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Item 2. Management’s Discussion and Analysis

2025-11-07 compared with 2025-08-08 · 182 added, 167 removed, 406 unchanged (46% of the section changed)

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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 six months ended June 30, 2025, including the following topics:

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, 2025, including the following topics:

• an overview of our business and strategy;

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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.

In our opinion, 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.

Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness.

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

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.

The global bedding industry was challenged in 2024 due to certain macroeconomic pressures on the consumer, which have continued during 2025.

Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, along with the U.S.

government shutdown, may also introduce further uncertainty for the consumer.

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

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Mattress Firm operates as a separate business segment.

Mattress Firm's financial results for the periods from April 1, 2025 through June 30, 2025 and February 5, 2025 through June 30, 2025 (the "stub period") are included in the Company's Condensed Consolidated Financial Statements for the three and six months ended June 30, 2025, respectively.

Mattress Firm's financial results for the periods from July 1, 2025 through September 30, 2025 and February 5, 2025 through September 30, 2025 (the "stub period") are included in the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2025, respectively.

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 MW SO Holdings Company, LLC ("Mattress Warehouse").

In the three months ended June 30, 2025, the Company recorded a $13.9 million loss on disposal of business associated with the divestiture, net of proceeds of $9.0 million.

In the nine months ended September 30, 2025, the Company recorded a $13.9 million loss on disposal of business associated with the divestiture, net of proceeds of $9.0 million.

We do not expect the divestiture to have a material impact on our results of operations for the twelve months ended December 31, 2025.

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Results of Operations

A summary of our results for the three months ended June 30, 2025 include:

• Total net sales increased 52.5% to $1,880.8 million as compared to $1,233.6 million in the second quarter of 2024, primarily driven by the inclusion of $948.8 million of Mattress Firm sales for the quarter, offset by the elimination of $263.5 million of sales from the Tempur Sealy North America segment to the Mattress Firm segment.

• Gross margin was 44.0% as compared to 42.0% in the second quarter of 2024.

Adjusted gross margin, which is a non-GAAP financial measure, was 44.2% as compared to 42.0% in the second quarter of 2024.

• Operating income increased 3.8% to $179.9 million as compared to $173.3 million in the second quarter of 2024.

Adjusted operating income, which is a non-GAAP financial measure, increased 24.3% to $224.4 million as compared to $180.6 million in the second quarter of 2024, primarily driven by the inclusion of Mattress Firm.

• Net income decreased 6.7% to $99.0 million as compared to $106.1 million in the second quarter of 2024.

Adjusted net income, which is a non-GAAP financial measure, increased 1.3% to $113.1 million as compared to $111.7 million in the second quarter of 2024.

• Earnings per diluted share ("EPS") decreased 21.7% to $0.47 as compared to $0.60 in the second quarter of 2024.

Adjusted EPS, which is a non-GAAP financial measure, decreased 15.9% to $0.53 as compared to $0.63 in the second quarter of 2024.

A summary of our results for the three months ended September 30, 2025 include:

• Total net sales increased 63.3% to $2,122.6 million as compared to $1,300.0 million in the third quarter of 2024, primarily driven by the inclusion of $1,070.8 million of Mattress Firm sales for the quarter, offset by the elimination of $313.7 million of sales from the Tempur Sealy North America segment to the Mattress Firm segment.

• Gross margin was 44.9% as compared to 42.4% in the third quarter of 2024.

Adjusted gross margin, which is a non-GAAP financial measure, was 45.6% as compared to 43.2% in the third quarter of 2024.

• Operating income increased 55.9% to $314.7 million as compared to $201.8 million in the third quarter of 2024.

Adjusted operating income, which is a non-GAAP financial measure, increased 53.6% to $343.7 million as compared to $223.7 million in the third quarter of 2024.

Both were primarily driven by the inclusion of Mattress Firm.

• Net income increased 36.5% to $177.4 million as compared to $130.0 million in the third quarter of 2024.

Adjusted net income, which is a non-GAAP financial measure, increased 37.5% to $201.4 million as compared to $146.5 million in the third quarter of 2024.

• Earnings per diluted share ("EPS") increased 13.7% to $0.83 as compared to $0.73 in the third quarter of 2024.

Adjusted EPS, which is a non-GAAP financial measure, increased 15.9% to $0.95 as compared to $0.82 in the third 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 JUNE 30, 2025 COMPARED TO THE

THREE MONTHS ENDED JUNE 30, 2024

THREE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED TO THE

THREE MONTHS ENDED SEPTEMBER 30, 2024

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 June 30,

Three Months Ended September 30,

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

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General, administrative and other expenses 160.4 7.6 118.6 9.1

Loss on disposal of business 13.9 0.7 — —

Equity income in earnings of unconsolidated affiliates (3.1) (0.1) (2.5) (0.2)

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Interest expense, net 69.9 3.3 30.8 2.4

Other expense (income), net 4.7 0.2 (0.6) —

Other expense, net 10.9 0.5 0.4 —

Total other expense, net 80.8 3.8 31.2 2.4

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Net income before non-controlling interest 177.7 8.4 129.8 10.0

Net income attributable to non-controlling interest 0.5 — 0.4 —

Net income (loss) attributable to non-controlling interest 0.3 — (0.2) —

Net income attributable to Somnigroup International Inc.

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Diluted 212.5 178.2

Three Months Ended June 30,

Three Months Ended September 30,

2025 2024 2025 2024 2025 2024 2025 2024

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• Tempur Sealy North America net sales decreased $279.2 million, or 27.5%.

Net sales in the Wholesale channel decreased $320.8 million, primarily driven by a 30.8% decline from the elimination of intercompany sales to Mattress Firm of $263.5 million, and a 6.7% decrease in sales of $57.3 million, primarily driven by a customer's acquisition which foreclosed distribution to this customer.

Net sales in the Direct channel decreased $19.2 million, or 15.5%, primarily driven by a decrease in sales due to the divestiture of Sleep Outfitters.

• Tempur Sealy International net sales increased $38.4 million, or 15.0%, primarily driven by the success of new product launches.

Net sales in the Wholesale channel decreased $252.0 million, primarily driven by a 35.7% decline from the elimination of intercompany sales to Mattress Firm of $313.7 million, offset by a 7.0% increase in net sales of $61.7 million, primarily driven by growth at third-party retailers.

Net sales in the Direct channel decreased $27.2 million, or 19.9%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters.

• Tempur Sealy International net sales increased $31.0 million, or 10.9%, primarily driven by expanded distribution.

On a constant currency basis, International net sales increased 7.2%.

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Net sales in the Direct channel increased 7.8% on a constant currency basis.

• Mattress Firm net sales were $948.8 million for the three months ended June 30, 2025.

Three Months Ended June 30,

• Mattress Firm net sales were $1,070.8 million for the three months ended September 30, 2025.

Three Months Ended September 30,

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

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• Tempur Sealy North America gross margin improved 1,800 basis points.

The improvement in gross margin was primarily driven by the elimination of sales to Mattress Firm of 1,590 basis points and operational efficiencies of 60 basis points.

These improvements were partially offset by expense deleverage of 130 basis points and product launch costs.

The improvement in gross margin was primarily driven by the elimination of sales to Mattress Firm of 1,740 basis points, operational efficiencies of 50 basis points and fixed cost absorption.

These improvements were partially offset by unfavorable mix of 80 basis points.

• Tempur Sealy International gross margin declined 40 basis points.

The decline in gross margin was primarily driven by commodity cost inflation.

• Mattress Firm gross margin was 35.6% for the three months ended June 30, 2025.

The decline in gross margin was primarily driven by unfavorable mix of 60 basis points, partially offset by operational efficiencies.

• Mattress Firm gross margin was 34.4% for the three months ended September 30, 2025.

OPERATING EXPENSES

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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 June 30,

Three Months Ended September 30,

2025 2024 2025 2024 2025 2024 2025 2024 2025 2024

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• Tempur Sealy North America operating expenses decreased $2.1 million, or 1.0%, and increased 780 basis points as a percentage of net sales.

The decrease in operating expenses was primarily driven by decreases in other selling and marketing and general, administrative and other expenses, partially offset by investments in advertising.

The decrease in operating expenses was primarily driven by decreases in general, administrative and other expenses and other selling and marketing, partially offset by investments in advertising.

• Tempur Sealy International operating expenses increased $9.5 million, or 10.4%, and decreased 10 basis points as a percentage of net sales.

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

• Mattress Firm operating expenses were $270.1 million for the three months ended June 30, 2025.

• Corporate operating expenses increased $14.3 million, or 36.8%.

The increase in operating expenses was primarily driven by business combination charges related to the Mattress Firm Acquisition.

Research and development expenses for the three months ended June 30, 2025 were $7.8 million, compared to $7.7 million for the three months ended June 30, 2024.

• Mattress Firm operating expenses were $286.9 million for the three months ended September 30, 2025.

• Corporate operating expenses decreased $5.3 million, or 12.3%.

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

Research and development expenses for the three months ended September 30, 2025 were $8.8 million, compared to $7.0 million for the three months ended September 30, 2024, an increase of $1.8 million, or 25.7%.

OPERATING INCOME

Three Months Ended June 30,

Three Months Ended September 30,

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

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

• Tempur Sealy North America operating income decreased $50.3 million and operating margin improved 200 basis points.

• Tempur Sealy North America operating income increased $21.1 million and operating margin improved 1,010 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 1,800 basis points, partially offset by operating expense deleverage of 780 basis points.

Additionally, we incurred a $9.8 million loss on disposal of business associated with the divestiture of Sleep Outfitters.

• Tempur Sealy International operating income increased $8.0 million and operating margin improved 110 basis points.

The improvement in operating margin was driven by operating expense leverage of 160 basis points, partially offset by the decline in gross margin of 40 basis points and Asia joint venture performance.

• Mattress Firm operating income was $63.2 million and operating margin was 6.7% for the three months ended June 30, 2025.

Additionally, we incurred a $4.1 million loss on disposal of business associated with the divestiture of 73 retail stores.

• Corporate operating expenses increased $14.3 million, which negatively impacted our consolidated operating margin.

• Tempur Sealy International operating income increased $5.3 million and operating margin declined 10 basis points.

The decline in operating margin was driven by decline in gross margin of 40 basis points, offset by operating expense leverage.

• Mattress Firm operating income was $81.2 million and operating margin was 7.6% for the three months ended September 30, 2025.

• Corporate operating expenses decreased $5.3 million, which positively impacted our consolidated operating margin.

INTEREST EXPENSE, NET

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except percentages) 2025 2024 % Change

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INCOME TAX PROVISION

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except percentages) 2025 2024 % Change

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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 $30.8 million driven by certain discrete items, as discussed below, and a decrease in income before income taxes.

Our effective tax rate for the three months ended June 30, 2025 as compared to the prior year declined by 2,110 basis points.

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

federal statutory rate for the three months ended June 30, 2025 included the favorable impact of the deductibility of stock compensation in the U.S.

and a net unfavorable impact of other discrete items.

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

federal statutory rate for the three months ended June 30, 2024 included a net favorable impact of other discrete items.

SIX MONTHS ENDED JUNE 30, 2025 COMPARED TO THE

SIX MONTHS ENDED JUNE 30, 2024

Our income tax provision increased $15.4 million due to an increase in income before income taxes.

Our effective tax rate for the three months ended September 30, 2025 as compared to the prior year increased by 10 basis points.

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

federal statutory rate for the three months ended September 30, 2025 and 2024 included a net favorable impact of other discrete items.

NINE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED TO THE

NINE MONTHS ENDED SEPTEMBER 30, 2024

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:

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Income before income taxes 287.3 5.1 408.6 11.0

Income tax provision (benefit) 13.3 0.4 (54.7) (2.3)

Income tax provision (42.9) (0.8) (95.5) (2.6)

Net income before non-controlling interest 244.4 4.4 313.1 8.4

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Diluted 207.9 178.1

Six Months Ended June 30,

Nine Months Ended September 30,

2025 2024 2025 2024 2025 2024 2025 2024

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• Tempur Sealy North America net sales decreased $814.1 million, or 28.1%.

Net sales in the Wholesale channel decreased $513.2 million, or 31.5%, primarily driven by a 24.2% decline from the elimination of intercompany sales to Mattress Firm of $393.6 million, and a 7.3% decrease in sales of $119.6 million, primarily driven by a customer's acquisition which foreclosed distribution to this customer.

Net sales in the Wholesale channel decreased $765.2 million, or 30.5%, primarily driven by a 28.2% decline from the elimination of intercompany sales to Mattress Firm of $707.3 million, and a 2.3% decrease in net sales of $57.9 million, primarily driven by foreclosed distribution.

Net sales in the Direct channel decreased $48.9 million, or 12.7%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters.

• Tempur Sealy International net sales increased $54.9 million, or 10.1%, primarily driven by the success of new product launches.

• Tempur Sealy International net sales increased $85.9 million, or 10.4%, primarily driven by the success of new product launches and expanded distribution.

On a constant currency basis, International net sales increased $67.9 million, or 8.2%.

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• Mattress Firm net sales were $2,613.3 million for the stub period.

Six Months Ended June 30,

Nine Months Ended September 30,

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

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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.

Gross margin declined 50 basis points.

Gross margin improved 60 basis points.

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

• Tempur Sealy North America gross margin improved 950 basis points.

The improvement in gross margin was primarily driven by elimination of intercompany sales to Mattress Firm of 990 basis points, operational efficiencies of 90 basis points and favorable mix.

These improvements were partially offset by expense deleverage of 130 basis points, commodity cost inflation and product launch costs.

The improvement in gross margin was primarily driven by elimination of intercompany sales to Mattress Firm of 1,240 basis points and operational efficiencies of 80 basis points.

These improvements were partially offset by expense deleverage of 80 basis points.

Additionally, we incurred $78.0 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition.

• Tempur Sealy International gross margin improved 20 basis points.

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

The improvement in gross margin was primarily driven by operational efficiencies.

• Mattress Firm gross margin was 34.3% for the stub period.

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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.

Six Months Ended June 30,

Nine Months Ended September 30,

2025 2024 2025 2024 2025 2024 2025 2024 2025 2024

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• Tempur Sealy North America operating expenses decreased $9.7 million, or 1.5%, and increased 810 basis points as a percentage of net sales.

The decrease in operating expenses was primarily driven by decreases in other selling and marketing and general, administrative and other expenses, partially offset by investments in advertising.

The decrease in operating expenses was primarily driven by decreases in general, administrative and other expenses and other selling and marketing, partially offset by investments in advertising.

• Tempur Sealy International operating expenses increased $24.4 million, or 8.6%, and decreased 60 basis points as a percentage of net sales.

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• Corporate operating expenses increased $46.3 million, or 35.7%.

The increase in operating expenses was primarily driven by business combination charges related to the Mattress Firm Acquisition.

Research and development expenses were $15.9 million for the six months ended June 30, 2025 as compared to $15.8 million for the six months ended June 30, 2024, an increase of $0.1 million, or 0.6%.

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

Research and development expenses were $24.7 million for the nine months ended September 30, 2025 as compared to $22.8 million for the nine months ended September 30, 2024, an increase of $1.9 million, or 8.3%.

OPERATING INCOME

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Total operating income $ 507.8 9.1 % $ 506.6 13.6 % (4.5) %

Operating income decreased $111.7 million and operating margin declined 710 basis points.

Operating income increased $1.2 million and operating margin declined 450 basis points.

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

• Tempur Sealy North America operating income decreased $144.4 million and operating margin declined 400 basis points.

The decline in operating margin was primarily driven by operating expense deleverage of 820 basis points, offset by the improvement in gross margin of 480 basis points.

• Tempur Sealy North America operating income decreased $123.3 million and operating margin improved 90 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 950 basis points, offset by operating expense deleverage of 810 basis points.

Additionally, we incurred a $9.8 million loss on disposal of business associated with the divestiture of Sleep Outfitters.

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INTEREST EXPENSE, NET

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions, except percentages) 2025 2024 % Change

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INCOME TAX PROVISION

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions, except percentages) 2025 2024 % Change

Income tax (benefit) provision $ (13.3) $ 54.7 (124.3) %

Income tax provision $ 42.9 $ 95.5 (55.1) %

Effective tax rate 14.9 % 23.4 %

Our income tax provision decreased $52.6 million driven by a decrease in income before income taxes and certain discrete items, as discussed below.

Our effective tax rate for the six months ended June 30, 2025 as compared to the prior year declined 4,790 basis points.

Our effective tax rate for the nine months ended September 30, 2025 as compared to the prior year declined 850 basis points.

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

federal statutory rate for the six months ended June 30, 2025 and 2024 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 rate for the nine months ended September 30, 2025 and 2024 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.

Liquidity and Capital Resources

Our principal sources of funds are cash flows from operations, supplemented with borrowings in the capital markets and made pursuant to our credit facilities and cash and cash equivalents on hand.

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.

Primary 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.

Cash and Working Capital

Cash and cash equivalents were $98.1 million and $117.4 million as of June 30, 2025 and December 31, 2024, respectively.

We had a working capital deficit of $294.5 million as of June 30, 2025, as compared to working capital of $105.1 million as of December 31, 2024.

Cash and cash equivalents were $100.2 million and $117.4 million as of September 30, 2025 and December 31, 2024, respectively.

We had a working capital deficit of $432.2 million as of September 30, 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 2025 was primarily driven by a $269.0 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.

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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:

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2025 2024

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Financing activities 605.9 (435.7)

Cash provided by operating activities increased $11.7 million in the six months ended June 30, 2025 as compared to the same period in 2024.

The increase in cash provided by operating activities was driven by a $70.6 million increase in cash provided by changes in operating assets and liabilities and a $36.5 million increase in non-cash depreciation expense, primarily associated with our new Tempur manufacturing facility, offset by a $116.6 million decrease in net income.

Cash used in investing activities increased $2,818.4 million in the six months ended June 30, 2025 as compared to the same period in 2024.

Cash provided by operating activities increased $163.3 million in the nine months ended September 30, 2025 as compared to the same period in 2024.

The increase in cash provided by operating activities was driven by a $150.5 million increase in cash provided by changes in operating assets and liabilities and a $58.1 million increase in non-cash depreciation expense, primarily associated with the Mattress Firm Acquisition, offset by a $68.7 million decrease in net income.

Cash used in investing activities increased $2,872.5 million in the nine months ended September 30, 2025 as compared to the same period in 2024.

The increase in cash used in investing activities was primarily driven by the Mattress Firm Acquisition.

Cash provided by financing activities increased $1,135.2 million in the six months ended June 30, 2025 as compared to the same period in 2024.

For the six months ended June 30, 2025, we had net borrowings of $1,098.5 million on our credit facilities as compared to net repayments of $93.7 million in the same period in 2024.

We paid dividends to shareholders of $64.4 million and $47.5 million, during the six months ended June 30, 2025 and 2024, respectively.

Additionally, we repurchased $132.4 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 six months ended June 30, 2025 and 2024, respectively.

Cash provided by financing activities increased $1,041.6 million in the nine months ended September 30, 2025 as compared to the same period in 2024.

For the nine months ended September 30, 2025, we had net borrowings of $801.2 million on our credit facilities as compared to net repayments of $307.3 million in the same period in 2024.

We paid dividends to shareholders of $95.9 million and $70.1 million, during the nine months ended September 30, 2025 and 2024, respectively.

Additionally, we repurchased $132.4 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 nine months ended September 30, 2025 and 2024, respectively.

Proceeds from exercise of stock options increased $49.1 million as compared to the same period in 2024.

Capital Expenditures

Capital expenditures totaled $60.7 million and $60.0 million for the six months ended June 30, 2025 and 2024, respectively.

Capital expenditures totaled $108.6 million and $76.4 million for the nine months ended September 30, 2025 and 2024, respectively.

We currently expect our 2025 capital expenditures to be approximately $175 million, including $25 million of investments to refresh Mattress Firm stores.

Our total debt increased to $4,951.6 million as of June 30, 2025 from $3,844.5 million as of December 31, 2024.

Total availability under our revolving senior secured credit facility was $707.7 million as of June 30, 2025.

Our total debt increased to $4,658.4 million as of September 30, 2025 from $3,844.5 million as of December 31, 2024.

Total availability under our revolving senior secured credit facility was $885.7 million as of September 30, 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.

As of June 30, 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 3.56 times.

As of September 30, 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 3.28 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 June 30, 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.

As of September 30, 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 six months ended June 30, 2025, we did not repurchase shares under our share repurchase program.

As of June 30, 2025, we had $774.5 million remaining under our share repurchase authorization.

During the nine months ended September 30, 2025, we did not repurchase shares under our share repurchase program.

As of September 30, 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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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.

In 2025, we do not expect to engage in 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 June 30, 2025, we had $805.8 million of liquidity, including $98.1 million of cash on hand and $707.7 million available under our 2023 Credit Agreement.

As of September 30, 2025, we had $985.9 million of liquidity, including $100.2 million of cash on hand and $885.7 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 $0.15 per share for the third quarter of 2025.

The dividend is payable on September 5, 2025 to shareholders of record as of August 21, 2025.

As of June 30, 2025, we had $4,951.6 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $4,853.5 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.56 times for the trailing twelve months ended June 30, 2025.

In 2026, we expect to allocate approximately 50% of free cash flow, which is a non-GAAP financial measure, to capital returns to shareholders in the form of dividends and share repurchases.

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

The dividend is payable on December 4, 2025 to shareholders of record as of November 20, 2025.

As of September 30, 2025, we had $4,658.4 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $4,558.2 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.28 times for the trailing twelve months ended September 30, 2025.

We currently expect our target leverage ratio to return to 2.0 to 3.0 times in 2026.

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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 June 30, 2025 and 2024:

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, 2025 and 2024:

Three Months Ended

(in millions, except per share amounts) June 30, 2025 June 30, 2024

(in millions, except per share amounts) September 30, 2025 September 30, 2024

Net income $ 177.4 $ 130.0

Business combination charges (1)

Loss on disposal of business (2)

Supply chain transition costs (2)

Disposition-related costs (3)

Transaction costs (4)

Supply chain transition costs (5)

Adjusted income tax provision (5)

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Diluted shares outstanding 212.5 178.2

(1) In the second quarter of 2025, we recorded $17.6 million of business combination charges, primarily related to the CEO transaction bonus, professional fees and restructuring costs.

(2) In the second quarter of 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(3) In the second quarter of 2025, we recorded $9.2 million of disposition-related costs.

Cost of sales included $3.7 million, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses included $3.7 million of merchandising, store personnel and other support costs related to the divestiture.

Other expenses included a $1.8 million loss on disposal for assets not divested to Mattress Warehouse.

(4) In the second quarter of 2025, we recorded $4.9 million of transaction costs associated with the Term B Loan repricing and the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary, which primarily included legal and professional fees.

In the second quarter of 2024, we recorded $7.3 million of transaction costs primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

(5) In the second quarter of 2025, we recorded $1.3 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $0.7 million recorded in cost of sales and $0.6 million recorded in other expenses.

(1) In the third quarter of 2025, we recorded $32.2 million of business combination charges.

Cost of sales included $13.4 million of charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan.

Operating expenses included $12.6 million of professional fees and restructuring costs.

Other expenses included $6.2 million of charges.

(2) In the third quarter of 2025, we recorded $7.3 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities.

Cost of sales included $0.9 million of transition costs.

Other expenses included $6.4 million of costs, primarily related to a manufacturing facility lease termination.

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 2025, we recorded $1.3 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses and other expenses included $0.9 million and $0.4 million of costs, respectively.

(4) In the third quarter of 2025, we recorded a benefit of $0.9 million of transaction costs related to the Mattress Firm Acquisition.

Operating expenses included $1.2 million of costs, and other expenses included a benefit of $2.1 million.

This benefit relates to reimbursements for previously recorded transaction costs.

In the third quarter of 2024, we recorded $13.7 million of transaction costs, with $2.4 million in cost of sales and $11.3 million in operating expenses, primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

(5) 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 June 30, 2025.

Three Months Ended June 30, 2025

Three Months Ended September 30, 2025

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

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Gross profit $ 952.8 44.9 % $ 429.6 58.4 % $ 155.1 49.1 % $ 368.1 34.4 % $ —

Disposition-related costs (1)

Business combination charges (1)

13.4 0.7 — 12.7 —

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26.0 0.7 — 19.4 5.9

Loss on disposal of business (4)

13.9 9.8 — 4.1 —

Disposition-related costs (1)

7.4 4.5 — 2.9 —

Transaction costs (4)

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0.9 0.9 — — —

Disposition-related costs (3)

0.9 0.9 — — —

Total adjustments 29.0 2.5 — 19.7 6.8

Adjusted operating income (expense) $ 343.7 16.2 % $ 216.9 29.5 % $ 57.0 18.1 % $ 100.9 9.4 % $ (31.1)

(1) In the second quarter of 2025, we recorded $9.2 million of disposition-related costs.

Cost of sales included $3.7 million, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses included $3.7 million of merchandising, store personnel and other support costs related to the divestiture.

Other expenses included a $1.8 million loss on disposal for assets not divested to Mattress Warehouse.

(2) In the second quarter of 2025, we recorded $1.3 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $0.7 million recorded in cost of sales and $0.6 million recorded in other expenses.

(3) In the second quarter of 2025, we recorded $17.6 million of business combination charges, primarily related to the CEO transaction bonus, professional fees and restructuring costs.

(4) In the second quarter of 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(5) In the second quarter of 2025, we recorded $4.9 million of transaction costs associated with the Term B Loan repricing and the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary, which primarily included legal and professional fees.

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 June 30, 2024.

Three Months Ended June 30, 2024

(1) In the third quarter of 2025, we recorded $32.2 million of business combination charges.

Cost of sales included $13.4 million of charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan.

Operating expenses included $12.6 million of professional fees and restructuring costs.

Other expenses included $6.2 million of charges.

(2) In the third quarter of 2025, we recorded $7.3 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities.

Cost of sales included $0.9 million of transition costs.

Other expenses included $6.4 million of costs, primarily related to a manufacturing facility lease termination.

(3) In the third quarter of 2025, we recorded $1.3 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses and other expenses included $0.9 million and $0.4 million of costs, respectively.

(4) In the third quarter of 2025, we recorded a benefit of $0.9 million of transaction costs related to the Mattress Firm Acquisition.

Operating expenses included $1.2 million of costs, and other expenses included a benefit of $2.1 million.

This benefit relates to reimbursements for previously recorded transaction costs.

Three Months Ended September 30, 2024

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

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Gross profit $ 551.5 42.4 % $ 410.6 40.4 % $ 140.9 49.5 % $ —

Supply chain transition costs (1)

Transaction costs (2)

Total adjustments 10.4 10.4 — —

Adjusted gross profit $ 561.9 43.2 % $ 421.0 41.5 % $ 140.9 49.5 % $ —

Operating income (expense) $ 201.8 15.5 % $ 193.3 19.0 % $ 51.7 18.2 % $ (43.2)

Transaction costs (2)

13.7 2.5 — 11.2

Supply chain transition costs (1)

Total adjustments 21.9 10.7 — 11.2

Adjusted operating income (expense) $ 223.7 17.2 % $ 204.0 20.1 % $ 51.7 18.2 % $ (32.0)

(1) In the second quarter of 2024, we recorded $7.3 million of transaction costs, primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

(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, with $2.4 million in cost of sales and $11.3 million in operating expenses, 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 June 30, 2025 and 2024:

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, 2025 and 2024:

Three Months Ended

(in millions) June 30, 2025 June 30, 2024

(in millions) September 30, 2025 September 30, 2024

Net income $ 177.4 $ 130.0

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Business combination charges (1)

Loss on disposal of business (2)

Supply chain transition costs (2)

Disposition-related costs (3)

Transaction costs (4)

Supply chain transition costs (5)

Adjusted EBITDA $ 418.9 $ 274.8

(1) In the second quarter of 2025, we recorded $17.6 million of business combination charges, primarily related to the CEO transaction bonus, professional fees and restructuring costs.

(3) In the second quarter of 2025, we recorded $9.2 million of disposition-related costs.

Cost of sales included $3.7 million, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses included $3.7 million of merchandising, store personnel and other support costs related to the divestiture.

Other expenses included a $1.8 million loss on disposal for assets not divested to Mattress Warehouse.

In the second quarter of 2024, we recorded $7.3 million of transaction costs primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

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 June 30, 2025:

(1) In the third quarter of 2025, we recorded $32.2 million of business combination charges.

Cost of sales included $13.4 million of charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan.

Operating expenses included $12.6 million of professional fees and restructuring costs.

Other expenses included $6.2 million of charges.

(2) In the third quarter of 2025, we recorded $7.3 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities.

Cost of sales included $0.9 million of transition costs.

Other expenses included $6.4 million of costs, primarily related to a manufacturing facility lease termination.

(3) In the third quarter of 2025, we recorded $1.3 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Operating expenses and other expenses included $0.9 million and $0.4 million of costs, respectively.

(4) In the third quarter of 2025, we recorded a benefit of $0.9 million of transaction costs related to the Mattress Firm Acquisition.

Operating expenses included $1.2 million of costs, and other expenses included a benefit of $2.1 million.

This benefit relates to reimbursements for previously recorded transaction costs.

In the third quarter of 2024, the Company recorded $13.7 million of transaction costs, with $2.4 million in cost of sales and $11.3 million in operating expenses, primarily related to legal and professional fees associated with the Mattress Firm Acquisition.

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, 2025:

Trailing Twelve Months Ended

(in millions) June 30, 2025

(in millions) September 30, 2025

Net income $ 315.2

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Transaction costs (3)

Customer-related transition charges (4)

Business combination charges (4)

Supply chain transition costs (6)

Customer-related transition charges (5)

Loss on disposal of business (6)

Supply chain transition costs (7)

Disposition-related costs (8)

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Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 3.28 times

(1) In the trailing twelve months ended June 30, 2025, we incurred $16.6 million of transaction-related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

(1) In the trailing twelve months ended September 30, 2025, we incurred $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 trailing twelve months ended June 30, 2025, we recognized $114.2 million of acquisition-related costs, primarily related to one-time business combination accounting and purchase price allocation adjustments.

(3) In the trailing twelve months ended June 30, 2025, we recognized $82.5 million of transaction costs associated with the Mattress Firm Acquisition.

(4) In the trailing twelve months ended June 30, 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 June 30, 2025, we recorded $17.6 million of business combination charges, primarily related to the CEO transaction bonus, professional fees and restructuring costs.

(6) In the trailing twelve months ended June 30, 2025, we recognized $14.3 million in supply chain transition costs associated with the consolidation of certain manufacturing facilities.

(7) In the second quarter of 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(8) In the second quarter of 2025, we recorded $9.2 million of disposition-related costs.

(9) In the trailing twelve months ended June 30, 2025, we received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

(2) In the trailing twelve months ended September 30, 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm Acquisition, primarily related to one-time business combination accounting and purchase price allocation adjustments.

(3) In the trailing twelve months ended September 30, 2025, we recognized $67.9 million of transaction costs primarily associated with the Mattress Firm acquisition and related divestitures.

(4) In the trailing twelve months ended September 30, 2025, we recorded $49.8 million of business combination charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan.

(5) In the trailing twelve months ended September 30, 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.

(6) In the trailing twelve months ended September 30, 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and its Sleep Outfitters subsidiary.

(7) In the trailing twelve months ended September 30, 2025, we recognized $13.4 million in supply chain transition costs associated with the consolidation of certain manufacturing facilities.

(8) In the trailing twelve months ended September 30 2025, we recorded $10.5 million of disposition-related costs.

(9) In the trailing twelve months ended September 30, 2025, we received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

(10) 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.

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

For covenant compliance purposes, we included $223.4 million of Mattress Firm EBITDA for the period prior to acquisition in our calculation of adjusted EBITDA per the credit facility for the trailing twelve months ended June 30, 2025.

(12) For the trailing twelve months ended June 30, 2025, we are permitted to include $100.0 million of future cost synergies expected to be realized in connection with acquisitions 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 3.56 times for the trailing twelve months ended June 30, 2025.

For covenant compliance purposes, we included $107.6 million of Mattress Firm EBITDA for the period prior to acquisition in our calculation of adjusted EBITDA per the credit facility for the trailing twelve months ended September 30, 2025.

(12) For the trailing twelve months ended September 30, 2025, we are permitted to include $100.0 million of future cost synergies expected to be realized in connection with acquisitions 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 3.28 times for the trailing twelve months ended September 30, 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 June 30, 2025.

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, 2025.

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

(in millions) June 30, 2025

(in millions) September 30, 2025

Total debt, net $ 4,625.2

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Critical Accounting Policies and Estimates

During the six months ended June 30, 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.

During the nine months ended September 30, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis