SOMNIGROUP INTERNATIONAL INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the 2025 Annual Report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in ITEM 7 of Part II of the 2025 Annual Report, and the accompanying Condensed Consolidated Financial Statements and notes thereto included in this Report. Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company. 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 2025 Annual Report, the section titled "Risk Factors" contained in ITEM 1A of Part I of the 2025 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 months ended March 31, 2026, including the following topics: • an overview of our business and strategy; • results of operations, including our net sales and costs in the periods presented as well as changes between periods; • expected sources of liquidity for future operations; and • our use of certain non-GAAP financial measures. Business Overview General We are the world's leading bedding company, dedicated to transforming how the world sleeps. 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: Mattress Firm, Tempur Sealy North America and Tempur Sealy International. These segments are strategic business units that are managed separately. Our Mattress Firm segment consists of retail stores and distribution centers located in the U.S. 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). 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 portfolio includes the most highly recognized brands in the industry, including Tempur-Pedic®, Sealy® and Stearns & Foster® 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. As of March 31, 2026, we operated 2,839 company-owned stores, including 2,161 Mattress Firm stores, Tempur Sealy owned stores, Dreams stores and joint venture stores. Our distribution model operates through an omni-channel strategy. The Mattress Firm segment sells products through one channel: Direct. The Tempur Sealy North America and Tempur Sealy International operating business segments sell products through two channels: Direct and Wholesale. Our Direct channel includes product sales through company-owned stores, online and call centers. Our Wholesale channel includes all product sales to third-party retailers, including third-party distribution, hospitality and healthcare. 21 Table of Contents General Business and Economic Conditions We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth. 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 2025 due to certain macroeconomic pressures on the consumer, which continued during the first quarter of 2026. Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, along with the U.S. government shutdowns, 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. The majority of our products sold in the U.S. are also manufactured in the U.S. Accordingly, we believe proposed tariffs will not have a material impact on our results of operations in 2026. However, the duration and extent of tariffs remain uncertain, and we are continuing to evaluate the potential future impacts of the imposition of tariffs. 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. Definitive Agreement with Leggett & Platt, Incorporated On April 13, 2026, Somnigroup International and Leggett & Platt, Incorporated ("Leggett & Platt") entered into a definitive agreement (the "Merger Agreement") for a proposed business acquisition in which Somnigroup International, through a wholly-owned subsidiary, will acquire Leggett & Platt in an all-stock transaction valued at approximately $2.5 billion based on the closing price of Somnigroup International's common stock as of April 10, 2026 and inclusive of Leggett & Platt's existing indebtedness. The transaction is currently anticipated to close by year-end 2026, subject to the satisfaction of customary closing conditions, including approval by Leggett & Platt’s shareholders and receipt of applicable regulatory approvals. The transaction does not require Somnigroup International shareholder approval. Following the close of the transaction, Leggett & Platt is expected to operate as a separate business unit within Somnigroup and to maintain its offices in Carthage, Missouri. Acquisition of Mattress Firm On February 5, 2025, we completed the Mattress Firm Acquisition for an aggregate purchase price of approximately $5.1 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. Mattress Firm operates as a separate business segment. Mattress Firm's financial results for the period February 5, 2025 through March 31, 2025 (the "stub period") are included in our Condensed Consolidated Financial Statements for the three months ended March 31, 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 MW SO Holdings Company, LLC ("Mattress Warehouse"). Product Launches In 2026, we plan to launch an all new collection of Stearns & Foster products in North America. This new line is designed to further elevate our high‑end traditional innerspring brand by introducing incremental technologies, expanding our range of hybrid offerings and providing a refreshed aesthetic. 22 Table of Contents Results of Operations A summary of our results for the three months ended March 31, 2026 include: • Total net sales increased 12.3% to $1,801.5 million as compared to $1,604.7 million in the first quarter of 2025, primarily driven by the inclusion of Mattress Firm sales for a full quarter as compared to the first quarter of 2025, which included Mattress Firm for the stub period. • Gross margin was 43.1% as compared to 36.2% in the first quarter of 2025. Adjusted gross margin (1) was 43.6% as compared to 42.2% in the first quarter of 2025. • Operating income increased 1,317.4% to $187.1 million as compared to $13.2 million in the first quarter of 2025. Adjusted operating income (1) increased 17.4% to $214.6 million as compared to $182.8 million in the first quarter of 2025. Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies. • Net income increased 414.8% to $104.2 million as compared to net loss of $(33.1) million in the first quarter of 2025. Adjusted net income (1) increased 28.4% to $124.5 million as compared to $97.0 million in the first quarter of 2025. • Earnings per diluted share ("EPS") increased 388.2% to $0.49 as compared to loss per diluted share of $(0.17) in the first quarter of 2025. Adjusted EPS (1) increased 20.4% to $0.59 as compared to $0.49 in the first quarter of 2025. 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." We may refer to net sales, earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. Constant currency information is not recognized under GAAP, and it is not intended as an alternative to GAAP measures. Refer to Part I, ITEM 3 of this Report for a discussion of our foreign currency exchange rate risk. 23 Table of Contents THREE MONTHS ENDED MARCH 31, 2026 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2025 The following table sets forth the various components of our Condensed Consolidated Statements of Income (Loss) and expresses each component as a percentage of net sales: Three Months Ended March 31, (in millions, except percentages and per share amounts) 2026 2025 Net sales $ 1,801.5 100.0 % $ 1,604.7 100.0 % Cost of sales 1,024.6 56.9 1,024.2 63.8 Gross profit 776.9 43.1 580.5 36.2 Selling and marketing expenses 428.5 23.8 362.6 22.6 General, administrative and other expenses 166.9 9.3 209.5 13.1 Equity income in earnings of unconsolidated affiliates (5.6) (0.3) (4.8) (0.3) Operating income 187.1 10.4 13.2 0.8 Other expense, net: Interest expense, net 60.0 3.3 61.3 3.8 Other (income) expense, net (10.2) (0.6) 1.2 0.1 Total other expense, net 49.8 2.8 62.5 3.9 Income (loss) before income taxes 137.3 7.6 (49.3) (3.1) Income tax (provision) benefit (33.4) (1.9) 16.5 1.0 Net income (loss) before non-controlling interest 103.9 5.8 (32.8) (2.0) Less: Net (loss) income attributable to non-controlling interest (0.3) — 0.3 — Net income (loss) attributable to Somnigroup International Inc. $ 104.2 5.8 % $ (33.1) (2.0) % Earnings (loss) per common share: Basic $ 0.50 $ (0.17) Diluted $ 0.49 $ (0.17) Weighted average common shares outstanding: Basic 210.3 194.9 Diluted 212.6 198.9 24 Table of Contents NET SALES Three Months Ended March 31, 2026 2025 2026 2025 2026 2025 2026 2025 (in millions) Consolidated Mattress Firm Tempur Sealy North America Tempur Sealy International Net sales by channel Direct $ 1,196.3 $ 906.0 $ 885.9 $ 593.7 $ 90.0 $ 121.7 $ 220.4 $ 190.6 Wholesale 605.2 698.7 — — 473.5 584.5 131.7 114.2 Total net sales $ 1,801.5 $ 1,604.7 $ 885.9 $ 593.7 $ 563.5 $ 706.2 $ 352.1 $ 304.8 Net sales increased 12.3%, and on a constant currency basis increased 10.4%. The change in net sales was driven by the following: • Mattress Firm net sales increased $292.2 million, or 49.2%, primarily driven by the inclusion of net sales for a full quarter as compared to the first quarter of 2025, which included Mattress Firm for the stub period. All Mattress Firm sales are reported through the direct channel. • Tempur Sealy North America net sales decreased $142.7 million, or 20.2%, net sales in the Wholesale channel decreased $111.0 million, primarily driven by the accounting elimination of sales to Mattress Firm for a full quarter in 2026 as compared to the first quarter of 2025, which eliminated sales to Mattress Firm for the stub period. Net sales in the Direct channel decreased $31.7 million, or 26.0%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters in the second quarter of 2025. • Tempur Sealy International net sales increased $47.3 million, or 15.5%, primarily driven by strong performance in key markets. On a constant currency basis, International net sales increased 7.2%. Net sales in the Direct channel increased 7.5% on a constant currency basis. Net sales in the Wholesale channel increased 6.7% on a constant currency basis. GROSS PROFIT Three Months Ended March 31, 2026 2025 (in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change Tempur Sealy North America $ 326.4 57.9 % $ 240.0 34.0 % 23.9 % Tempur Sealy International 177.6 50.4 % 149.3 49.0 % 1.4 % Mattress Firm 272.9 30.8 % 191.2 32.2 % (1.4) % Consolidated gross margin $ 776.9 43.1 % $ 580.5 36.2 % 6.9 % 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 premium products have higher gross margins than our value products. An increase in sales of our premium priced products can positively impact gross margins, while an increase in sales of our value priced products can negatively impact gross margins across all segments. Our margins are also impacted by the relative amount of net sales contributed by each channel. Sales in our Direct channel have higher gross margins than sales in our Wholesale channel. Our gross margin is also impacted by fixed cost leverage based on manufacturing unit volumes; the cost of raw materials; operational efficiencies due to the utilization in our manufacturing facilities; product, brand, channel and country mix; foreign exchange fluctuations; volume incentives offered to certain retail accounts; participation in our retail cooperative advertising programs; 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. Gross margin improved 690 basis points. The primary drivers of changes in gross margin by segment are discussed below: • Mattress Firm gross margin declined 140 basis points. The decline in gross margin was primarily driven by investments in promotional expenses of 110 basis points, product mix of 100 basis points and fixed cost deleverage of 90 basis points. Additionally, in 2025, we incurred $17.4 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition, which were not incurred in 2026. • Tempur Sealy North America gross margin improved 2,390 basis points. The improvement in gross margin was primarily driven by the achievement of synergies of 620 basis points, the elimination of sales to Mattress Firm of 450 basis points, lower product launch costs and operational efficiencies. Additionally, in 2025, we incurred $78.0 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition, which were not incurred in 2026. • Tempur Sealy International gross margin improved 140 basis points. The improvement in gross margin was primarily driven by favorable mix of 70 basis points and operational efficiencies. OPERATING EXPENSES Selling and marketing expenses include sales and marketing compensation, advertising and media production associated with the promotion of our brands, and other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials. 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, information technology, 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, 2026 2025 2026 2025 2026 2025 2026 2025 2026 2025 (in millions) Consolidated Mattress Firm Tempur Sealy North America Tempur Sealy International Corporate Operating expenses: Advertising expenses $ 150.4 $ 142.9 $ 30.9 $ 33.6 $ 91.6 $ 83.6 $ 27.9 $ 25.7 $ — $ — Other selling and marketing expenses 278.1 219.7 153.9 101.5 62.0 68.0 56.1 46.6 6.1 3.6 General, administrative and other expenses 166.9 209.5 54.7 49.3 41.1 48.1 33.8 30.7 37.3 81.4 Total operating expenses $ 595.4 $ 572.1 $ 239.5 $ 184.4 $ 194.7 $ 199.7 $ 117.8 $ 103.0 $ 43.4 $ 85.0 Operating expenses increased $23.3 million, or 4.1%, and decreased 260 basis points as a percentage of net sales. The primary drivers of changes in operating expenses by segment are explained below: • Mattress Firm operating expenses increased $55.1 million, or 29.9%, and decreased 410 basis points as a percentage of net sales. The increase was primarily driven by the inclusion of operating expenses for a full quarter as compared to the first quarter of 2025, which included operating expenses for the stub period. • Tempur Sealy North America operating expenses decreased $5.0 million, or 2.5%, and increased 630 basis points as a percentage of net sales. 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 $14.8 million, or 14.4%, and decreased 30 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 $41.6 million, or 48.9%. The decrease in operating expenses was primarily driven by decreased transaction costs related to the Mattress Firm Acquisition. Research and development expenses for the three months ended March 31, 2026 were $8.5 million, compared to $8.1 million for the three months ended March 31, 2025, an increase of $0.4 million, or 4.9%. 25 Table of Contents OPERATING INCOME (LOSS) Three Months Ended March 31, 2026 2025 (in millions, except percentages) Operating Income (Loss) Operating Margin Operating Income (Loss) Operating Margin Margin Change Mattress Firm $ 33.4 3.8 % $ 6.8 1.1 % 2.7 % Tempur Sealy North America 131.7 23.4 % 40.3 5.7 % 17.7 % Tempur Sealy International 64.9 18.4 % 51.1 16.8 % 1.6 % 230.0 98.2 Corporate (42.9) (85.0) Total operating income $ 187.1 10.4 % $ 13.2 0.8 % 9.6 % Operating income increased $173.9 million and operating margin improved 960 basis points. The primary drivers of changes in operating income and operating margin by segment are discussed below: • Mattress Firm operating income increased $26.6 million and operating margin improved 270 basis points. The improvement in operating margin was primarily driven by operating expense leverage of 410 basis points, offset by the decline in gross margin of 140 basis points. • Tempur Sealy North America operating income increased $91.4 million and operating margin improved 1,770 basis points. The improvement in operating margin was primarily driven by the improvement in gross margin of 2,390 basis points, partially offset by operating expense deleverage of 630 basis points. • Tempur Sealy International operating income increased $13.8 million and operating margin improved 160 basis points. The improvement in operating margin was driven by improvement in gross margin of 140 basis points and operating expense leverage. • Corporate operating loss decreased $42.1 million, which positively impacted our consolidated operating margin. INTEREST EXPENSE, NET Three Months Ended March 31, (in millions, except percentages) 2026 2025 % Change Interest expense, net $ 60.0 $ 61.3 (2.1) % Interest expense, net, decreased $1.3 million, or 2.1%. The decrease in interest expense, net, was primarily driven by lower interest rates on outstanding variable rate debt. INCOME TAX PROVISION Three Months Ended March 31, (in millions, except percentages) 2026 2025 % Change Income tax provision (benefit) $ 33.4 $ (16.5) 302.4 % Effective tax rate 24.3 % 33.5 % 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 domestic and foreign operations. Our income tax provision increased $49.9 million due to an increase in income before income taxes. Our effective tax rate for the first quarter of 2026 as compared to the prior year declined by 920 basis points. The effective tax rates as compared to the U.S. federal statutory rate for the first quarter of 2026 and 2025 included the favorable impact of the deductibility of stock compensation in the U.S. and a net unfavorable impact of other discrete items. 26 Table of Contents Liquidity and Capital Resources Liquidity 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. 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 $110.8 million and $134.9 million as of March 31, 2026 and December 31, 2025, respectively. We had a working capital deficit of $360.5 million as of March 31, 2026, as compared to working capital deficit of $271.1 million as of December 31, 2025. The amount of cash and cash equivalents held by subsidiaries outside of the U.S. and not readily convertible into the U.S. Dollar or other major foreign currencies is not material to our overall liquidity or financial position. Cash Provided by (Used in) Operations The table below presents net cash provided by (used in) operating, investing and financing activities from operations for the periods indicated below: Three Months Ended March 31, (in millions) 2026 2025 Net cash provided by (used in) operations: Operating activities $ 246.5 $ 106.4 Investing activities (60.7) (2,858.9) Financing activities (204.7) 1,142.1 Cash provided by operating activities increased $140.1 million in the three months ended March 31, 2026 as compared to the same period in 2025, primarily driven by strong operational performance across all segments. Cash used in investing activities decreased $2,798.2 million in the three months ended March 31, 2026 as compared to the same period in 2025. The decrease in cash used in investing activities was primarily driven by the Mattress Firm Acquisition in 2025. Cash used in financing activities decreased $1,346.8 million in the three months ended March 31, 2026 as compared to the same period in 2025. We had net repayments of $134.4 million on our credit facilities in 2026 as compared to net borrowings of $1,217.3 million in 2025, which was driven by the Mattress Firm Acquisition. Share repurchases of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans decreased $11.3 million in 2026 as compared to in 2025. Dividends paid to shareholders increased $3.8 million in 2026 as compared to 2025. Capital Expenditures Capital expenditures totaled $60.5 million and $24.0 million for the three months ended March 31, 2026 and 2025, respectively. We currently expect our 2026 capital expenditures to be approximately $225 million, including $75 million of one-time investments to refresh Mattress Firm stores. Indebtedness Our total debt decreased to $4,577.9 million as of March 31, 2026 from $4,717.3 million as of December 31, 2025. Total availability under our revolving senior secured credit facility was $762.7 million as of March 31, 2026. 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 March 31, 2026, 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 3.07 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 March 31, 2026, 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. The 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes contain similar limitations which, subject to certain conditions, allow unlimited restricted payments at times when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, remains below 3.75 times in the case of the 2023 Credit Agreement and remains below 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. In addition, these agreements permit limited restricted payments under certain conditions when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA is above 3.75 times in the case of the 2023 Credit Agreement and above 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. The limit on restricted payments under the 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes is in part determined by a basket that grows at 50% of adjusted net income each quarter, reduced by restricted payments that are not otherwise permitted. For additional information, refer to "Non-GAAP Financial Information" below for the calculation of the ratio of consolidated indebtedness less netted cash to adjusted EBITDA calculated in accordance with the 2023 Credit Agreement. Both consolidated indebtedness and adjusted EBITDA as used in discussion of the 2023 Credit Agreement are non-GAAP financial measures and do not purport to be alternatives to net income as a measure of operating performance or total debt. Share Repurchase Program 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 three months ended March 31, 2026, we did not repurchase shares under our share repurchase program. As of March 31, 2026, we had $774.5 million remaining under our share repurchase authorization. We manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities. In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate at least 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases. 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 2025 Annual Report. Please also refer to "Issuer Purchases of Equity Securities" in ITEM 2(c) of Part II of this Report. Future Liquidity Sources and Uses As of March 31, 2026, we had $873.5 million of liquidity, including $110.8 million of cash on hand and $762.7 million available under our 2023 Credit Agreement. In addition, we expect to generate cash flow from operations in the full year 2026. We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments. 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. In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate approximately 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases. During the first quarter of 2026, we repurchased 0.3 million shares valued at $26.2 million to satisfy tax withholding obligations upon the vesting of certain long-term incentive awards in the ordinary course of business. The Board of Directors declared a dividend of $0.17 per share for the second quarter of 2026. The dividend is payable on June 4, 2026 to shareholders of record as of May 21, 2026. As of March 31, 2026, we had $4,577.9 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $4,467.1 million. Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.07 times for the trailing twelve months ended March 31, 2026. We currently expect our target leverage ratio to return to 2.0 to 3.0 times in 2026. Total cash interest payments related to our borrowings are expected to be approximately $230 million in 2026. Our debt service obligations could, under certain circumstances, have material consequences to our stockholders. Similarly, our cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that we may complete may also impact our cash requirements and debt service obligations. Non-GAAP Financial Information We provide information regarding adjusted net income, EBITDA, adjusted EBITDA, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance, or an alternative to total debt as a measure of liquidity. We believe these non-GAAP financial measures provide investors with performance measures that better reflect our underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin. The adjustments we make to derive the non-GAAP financial measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP financial measure, but which we do not consider to be the fundamental attributes or primary drivers of our business. We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from operations and trends, and we use these measures along with the corresponding GAAP financial measures to manage our business, to evaluate our consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP financial measures include that these measures do not present all of the amounts associated with our results as determined in accordance with GAAP. These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable financial measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information about these non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure, please refer to the reconciliations on the following pages. 27 Table of Contents 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. 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 (loss) to adjusted net income and the calculation of adjusted EPS for the three months ended March 31, 2026 and 2025: Three Months Ended (in millions, except per share amounts) March 31, 2026 March 31, 2025 Net income (loss) $ 104.2 $ (33.1) Business combination charges (1) 13.9 — Legal and other charges (2) 8.6 — Transaction costs (3) 3.6 51.9 Acquisition-related costs (4) — 114.2 Transaction-related interest expense (5) — 6.8 Supply chain transition costs (6) — 3.5 Adjusted income tax provision (7) (5.8) (46.3) Adjusted net income $ 124.5 $ 97.0 Adjusted earnings per common share, diluted $ 0.59 $ 0.49 Diluted shares outstanding 212.6 198.9 (1) In the first quarter of 2026, we recorded $13.9 million of business combination charges. Cost of sales included $8.7 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 $6.6 million of professional fees and restructuring costs. Other income, net also included a benefit of $3.4 million resulting from the acquisition of Mattress Firm, offset by $2.0 million of charges related to Mattress Firm store refreshes. (2) In the first quarter of 2026, we recorded $8.6 million of one-time charges, including $6.1 million of legal fees and $2.5 million of customer-related charges. (3) In the first quarter of 2026, we recorded $3.6 million of transaction costs, primarily associated with legal and professional fees related to the proposed acquisition of Leggett & Platt. In the first quarter of 2025, we recorded $51.9 million of transaction costs associated with legal and professional fees related to the Mattress Firm Acquisition. (4) In the first quarter of 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm acquisition. 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. (5) 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 acquisition of Mattress Firm on February 5, 2025. (6) 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. (7) Adjusted income tax provision represents the tax effects associated with the aforementioned items and other non-recurring discrete items. 28 Table of Contents 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 March 31, 2026. Three Months Ended March 31, 2026 (in millions, except percentages) Consolidated Margin Mattress Firm Margin Tempur Sealy North America Margin Tempur Sealy International Margin Corporate Net sales $ 1,801.5 $ 885.9 $ 563.5 $ 352.1 $ — Gross profit $ 776.9 43.1 % $ 272.9 30.8 % $ 326.4 57.9 % $ 177.6 50.4 % $ — Adjustments: Business combination charges (1) 8.7 6.5 2.2 — — Total adjustments 8.7 6.5 2.2 — — Adjusted gross profit $ 785.6 43.6 % $ 279.4 31.5 % $ 328.6 58.3 % $ 177.6 50.4 % $ — Operating income (expense) $ 187.1 10.4 % $ 33.4 3.8 % $ 131.7 23.4 % $ 64.9 18.4 % $ (42.9) Adjustments: Business combination charges (1) 15.3 9.8 2.9 — 2.6 Legal and other charges (2) 8.6 — 2.5 — 6.1 Transaction costs (3) 3.6 — — — 3.6 Total adjustments 27.5 9.8 5.4 — 12.3 Adjusted operating income (expense) $ 214.6 11.9 % $ 43.2 4.9 % $ 137.1 24.3 % $ 64.9 18.4 % $ (30.6) (1) In the first quarter of 2026, we recorded $13.9 million of business combination charges. Cost of sales included $8.7 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 $6.6 million of professional fees and restructuring costs. Other income, net also included a benefit of $3.4 million resulting from the acquisition of Mattress Firm, offset by $2.0 million of charges related to Mattress Firm store refreshes. (2) In the first quarter of 2026, we recorded $8.6 million of one-time charges, including $6.1 million of legal fees and $2.5 million of customer-related charges. (3) In the first quarter of 2026, we recorded $3.6 million of transaction costs, primarily associated with legal and professional fees related to the proposed acquisition of Leggett & Platt. 29 Table of Contents 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 March 31, 2025. Three Months Ended March 31, 2025 (in millions, except percentages) Consolidated Margin Mattress Firm Margin Tempur Sealy North America Margin Tempur Sealy International Margin Corporate Net sales $ 1,604.7 $ 593.7 $ 706.2 $ 304.8 $ — Gross profit $ 580.5 36.2 % $ 191.2 32.2 % $ 240.0 34.0 % $ 149.3 49.0 % $ — Adjustments: Acquisition-related costs (1) 95.4 17.4 78.0 — — Supply chain transition costs (2) 1.9 — 1.9 — — Total adjustments 97.3 17.4 79.9 — — Adjusted gross profit $ 677.8 42.2 % $ 208.6 35.1 % $ 319.9 45.3 % $ 149.3 49.0 % $ — Operating income (expense) $ 13.2 0.8 % $ 6.8 1.1 % $ 40.3 5.7 % $ 51.1 16.8 % $ (85.0) Adjustments: Acquisition-related costs (1) 114.2 34.2 78.0 — 2.0 Transaction costs (3) 51.9 1.7 — — 50.2 Supply chain transition costs (2) 3.5 — 3.5 — — Total adjustments 169.6 35.9 81.5 — 52.2 Adjusted operating income (expense) $ 182.8 11.4 % $ 42.7 7.2 % $ 121.8 17.2 % $ 51.1 16.8 % $ (32.8) (1) In the first quarter of 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm Acquisition. 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 legal and professional fees related to the Mattress Firm Acquisition. 30 Table of Contents EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash The following reconciliations are provided below: • Net income to EBITDA and adjusted EBITDA • Ratio of consolidated indebtedness less netted cash to adjusted EBITDA • Total debt, net to consolidated indebtedness less netted cash We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our leverage. The 2023 Credit Agreement provides the definition of adjusted EBITDA. 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 March 31, 2026 and 2025: Three Months Ended (in millions) March 31, 2026 March 31, 2025 Net income (loss) $ 104.2 $ (33.1) Interest expense, net 60.0 54.5 Transaction-related interest expense, net (1) — 6.8 Income tax provision (benefit) 33.4 (16.5) Depreciation and amortization 73.1 66.6 EBITDA $ 270.7 $ 78.3 Adjustments: Business combination charges (2) 13.9 — Legal and other charges (3) 8.6 — Transaction costs (4) 3.6 51.9 Acquisition-related costs (5) — 114.2 Supply chain transition costs (6) — 3.5 Adjusted EBITDA $ 296.8 $ 247.9 (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 acquisition of Mattress Firm on February 5, 2025. (2) In the first quarter of 2026, we recorded $13.9 million of business combination charges. (3) In the first quarter ended March 31, 2026, we recorded $8.6 million of one-time charges, including $6.1 million of legal fees and $2.5 million of customer-related charges. (4) In the first quarter of 2026, we recorded $3.6 million of transaction costs, primarily associated with legal and professional fees related to the proposed acquisition of Leggett & Platt. In the first quarter of 2025, we recorded $51.9 million of transaction costs associated with legal and professional fees related to the Mattress Firm Acquisition. (5) In the first quarter of 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm Acquisition. (6) In the first quarter of 2025, we recorded $3.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities. 31 Table of Contents 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, 2026: Trailing Twelve Months Ended (in millions) March 31, 2026 Net income $ 521.4 Interest expense, net 266.6 Income tax provision 145.6 Depreciation and amortization 298.1 EBITDA $ 1,231.7 Adjustments: Business combination charges (1) 67.7 Loss on disposal of business (2) 13.9 Disposition-related costs (3) 10.5 Legal and other charges (4) 8.6 Supply chain transition costs (5) 8.6 Transaction costs (6) 7.7 Cloud-based computing arrangements impairment (7) 6.2 Adjusted EBITDA $ 1,354.9 Loss from unrestricted subsidiary (8) (0.9) Future cost synergies to be realized from Mattress Firm acquisition (9) 100.0 Adjusted EBITDA per credit facility $ 1,454.0 Consolidated indebtedness less netted cash $ 4,467.1 Ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility 3.07 times (1) In the trailing twelve months ended March 31, 2026, we recognized $67.7 million of business combination charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan, professional fees and restructuring costs. (2) In the trailing twelve months ended March 31, 2026, 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. (3) In the trailing twelve months ended March 31, 2026, we recorded $10.5 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse. (4) In the first quarter and the trailing twelve months ended March 31, 2026, we recorded $8.6 million of one-time charges, including $6.1 million of legal fees and $2.5 million of customer-related charges. (5) In the trailing twelve months ended March 31, 2026, we recorded $8.6 million of supply chain transition costs. (6) In the trailing twelve months ended March 31, 2026, we recorded $7.7 million of transaction costs primarily related to the Mattress Firm acquisition and related divestitures, and the proposed acquisition of Leggett & Platt. (7) In the trailing twelve months ended March 31, 2026, we recorded $6.2 million of impairment charges related to certain cloud-based computing arrangements. (8) 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. (9) In the trailing twelve months ended March 31, 2026, 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 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 3.07 times for the trailing twelve months ended March 31, 2026. 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. 32 Table of Contents 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, 2026. "Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants. (in millions) March 31, 2026 Total debt, net $ 4,548.5 Plus: Deferred financing costs (1) 29.4 Consolidated indebtedness 4,577.9 Less: Netted cash (2) 110.8 Consolidated indebtedness less netted cash $ 4,467.1 (1) We presents deferred financing costs as a direct reduction from the carrying amount of the related debt in the Condensed Consolidated Balance Sheets. For purposes of determining total debt for financial covenant purposes, we have added these costs back to total debt, net as calculated per the Condensed Consolidated Balance Sheets. (2) Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as restricted subsidiaries in the 2023 Credit Agreement. 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 2025 Annual Report. There have been no material changes to our critical accounting policies and estimates in 2026.