30,

General, administrative and other expenses include salaries and related expenses, IT, professional fees, depreciation and amortization of long-lived assets not used in the manufacturing, distribution and retail store operations, expenses for administrative functions and research and development costs.

Three Months Ended March 31,

2025 2024 2025 2024 2025 2024 2025 2024 2025 2024

(in millions) Consolidated North America International Corporate

(in millions) Consolidated Tempur Sealy North America Tempur Sealy International Mattress Firm Corporate

Operating expenses:

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The primary drivers of changes in operating expenses by segment are explained below:

• North America operating expenses increased $9.0 million, or 1.3%, and increased 80 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by investments in growth initiatives and incremental bad debt expense related to retailer bankruptcies, offset by decreases in advertising.

• International operating expenses increased $16.2 million, or 4.9%, and increased 30 basis points as a percentage of net sales.

• Tempur Sealy North America operating expenses decreased $2.6 million, or 1.3%, and increased 580 basis points as a percentage of net sales.

The decrease in operating expenses was primarily driven by decreases in advertising and other selling and marketing expenses.

• Tempur Sealy International operating expenses increased $5.3 million, or 5.4%, and decreased 10 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by investments in growth initiatives.

• Corporate operating expenses decreased $8.6 million, or 6.2%.

The decrease in operating expenses was primarily driven by decreased variable compensation expense.

Research and development expenses were $22.8 million for the nine months ended September 30, 2024 as compared to $23.0 million for the nine months ended September 30, 2023, an decrease of $0.2 million, or 0.9%.

• Mattress Firm operating expenses were $184.4 million for the stub period.

• Corporate operating expenses increased $37.3 million, or 78.2%.

The increase in operating expenses was primarily driven by transaction costs related to the Mattress Firm Acquisition.

Research and development expenses for the three months ended March 31, 2025 were $8.1 million, consistent with the three months ended March 31, 2024.

OPERATING INCOME

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change

North America $ 508.1 17.6 % $ 505.6 17.1 % 0.5 %

International 128.3 15.5 % 118.1 14.9 % 0.6 %

Tempur Sealy North America $ 40.3 5.7 % $ 134.4 14.9 % (9.2) %

Tempur Sealy International 51.1 16.8 % 44.8 15.5 % 1.3 %

Mattress Firm 6.8 1.1 % — — % 1.1 %

Corporate expenses (85.0) (47.7)

Total operating income $ 13.2 0.8 % $ 131.5 11.1 % (10.3) %

Operating income increased $21.3 million and operating margin improved 70 basis points.

Operating income decreased $118.3 million and operating margin declined 1,030 basis points.

The primary drivers of changes in operating income and operating margin by segment are discussed below:

• North America operating income increased $2.5 million and operating margin improved 50 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 130 basis points, partially offset by operating expense deleverage of 80 basis points.

• International operating income increased $10.2 million and operating margin improved 60 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 130 basis points, partially offset by operating expense deleverage of 30 basis points and Asia joint venture performance.

• Corporate operating expenses decreased $8.6 million, which positively impacted our consolidated operating margin.

• Tempur Sealy North America operating income decreased $94.1 million and operating margin declined 920 basis points.

The decline in operating margin was primarily driven by operating expense deleverage of 580 basis points and the decline in gross margin of 340 basis points.

• Tempur Sealy International operating income increased $6.3 million and operating margin improved 130 basis points.

The improvement in operating margin was driven by the improvement in gross margin of 130 basis points.

• Mattress Firm operating income was $6.8 million and operating margin was 1.1% for the stub period.

• Corporate operating expenses increased $37.3 million, which negatively impacted our consolidated operating margin.

INTEREST EXPENSE, NET

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions, except percentages) 2025 2024 % Change

Interest expense, net $ 61.3 $ 34.3 78.7 %

Interest expense, net, decreased $0.5 million, or 0.5%.

The decrease in interest expense, net, was primarily driven by reduced average levels of outstanding variable rate debt.

Interest expense, net, increased $27.0 million, or 78.7%.

The increase in interest expense, net, was primarily driven by increased average levels of outstanding variable rate debt.

INCOME TAX PROVISION

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions, except percentages) 2025 2024 % Change

Income tax provision $ 95.5 $ 93.5 2.1 %

Income tax (benefit) provision $ (16.5) $ 20.7 (179.7) %

Effective tax rate 33.5 % 21.2 %

Our income tax provision increased $2.0 million driven by an increase in income before income taxes.

Our effective tax rate for the nine months ended September 30, 2024 as compared to the prior year declined 90 basis points.

Our income tax provision includes income taxes associated with taxes currently payable and deferred taxes and includes the impact of net operating losses for certain of our foreign operations.

Our income tax provision decreased $37.2 million due to a decrease in income before income taxes.

Our effective tax rate for the three months ended March 31, 2025 as compared to the prior year increased by 1,230 basis points.

The effective tax rates as compared to the U.S.

federal statutory rates for the nine months ended September 30, 2024 and 2023 included the net favorable impact of the deductibility of stock compensation in the U.S., which was offset by the unfavorable impact of discrete items.

federal statutory rates for the three months ended March 31, 2025 and 2024 included the favorable impact of the deductibility of stock compensation in the U.S.

and a net unfavorable impact of other discrete items.

Liquidity and Capital Resources

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Principal uses of funds consist of payments of principal and interest on our debt facilities, acquisitions, payments of dividends to our shareholders, capital expenditures and working capital needs.

As of September 30, 2024, we had net working capital of $143.5 million, including cash and cash equivalents of $104.2 million, as compared to a working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as of December 31, 2023.

Cash and Working Capital

Cash and cash equivalents were $111.1 million and $117.4 million as of March 31, 2025 and December 31, 2024, respectively.

We had a working capital deficit of $268.9 million as of March 31, 2025, as compared to working capital of $105.1 million as of December 31, 2024.

The reduction in our working capital to a deficit position in the first quarter of 2025 was primarily driven by a $251.2 million increase in our short-term operating lease obligations as a result of the Mattress Firm Acquisition, and we expect to operate with a working capital deficit in the future.

The amount of cash and cash equivalents held by subsidiaries outside of the U.S.

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The table below presents net cash provided by (used in) operating, investing and financing activities from operations for the periods indicated below:

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2025 2024

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Financing activities 1,142.1 (77.9)

Cash provided by operating activities increased $58.2 million in the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase in cash provided by operating activities was driven by a $22.3 million increase in non-cash depreciation expense, primarily associated with our new Tempur manufacturing facility, a $20.1 million increase in net income and a $10.6 million increase in cash provided by changes in operating assets and liabilities.

Cash used in investing activities decreased $76.9 million in the nine months ended September 30, 2024 as compared to the same period in 2023.

The decrease in cash used in investing activities was primarily driven by decreased capital expenditures related to our manufacturing capacity expansion projects in 2023.

Cash used in financing activities increased $132.5 million in the nine months ended September 30, 2024 as compared to the same period in 2023.

For the nine months ended September 30, 2024, we had net repayments of $307.3 million on our credit facilities as compared to $198.4 million in the same period in 2023.

We paid dividends to shareholders of $70.1 million and $58.8 million, during the nine months ended September 30, 2024 and 2023, respectively.

Additionally, we repurchased $43.8 million and $36.0 million of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans during the nine months ended September 30, 2024 and 2023, respectively.

Cash provided by operating activities decreased $23.8 million in the three months ended March 31, 2025 as compared to the same period in 2024.

The decrease in cash provided by operating activities was driven by a $109.6 million decrease in net income, offset by a $18.5 million increase in non-cash depreciation expense, primarily associated with our new Tempur manufacturing facility and a $65.1 million increase in cash provided by changes in operating assets and liabilities.

Cash used in investing activities increased $2,827.7 million in the three months ended March 31, 2025 as compared to the same period in 2024.

The increase in cash used in investing activities was primarily driven by the acquisition of Mattress Firm on February 5, 2025.

Cash provided by financing activities increased $1,220.0 million in the three months ended March 31, 2025 as compared to the same period in 2024.

For the three months ended March 31, 2025, we had net borrowings of $1,217.3 million on our credit facilities as compared to net repayments of $3.7 million in the same period in 2024.

We paid dividends to shareholders of $32.9 million and $24.9 million, during the three months ended March 31, 2025 and 2024, respectively.

Additionally, we repurchased $37.5 million and $43.8 million of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans during the three months ended March 31, 2025 and 2024, respectively.

Capital Expenditures

Capital expenditures totaled $76.4 million and $153.3 million for the nine months ended September 30, 2024 and 2023, respectively.

We currently expect our 2024 capital expenditures to be approximately $125 million, which includes maintenance capital expenditures of $110 million.

Our total debt decreased to $2,287.8 million as of September 30, 2024 from $2,593.6 million as of December 31, 2023.

Total availability under our revolving senior secured credit facility was $1,189.2 million as of September 30, 2024.

Capital expenditures totaled $24.0 million and $31.5 million for the three months ended March 31, 2025 and 2024, respectively.

We currently expect our 2025 capital expenditures to be approximately $250 million, including $50 million of investments to refresh Mattress Firm stores.

Our total debt increased to $5,069.9 million as of March 31, 2025 from $3,844.5 million as of December 31, 2024.

Total availability under our revolving senior secured credit facility was $708.3 million as of March 31, 2025.

Refer to Note 5, "Debt" in the "Notes to Condensed Consolidated Financial Statements," under Part I, ITEM 1 for further discussion of our debt.

On February 6, 2024, we entered into an amendment to the 2023 Credit Agreement which provides for a $625.0 million delayed draw term loan and a $40.0 million increase in availability on the existing revolving loan.

Once drawn, the instruments will have the same terms and conditions as the Company's existing term loans and revolving loans, respectively, under the 2023 Credit Agreement.

This amendment was executed in connection with the Company's financing strategy for the pending acquisition of Mattress Firm.

On October 24, 2024, we entered into an Amendment No.

2 ("Amendment No.

2") and an Amendment No.

3 ("Amendment No.

3" and together with Amendment No.

2, the "Amendments") to the 2023 Credit Agreement dated as of October 10, 2023, as amended.

Amendment No.

2 extends the termination date for $605 million of our existing delayed draw term A loan commitments until October 24, 2025, among other changes.

Amendment No.

3 provides for an incremental term B loan in the aggregate principal amount of $1.6 billion (the "Term B Loan").

The proceeds of the Term B Loan were funded into escrow on the closing of Amendment No.

3 and will mature on October 24, 2031.

The proceeds of the Term B Loan will be used to pay fees and expenses in connection with Amendment No.

3 and may be released upon the closing of the previously disclosed Mattress Firm acquisition.

If the closing of the Mattress Firm acquisition does not occur prior to the first anniversary of the funding date, we will be required to repay the Term B Loan.

As of September 30, 2024, our ratio of consolidated indebtedness less netted cash to adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), which is a non-GAAP financial measure, in accordance with our 2023 Credit Agreement was 2.41 times.

As of March 31, 2025, our ratio of consolidated indebtedness less netted cash to adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), which is a non-GAAP financial measure, in accordance with our 2023 Credit Agreement was 3.51 times.

This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio as set forth in the 2023 Credit Agreement, which limits this ratio to 5.00 times.

As of September 30, 2024, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

As of March 31, 2025, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends.

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Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we were authorized to repurchase shares of our common stock, and the Board of Directors has authorized increases to this authorization from time to time.

During the nine months ended September 30, 2024, we did not repurchase shares under our share repurchase program.

As of September 30, 2024, we had $774.5 million remaining under our share repurchase authorization.

During the three months ended March 31, 2025, we did not repurchase shares under our share repurchase program.

As of March 31, 2025, we had $774.5 million remaining under our share repurchase authorization.

Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate.

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Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under federal securities laws.

We will manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities.

As a result of the pending Mattress Firm acquisition, we have temporarily suspended our repurchase of shares in advance of closing the transaction.

We manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities.

In 2025, we expect to engage in strategic share repurchases as we primarily focus on debt repayment to reduce leverage to our target ratio of 2.0 to 3.0 times.

For a complete description of our share repurchase program, please refer to ITEM 5 under Part II, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," in the 2024 Annual Report.

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Future Liquidity Sources and Uses

As of September 30, 2024, we had $1,293.4 million of liquidity, including $104.2 million of cash on hand and $1,189.2 million available under our 2023 Credit Agreement.

As of March 31, 2025, we had $819.4 million of liquidity, including $111.1 million of cash on hand and $708.3 million available under our 2023 Credit Agreement.

In addition, we expect to generate cash flow from operations in the full year 2025.

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Our capital allocation strategy follows a balanced approach focused on supporting the business, returning shareholder value through strategic acquisition opportunities that enhance our global competitiveness, as well as quarterly dividends and opportunistic share repurchases.

The Board of Directors declared a dividend of $0.13 per share for the fourth quarter of 2024.

The dividend is payable on December 5, 2024 to shareholders of record as of November 21, 2024.

As of September 30, 2024, we had $2,287.8 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,183.6 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.41 times for the trailing twelve months ended September 30, 2024.

The Board of Directors declared a dividend of $0.15 per share for the second quarter of 2025.

The dividend is payable on June 5, 2025 to shareholders of record as of May 22, 2025.

As of March 31, 2025, we had $5,069.9 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $4,958.8 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.51 times for the trailing twelve months ended March 31, 2025.

We currently expect our target leverage ratio to return to 2.0 to 3.0 times in the first twelve months following the close of the transaction.

Total cash interest payments related to our borrowings are expected to be between approximately $265 million to $275 million in 2025.

Our debt service obligations could, under certain circumstances, have material consequences to our stockholders.

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Adjusted Net Income and Adjusted EPS

A reconciliation of reported net income to adjusted net income and the calculation of adjusted EPS is provided below.

A reconciliation of reported net (loss) income to adjusted net income and the calculation of adjusted EPS is provided below.

We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.

The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended September 30, 2024 and 2023:

The following table sets forth the reconciliation of our reported net (loss) income to adjusted net income and the calculation of adjusted EPS for the three months ended March 31, 2025 and 2024:

Three Months Ended

(in millions, except per share amounts) September 30, 2024 September 30, 2023

Net income $ 130.0 $ 113.3

(in millions, except per share amounts) March 31, 2025 March 31, 2024

Net (loss) income $ (33.1) $ 76.3

Acquisition-related costs (1)

Transaction costs (2)

Transaction-related interest expense, net (3)

Supply chain transition costs (4)

Cybersecurity event (3)

Operational start-up costs (5)

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Diluted shares outstanding 198.9 178.0

(1) In the third quarter of 2024, we recorded $13.7 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm.

Cost of sales included $2.4 million of charges related to customer-specific inventory.

Operating expenses primarily included legal and professional fees associated with the pending acquisition of Mattress Firm.

In the third quarter of 2023, we recorded $15.7 million of transaction costs primarily associated with the pending acquisition of Mattress Firm.

(2) In the third quarter of 2024, we recorded $8.2 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $8.0 million recorded in cost of sales and $0.2 million recorded in operating expenses.

(3) In the third quarter of 2023, we recorded $13.5 million of costs associated with the cybersecurity event identified on July 23, 2023.

Cost of sales included $9.6 million of manufacturing and network disruption costs incurred to ensure business continuity.

Operating expenses included $3.9 million, primarily related to professional fees incurred for incident response, containment measures and stabilization of the Company's information systems.

(4) In the third quarter of 2023, we recorded $2.3 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

(1) In the first quarter of 2025, we recorded $114.2 million of acquisition-related costs.

Cost of sales included $95.4 million, primarily related to one-time business combination accounting and purchase price allocation adjustments.

Operating expenses included $18.8 million of professional fees and restructuring costs.

(2) In the first quarter of 2025, we recorded $51.9 million of transaction costs associated with the Mattress Firm Acquisition.

Operating expenses primarily included legal and professional fees associated with the Mattress Firm Acquisition.

In the first quarter of 2024, we recorded $14.8 million of transaction costs primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

(3) In the first quarter of 2025, we incurred $6.8 million of transaction-related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

The proceeds of the Term B Loan were released upon the closing of the Mattress Firm Acquisition on February 5, 2025.

(4) In the first quarter of 2025, we recorded $3.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $1.9 million recorded in cost of sales and $1.6 million recorded in operating expenses.

(5) In the first quarter of 2024, we recorded $3.1 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

(6) Adjusted income tax provision represents the tax effects associated with the aforementioned items.

Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income (Expense) and Adjusted Operating Margin

The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended September 30, 2024.

Three Months Ended September 30, 2024

(in millions, except percentages) Consolidated

Margin North America Margin International Margin Corporate

Three Months Ended March 31, 2025

(in millions, except percentages) Consolidated Margin Tempur Sealy North America Margin Tempur Sealy International Margin Mattress Firm Margin Corporate

Net sales $ 1,604.7 $ 706.2 $ 304.8 $ 593.7 $ —

Gross profit $ 580.5 36.2 % $ 240.0 34.0 % $ 149.3 49.0 % $ 191.2 32.2 % $ —

Acquisition-related costs (1)

95.4 78.0 — 17.4 —

Supply chain transition costs (2)

Transaction costs (2)

1.9 1.9 — — —

Total adjustments 97.3 79.9 — 17.4 —

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Operating income (expense) $ 13.2 0.8 % $ 40.3 5.7 % $ 51.1 16.8 % $ 6.8 1.1 % $ (85.0)

Acquisition-related costs (1)

114.2 78.0 — 34.2 2.0

Transaction costs (3)

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Supply chain transition costs (2)

3.5 3.5 — — —

Total adjustments 169.6 81.5 — 35.9 52.2

Adjusted operating income (expense) $ 182.8 11.4 % $ 121.8 17.2 % $ 51.1 16.8 % $ 42.7 7.2 % $ (32.8)

(1) In the third quarter of 2024, we recorded $8.2 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $8.0 million recorded in cost of sales and $0.2 million recorded in operating expenses.

(2) In the third quarter of 2024, we recorded $13.7 million of transaction costs.

Cost of sales included $2.4 million of charges related to customer-specific inventory.

Operating expenses primarily included legal and professional fees associated with the pending acquisition of Mattress Firm.

The following table sets forth our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended September 30, 2023.

Three Months Ended September 30, 2023

(in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate

(1) In the first quarter of 2025, we recorded $114.2 million of acquisition-related costs.

Cost of sales included $95.4 million, primarily related to one-time business combination accounting and purchase price allocation adjustments.

Operating expenses included $18.8 million of professional fees and restructuring costs.

(2) In the first quarter of 2025, we recorded $3.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $1.9 million recorded in cost of sales and $1.6 million recorded in operating expenses.

(3) In the first quarter of 2025, we recorded $51.9 million of transaction costs associated with the Mattress Firm Acquisition.

Operating expenses primarily included legal and professional fees associated with the Mattress Firm Acquisition.

Three Months Ended March 31, 2024

(in millions, except percentages) Consolidated Margin Tempur Sealy North America Margin Tempur Sealy International Margin Corporate

Net sales $ 1,189.4 $ 901.1 $ 288.3 $ —

Gross profit $ 474.3 39.9 % $ 336.7 37.4 % $ 137.6 47.7 % $ —

Cybersecurity event (1)

Operational start-up costs (1)

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14.8 — — 14.8

Cybersecurity event (1)

13.5 10.0 1.1 2.4

Operational start-up costs (1)

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Adjusted operating income (expense) $ 149.4 12.6 % $ 137.5 15.3 % $ 44.8 15.5 % $ (32.9)

(1) In the third quarter of 2023, we recorded $13.5 million of costs associated with the cybersecurity event identified on July 23, 2023.

Cost of sales included $9.6 million of manufacturing and network disruption costs incurred to ensure business continuity.

Operating expenses included $3.9 million, primarily related to professional fees incurred for incident response, containment measures and stabilization of our information systems.

(2) In the third quarter of 2023, we recorded $2.3 million of operational start-up costs in cost of sales related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

(3) In the third quarter of 2023, we recorded $15.7 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm.

(1) In the first quarter of 2024, we recorded $3.1 million of operational start-up costs related to the capacity expansion of manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

(2) In the first quarter of 2024, we recorded $14.8 million of transaction costs primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash

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Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2023 Credit Agreement.

The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended September 30, 2024 and 2023:

The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended March 31, 2025 and 2024:

Three Months Ended

(in millions) September 30, 2024 September 30, 2023

Net income $ 130.0 $ 113.3

(in millions) March 31, 2025 March 31, 2024

Net (loss) income $ (33.1) $ 76.3

Interest expense, net 54.5 34.3

Income taxes 40.8 36.8

Transaction-related interest expense, net (1)

Income tax (benefit) provision (16.5) 20.7

Depreciation and amortization 66.6 49.0

EBITDA $ 78.3 $ 180.3

Acquisition-related costs (2)

Transaction costs (3)

Supply chain transition costs (4)

Cybersecurity event (3)

Operational start-up costs (5)

Adjusted EBITDA $ 247.9 $ 198.2

(1) In the third quarter of 2024, we recorded $13.7 million of transaction costs associated with the pending acquisition of Mattress Firm.

Cost of sales included $2.4 million of charges related to customer-specific inventory.

Operating expenses primarily included legal and professional fees associated with the pending acquisition of Mattress Firm.

In the third quarter of 2023, we recorded $15.7 million of transaction costs primarily associated with the pending acquisition of Mattress Firm.

(3) In the third quarter of 2023, we recorded $13.5 million of costs associated with the cybersecurity event identified on July 23, 2023.

Cost of sales included $9.6 million of manufacturing and network disruption costs incurred to ensure business continuity.

Operating expenses included $3.9 million, primarily related to professional fees incurred for incident response, containment measures and stabilization of our information systems.

(4) In the third quarter of 2023, we recorded $2.3 million of operational start-up costs related to the capacity expansion of its manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

The following table sets forth the reconciliation of our net income to the calculations of EBITDA and adjusted EBITDA for the trailing twelve months ended September 30, 2024:

(1) In the first quarter of 2025, we incurred $6.8 million of transaction-related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

The proceeds of the Term B Loan were released upon the closing of the Mattress Firm Acquisition on February 5, 2025.

(2) In the first quarter of 2025, we recorded $114.2 million of acquisition-related costs.

Cost of sales included $95.4 million, primarily related to one-time business combination accounting and purchase price allocation adjustments.

Operating expenses included $18.8 million of professional fees and restructuring costs.

(3) In the first quarter of 2025, we recorded $51.9 million of transaction costs associated with the Mattress Firm Acquisition.

Operating expenses primarily included legal and professional fees associated with the Mattress Firm Acquisition.

In the first quarter of 2024, we recorded $14.8 million of transaction costs primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

(5) In the first quarter of 2024, we recorded $3.1 million of operational start-up costs related to the capacity expansion of manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

The following table sets forth the reconciliation of our net income to the calculations of EBITDA and adjusted EBITDA for the trailing twelve months ended March 31, 2025:

Trailing Twelve Months Ended

(in millions) September 30, 2024

(in millions) March 31, 2025

Net income $ 274.9

Interest expense, net 145.2

Loss on extinguishment of debt (1)

Transaction-related interest expense, net (1)

Income tax provision 81.4

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EBITDA $ 739.6

Adjustments for financial covenant purposes:

Acquisition-related costs (2)

Transaction costs (3)

Fair value remeasurement (3)

Customer-related transition charges (4)

Supply chain transition costs (5)

Operational start-up costs (5)

Cybersecurity event (6)

Adjusted EBITDA $ 973.5

Adjustments for financial covenant purposes:

Unrestricted subsidiary (7)

Earnings from Mattress Firm prior to acquisition (8)

Future synergies to be realized from Mattress Firm Acquisition (9)

Adjusted EBITDA per credit facility $ 1,413.2

Consolidated indebtedness less netted cash $ 4,958.8

Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 3.51 times

(1) In the trailing twelve months ended September 30, 2024, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of its senior secured credit facilities.

(2) In the trailing twelve months ended September 30, 2024, we recognized $53.3 million of transaction costs associated with the pending acquisition of Mattress Firm, primarily recorded in operating expenses.

(3) In the trailing twelve months ended September 30, 2024, we recorded a fair value remeasurement of $11.0 million related to a strategic investment in a product innovation initiative.

(4) In the trailing twelve months ended September 30, 2024, we recorded $8.2 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $8.0 million recorded in cost of sales and $0.2 million recorded in operating expenses.

(5) In the trailing twelve months ended September 30, 2024, we recognized $7.1 million of operational start-up costs.

(6) In the trailing twelve months ended September 30, 2024, we recorded $0.8 million of costs associated with the cybersecurity event identified on July 23, 2023.

Under the 2023 Credit Agreement, the ratio of adjusted EBITDA to consolidated indebtedness less netted cash was 2.41 times for the trailing twelve months ended September 30, 2024.

(1) In the trailing twelve months ended March 31, 2025, we recognized $16.6 million of transaction-related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

The proceeds of the Term B Loan were released upon the closing of the Mattress Firm Acquisition on February 5, 2025.

(2) In the first quarter of 2025, we recorded $114.2 million of acquisition-related costs.

Cost of sales included $95.4 million, primarily related to one-time business combination accounting and purchase price allocation adjustments.

Operating expenses included $18.8 million of professional fees and restructuring costs.

(3) In the trailing twelve months ended March 31, 2025, we recognized $84.9 million of transaction costs associated with the Mattress Firm Acquisition.

(4) In the trailing twelve months ended March 31, 2025, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer.

(5) In the trailing twelve months ended March 31, 2025, we recognized $13.0 million in supply chain transition costs associated with the consolidation of certain manufacturing facilities.

(6) In the trailing twelve months ended March 31, 2025, the Company received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

(7) A subsidiary in the Tempur Sealy North America business segment was accounted for as held for sale and designated as an unrestricted subsidiary under the 2023 Credit Agreement.

Therefore, this subsidiary's financial results were excluded from the Company's adjusted financial measures for covenant compliance purposes.

(8) We completed the Mattress Firm Acquisition on February 5, 2025 and the Mattress Firm subsidiaries are designated as restricted under the 2023 Credit Agreement.

For covenant compliance purposes, we included $329.6 million of Mattress Firm EBITDA for the period prior to acquisition in our calculation of adjusted EBITDA per credit facility for the trailing twelve months ended March 31, 2025.

(9) For the trailing twelve months ended March 31, 2025, we are permitted to include $100.0 million of future synergies expected to be realized with 36 months in connection with the Mattress Firm acquisition for the purpose of calculating our adjusted EBITDA in accordance with the 2023 Credit Agreement.

Under the 2023 Credit Agreement, the ratio of adjusted EBITDA to consolidated indebtedness less netted cash was 3.51 times for the trailing twelve months ended March 31, 2025.

The 2023 Credit Agreement requires us to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times.

The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of September 30, 2024.

The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of March 31, 2025.

"Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants.

(in millions) September 30, 2024

(in millions) March 31, 2025

Total debt, net $ 5,033.0

7 unchanged sentences

Critical Accounting Policies and Estimates

For a discussion of our critical accounting policies and estimates, please refer to ITEM 7 under Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," in the 2023 Annual Report.

There have been no material changes to our critical accounting policies and estimates in 2024.

During the three months ended March 31, 2025, there were no material changes to our critical accounting policies and estimates as described in our 2024 Annual Report, except as set forth below.

Business Combinations.

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition.

The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when fair value is not readily available and requires a significant amount of management judgment.

For the valuation of intangible assets acquired in the Mattress Firm Acquisition, we applied the income approach through a relief from royalty method.

Although we believe these estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair values of the intangible assets acquired.

The excess of the purchase price over fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill.

During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill due to the use of preliminary information in our initial estimates.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

For additional discussion of our critical accounting policies and estimates, please refer to ITEM 7 under Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," in the 2024 Annual Report.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis