[Special Note Regarding Forward-Looking Statements](index=2&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines forward-looking statements, noting actual results may differ due to factors beyond the Company's control [Forward-Looking Statements Disclosure](index=2&type=section&id=Forward-Looking%20Statements%20Disclosure) This section details forward-looking statements, noting actual results may differ due to various factors and defining key terms - Forward-looking statements are based on current expectations and beliefs, but actual results could differ materially due to numerous factors beyond the Company's control[8](index=8&type=chunk)[9](index=9&type=chunk) - Key risk factors include macroeconomic environment, inflationary trends, global events (Russia-Ukraine, Middle East), labor costs, tariffs, supply chain disruptions, competition, strategic investments (including Mattress Firm acquisition and integration), general economic conditions, product development, IT risks, interest rate changes, foreign exchange rates, regulatory compliance, tax changes, and debt levels[9](index=9&type=chunk) - The term 'Mattress Firm Acquisition' refers to the acquisition of Mattress Firm, finalized on February 5, 2025[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, equity, and cash flows [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales significantly increased for the three months ended June 30, 2025, due to the Mattress Firm acquisition, but net income slightly decreased Three Months Ended June 30, 2025 vs 2024 | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------- | | Net sales | 1,880.8 | 1,233.6 | 52.5% | | Gross profit | 827.2 | 517.6 | 59.8% | | Operating income | 179.9 | 173.3 | 3.8% | | Income before income taxes | 102.7 | 140.5 | (26.9)% | | Net income attributable to Somnigroup | 99.0 | 106.1 | (6.7)% | | Basic EPS | 0.47 | 0.61 | (22.9)% | | Diluted EPS | 0.47 | 0.60 | (21.7)% | | Weighted average common shares outstanding (Diluted) | 212.4 | 178.0 | 19.3% | Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------- | | Net sales | 3,485.5 | 2,423.0 | 43.8% | | Gross profit | 1,407.7 | 991.9 | 41.9% | | Operating income | 193.1 | 304.8 | (36.6)% | | Income before income taxes | 53.4 | 238.0 | (77.6)% | | Net income attributable to Somnigroup | 65.9 | 182.4 | (63.8)% | | Basic EPS | 0.33 | 1.05 | (68.6)% | | Diluted EPS | 0.32 | 1.02 | (68.6)% | | Weighted average common shares outstanding (Diluted) | 205.7 | 178.0 | 15.6% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income increased for both periods ended June 30, 2025, driven by positive foreign currency translation adjustments Three Months Ended June 30, 2025 vs 2024 | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | Net income before non-controlling interest | 99.5 | 106.5 | | Foreign currency translation adjustments | 68.8 | (7.5) | | Comprehensive income attributable to Somnigroup | 167.8 | 98.6 | Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | Net income before non-controlling interest | 66.7 | 183.3 | | Foreign currency translation adjustments | 98.5 | (23.0) | | Comprehensive income attributable to Somnigroup | 165.0 | 159.1 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets significantly increased as of June 30, 2025, primarily due to the Mattress Firm Acquisition, impacting goodwill and lease assets As of June 30, 2025 vs December 31, 2024 | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | :--------- | | Total Current Assets | 1,388.0 | 1,065.4 | 322.6 | 30.3% | | Restricted cash | — | 1,592.3 | (1,592.3) | (100.0)% | | Property, plant and equipment, net | 1,021.1 | 811.1 | 210.0 | 25.9% | | Goodwill | 4,585.2 | 1,066.7 | 3,518.5 | 329.8% | | Trade name and other intangible assets, net | 2,373.2 | 700.5 | 1,672.7 | 238.8% | | Operating lease right-of-use assets | 1,840.3 | 598.8 | 1,241.5 | 207.3% | | Total Assets | 11,376.2 | 5,980.4 | 5,395.8 | 90.2% | | Total Current Liabilities | 1,682.5 | 960.3 | 722.2 | 75.2% | | Long-term debt, net | 4,803.3 | 3,740.4 | 1,062.9 | 28.4% | | Long-term operating lease obligations | 1,550.0 | 532.1 | 1,017.9 | 191.3% | | Total Liabilities | 8,526.2 | 5,412.1 | 3,114.1 | 57.5% | | Total Stockholders' Equity | 2,841.1 | 559.0 | 2,282.1 | 408.2% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity significantly increased from December 31, 2024, to June 30, 2025, driven by share issuance for the Mattress Firm Acquisition and net income As of June 30, 2025 vs December 31, 2024 | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | | Total Stockholders' Equity | 2,841.1 | 559.0 | 2,282.1 | | Net income | 65.9 | N/A | N/A | | Foreign currency adjustments, net of tax | 98.5 | N/A | N/A | | Dividends declared on common stock | (63.2) | N/A | N/A | | Shares issued in connection with Mattress Firm Acquisition | 2,245.1 | N/A | N/A | | Treasury stock repurchased - PRSU/RSU releases | (125.0) | N/A | N/A | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash from operations slightly increased, while cash used in investing dramatically rose due to the Mattress Firm Acquisition Six Months Ended June 30, 2025 vs 2024 | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | | Net cash provided by operating activities | 292.5 | 280.8 | 11.7 | | Net cash used in investing activities | (2,878.1) | (59.7) | (2,818.4) | | Net cash provided by (used in) financing activities | 940.2 | (195.0) | 1,135.2 | | (Decrease) increase in cash, cash equivalents and restricted cash | (1,611.6) | 20.9 | (1,632.5) | | Cash, cash equivalents and restricted cash, end of period | 98.1 | 95.8 | 2.3 | | Cash paid for Interest | 142.3 | 72.7 | 69.6 | | Treasury stock issued in connection with Mattress Firm Acquisition | 2,245.1 | — | 2,245.1 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details financial statement explanations, covering accounting policies, the Mattress Firm acquisition, debt, equity, and segment performance [(1) Summary of Significant Accounting Policies](index=10&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the Company's business, key accounting policies, and reclassification of retail store occupancy costs - The Company designs, manufactures, distributes, and retails bedding products, including mattresses, foundations, adjustable bases, pillows, and accessories. It also earns royalties from licensing Sealy® and Stearns & Foster® brands[34](index=34&type=chunk) - On February 5, 2025, the Company completed the acquisition of Mattress Firm, the largest mattress specialty retailer in the U.S., operating over 2,200 retail locations and an e-commerce platform[35](index=35&type=chunk) Cash, Cash Equivalents and Restricted Cash | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Cash and cash equivalents | 98.1 | 117.4 | | Restricted cash | — | 1,592.3 | | Total Cash, cash equivalents and restricted cash | 98.1 | 1,709.7 | - Retail store occupancy costs, previously in selling and marketing expenses, were reclassified to cost of sales for comparability following the Mattress Firm Acquisition. For the three and six months ended June 30, 2024, these reclassified costs were **$36.7 million** and **$74.9 million**, respectively[47](index=47&type=chunk) [(2) Net Sales](index=13&type=section&id=(2)%20Net%20Sales) Net sales significantly increased for both periods ended June 30, 2025, primarily due to Mattress Firm sales Net Sales by Channel and Geographical Region (Three Months Ended June 30) | Channel/Region | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | **Net Sales by Channel:** | | | | | | Wholesale | 642.7 | 950.5 | (307.8) | (32.4)% | | Direct | 1,238.1 | 283.1 | 955.0 | 337.3% | | **Total Net Sales** | **1,880.8** | **1,233.6** | **647.2** | **52.5%** | | **Net Sales by Geographical Region:** | | | | | | United States | 1,522.1 | 903.2 | 618.9 | 68.5% | | All other | 358.7 | 330.4 | 28.3 | 8.6% | Net Sales by Channel and Geographical Region (Six Months Ended June 30) | Channel/Region | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | **Net Sales by Channel:** | | | | | | Wholesale | 1,341.4 | 1,836.3 | (494.9) | (27.0)% | | Direct | 2,144.1 | 586.7 | 1,557.4 | 265.5% | | **Total Net Sales** | **3,485.5** | **2,423.0** | **1,062.5** | **43.8%** | | **Net Sales by Geographical Region:** | | | | | | United States | 2,763.9 | 1,736.4 | 1,027.5 | 59.2% | | All other | 721.6 | 686.6 | 35.0 | 5.1% | - Mattress Firm contributed **$948.8 million** in net sales for the three months ended June 30, 2025, and **$1,542.5 million** for the six months ended June 30, 2025[51](index=51&type=chunk)[52](index=52&type=chunk) [(3) Acquisitions and Divestitures](index=14&type=section&id=(3)%20Acquisitions%20and%20Divestitures) This note details the Mattress Firm Acquisition for $5.1 billion, its funding, preliminary purchase price allocation, and subsequent divestitures - The Company completed the Mattress Firm Acquisition on February 5, 2025, for an aggregate purchase price of approximately **$5.1 billion**, net of cash acquired. The consideration included **$3.1 billion** in cash and **34.2 million shares** of common stock valued at **$65.65 per share**[53](index=53&type=chunk) - The acquisition was funded by borrowing **$625.0 million** on the Delayed Draw Term A Loan, **$679.5 million** from revolving commitments, and releasing **$1,592.0 million** from escrow for the Term B Loan[54](index=54&type=chunk) - On May 1, 2025, the Company divested **73 Mattress Firm retail locations** and its Sleep Outfitters subsidiary, resulting in a **$13.9 million loss** on disposal of business[56](index=56&type=chunk) Pro Forma Net Sales and Net Income (Loss) (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Pro forma net sales | 1,880.8 | 1,994.4 | | Pro forma net income (loss) | 99.0 | 117.3 | Pro Forma Net Sales and Net Income (Loss) (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Pro forma net sales | 3,752.6 | 3,919.6 | | Pro forma net income (loss) | (129.8) | 83.6 | [(4) Goodwill](index=17&type=section&id=(4)%20Goodwill) Goodwill significantly increased to $4,585.2 million at June 30, 2025, primarily due to the Mattress Firm Acquisition Goodwill by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 607.2 | 603.1 | | Tempur Sealy International | 502.0 | 463.6 | | Mattress Firm | 3,476.0 | — | | **Consolidated Total Goodwill** | **4,585.2** | **1,066.7** | - Goodwill from the Mattress Firm Acquisition is not deductible for income tax purposes and is included within the Mattress Firm business segment[63](index=63&type=chunk) [(5) Debt](index=18&type=section&id=(5)%20Debt) Total debt increased to $4,951.6 million as of June 30, 2025, driven by Mattress Firm Acquisition borrowings, with covenant compliance maintained Debt Breakdown | Debt Type | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Term A Facility | 1,071.9 | 475.0 | | Term B Facility | 1,492.3 | 1,600.0 | | Revolver | 481.5 | — | | 2031 Senior Notes | 800.0 | 800.0 | | 2029 Senior Notes | 800.0 | 800.0 | | Securitized debt | 110.9 | — | | Finance lease obligations | 96.2 | 88.7 | | Other | 98.8 | 80.8 | | **Total debt** | **4,951.6** | **3,844.5** | | Less: Deferred financing costs | 34.9 | 34.6 | | Less: Current portion | 113.4 | 69.5 | | **Total long-term debt, net** | **4,803.3** | **3,740.4** | - On February 5, 2025, the Company borrowed **$625.0 million** under the Delayed Draw Term A Loan and **$679.5 million** under the revolving credit facility, and **$1,592.0 million** from the Term B Loan escrow, to fund the Mattress Firm Acquisition and related expenses[78](index=78&type=chunk) - On June 24, 2025, Amendment No. 4 repriced the Term B Loan, reducing the applicable margin by **0.25%**, and the Company prepaid **$100.0 million** of the Term B Loan[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - As of June 30, 2025, the Company was in compliance with all applicable debt covenants[74](index=74&type=chunk) [(6) Stockholders' Equity](index=20&type=section&id=(6)%20Stockholders'%20Equity) This note details changes in stockholders' equity, including treasury stock activity and Accumulated Other Comprehensive Loss components - As of June 30, 2025, the Company had approximately **$774.5 million** remaining under its share repurchase authorization, but no shares were repurchased under the program during the three or six months ended June 30, 2025 or 2024[85](index=85&type=chunk) - The Company acquired **1.4 million shares** (**$94.9 million**) and **2.1 million shares** (**$132.4 million**) during the three and six months ended June 30, 2025, respectively, to satisfy tax withholding obligations upon the vesting of equity awards[86](index=86&type=chunk) Accumulated Other Comprehensive Loss (AOCL) Components | AOCL Component | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Foreign Currency Translation (end of period) | (88.7) | (187.2) | | Pensions (end of period) | 1.0 | 0.4 | | **Total AOCL** | **(87.7)** | **(186.8)** | [(7) Other Items](index=20&type=section&id=(7)%20Other%20Items) This section breaks down accrued expenses and other current liabilities, which significantly increased due to wages, unearned revenue, and sales returns Accrued Expenses and Other Current Liabilities | Category | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | :--------------------- | | Wages and benefits | 145.7 | 81.7 | 64.0 | | Unearned revenue | 127.4 | 56.8 | 70.6 | | Sales returns | 93.9 | 30.3 | 63.6 | | Advertising | 88.1 | 59.3 | 28.8 | | Taxes | 17.2 | 18.4 | (1.2) | | Other | 219.7 | 147.4 | 72.3 | | **Total Accrued expenses and other current liabilities** | **692.0** | **393.9** | **298.1** | [(8) Stock-Based Compensation](index=21&type=section&id=(8)%20Stock-Based%20Compensation) Stock-based compensation expense remained stable year-over-year, primarily from PRSU, RSU, and option expenses Stock-Based Compensation Expense (Three Months Ended June 30) | Expense Type | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | PRSU expense | 4.9 | 4.5 | | RSU expense | 4.6 | 4.5 | | Option expense | 0.6 | 0.5 | | **Total stock-based compensation expense** | **10.1** | **9.5** | Stock-Based Compensation Expense (Six Months Ended June 30) | Expense Type | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | PRSU expense | 8.4 | 8.6 | | RSU expense | 8.9 | 9.0 | | Option expense | 1.2 | 1.1 | | **Total stock-based compensation expense** | **18.5** | **18.7** | - The Company granted PRSUs as part of its long-term incentive plan in Q1 2025 and recorded compensation expense as achievement of specified performance targets was probable[90](index=90&type=chunk) [(9) Commitments and Contingencies](index=21&type=section&id=(9)%20Commitments%20and%20Contingencies) The Company is involved in legal proceedings, but management expects no material adverse effect on financial position or operations - The Company is involved in various legal and administrative proceedings, but management believes the outcome will not have a material adverse effect on its business, financial condition, liquidity, or operating results[91](index=91&type=chunk) - No material reserves or ranges of possible loss have been established for these proceedings, as losses are not probable or reasonably estimable at this time[91](index=91&type=chunk) [(10) Income Taxes](index=21&type=section&id=(10)%20Income%20Taxes) Effective tax rates varied significantly, decreasing for both periods ended June 30, 2025, due to GILTI, foreign rate differentials, and stock compensation Effective Tax Rate (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Effective tax rate | 3.1% | 24.2% | Effective Tax Rate (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Effective tax rate | (24.9)% | 23.0% | - The effective tax rates differed from the U.S. federal statutory rate of **21.0%** due to factors like global intangible low-taxed income (GILTI), foreign income tax rate differentials, state and local taxes, uncertain tax positions, and excess tax benefits from stock-based compensation[92](index=92&type=chunk) - The Company is evaluating the potential consequences of the OECD's Pillar 2 global minimum tax but does not expect a material impact on its financial results in 2025. The impact of the recently signed Tax Act (July 4, 2025) is also unclear pending further guidance[93](index=93&type=chunk)[94](index=94&type=chunk) [(11) Earnings Per Common Share](index=22&type=section&id=(11)%20Earnings%20Per%20Common%20Share) Diluted EPS decreased for both periods ended June 30, 2025, due to lower net income and an increase in weighted average common shares outstanding Earnings Per Common Share (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to Somnigroup International Inc. ($ in millions) | 99.0 | 106.1 | | Basic EPS | 0.47 | 0.61 | | Diluted EPS | 0.47 | 0.60 | | Weighted average common shares outstanding (Diluted) | 212.4 | 178.0 | Earnings Per Common Share (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to Somnigroup International Inc. ($ in millions) | 65.9 | 182.4 | | Basic EPS | 0.33 | 1.05 | | Diluted EPS | 0.32 | 1.02 | | Weighted average common shares outstanding (Diluted) | 205.7 | 178.0 | [(12) Business Segment Information](index=22&type=section&id=(12)%20Business%20Segment%20Information) The Company operates in three segments, with Mattress Firm significantly impacting total assets and operating lease right-of-use assets - The Company operates in three segments: Tempur Sealy North America, Tempur Sealy International, and Mattress Firm, which are managed separately[97](index=97&type=chunk) Total Assets by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 5,970.9 | 5,575.2 | | Tempur Sealy International | 1,491.1 | 1,477.6 | | Mattress Firm | 7,573.2 | — | | Corporate | 2,273.8 | 3,580.0 | | Inter-segment eliminations | (5,932.8) | (4,652.4) | | **Total assets** | **11,376.2** | **5,980.4** | Total Operating Lease Right-of-Use Assets by Segment | Segment | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :----------------------------------- | :------------------------------ | :-------------------------------- | | Tempur Sealy North America | 341.2 | 407.1 | | Tempur Sealy International | 220.5 | 188.6 | | Mattress Firm | 1,276.2 | — | | Corporate | 2.4 | 3.1 | | **Total operating lease right-of-use assets** | **1,840.3** | **598.8** | Segment Performance (Three Months Ended June 30, 2025) | Segment (3 Months Ended June 30, 2025) | Net Sales ($ in millions) | Gross Profit ($ in millions) | Operating Income (Loss) ($ in millions) | | :----------------------------------- | :------------------------ | :--------------------------- | :-------------------------------------- | | Tempur Sealy North America | 638.4 | 348.2 | 130.1 | | Tempur Sealy International | 293.6 | 141.6 | 39.8 | | Mattress Firm | 948.8 | 337.4 | 63.2 | | Corporate | — | — | (53.2) | | **Consolidated** | **1,880.8** | **827.2** | **179.9** | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results, covering business, economic conditions, the Mattress Firm acquisition, and segment performance [Business Overview](index=27&type=section&id=Business%20Overview) Somnigroup is the world's largest bedding company, operating in three segments with recognized brands and an omni-channel distribution model - Somnigroup is the world's largest bedding company, operating in over **100 countries** through Tempur Sealy, Mattress Firm, and Dreams[108](index=108&type=chunk) - The Company operates in three segments: Tempur Sealy North America, Tempur Sealy International, and Mattress Firm, evaluating performance based on net sales, gross profit, and operating income[109](index=109&type=chunk) - Key brands include Tempur-Pedic®, Sealy®, Stearns & Foster®, and Sleepy's®, distributed through wholesale (third-party retailers, hospitality, healthcare) and direct (company-owned stores, online, call centers) channels[110](index=110&type=chunk)[111](index=111&type=chunk) [General Business and Economic Conditions](index=27&type=section&id=General%20Business%20and%20Economic%20Conditions) The bedding industry is poised for growth driven by innovation and health focus, with the Company expecting to outperform despite macroeconomic pressures - The bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations, and population growth[112](index=112&type=chunk) - Consumers are increasingly connecting good sleep with overall health, leading to higher investment in bedding products[114](index=114&type=chunk) - Macroeconomic pressures and geopolitical conflicts challenged the global bedding industry in 2024 and are expected to continue in 2025. The Company expects to outperform the industry through new product launches and investments[115](index=115&type=chunk) [Acquisition of Mattress Firm](index=28&type=section&id=Acquisition%20of%20Mattress%20Firm) The Mattress Firm Acquisition was completed on February 5, 2025, for $5.1 billion, funded by cash and stock, with subsequent divestitures - The Mattress Firm Acquisition was completed on February 5, 2025, for approximately **$5.1 billion**, net of cash acquired, consisting of **$3.1 billion** in cash and **34.2 million shares** of common stock[116](index=116&type=chunk) - Funding for the acquisition included **$625.0 million** from the Delayed Draw Term A Loan, **$679.5 million** from revolving commitments, and **$1,592.0 million** from the Term B Loan escrow[117](index=117&type=chunk) - Mattress Firm operates as a separate business segment, with its financial results included in the Company's consolidated statements from February 5, 2025[118](index=118&type=chunk) - On May 1, 2025, the Company divested **73 Mattress Firm retail locations** and its Sleep Outfitters subsidiary, incurring a **$13.9 million loss** on disposal of business[119](index=119&type=chunk) [Product Launches](index=28&type=section&id=Product%20Launches) In 2025, the Company launched a new Sealy Posturepedic collection in North America, aiming to revitalize growth in the mid-to-entry level market - In 2025, an all-new collection of Sealy Posturepedic products was launched in North America[120](index=120&type=chunk) - The new collection aims to reignite growth in the mid-to-entry level market and incorporates innovative technologies, including proprietary PrecisionFit™ coils[120](index=120&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes financial performance for both periods ended June 30, 2025, highlighting the Mattress Firm acquisition's impact on sales, profit, and income Three Months Ended June 30, 2025 vs 2024 | Metric | 2025 ($ in millions) | 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------- | | Net sales | 1,880.8 | 1,233.6 | 52.5% | | Gross profit | 827.2 | 517.6 | 59.8% | | Operating income | 179.9 | 173.3 | 3.8% | | Net income attributable to Somnigroup | 99.0 | 106.1 | (6.7)% | | Diluted EPS | 0.47 | 0.60 | (21.7)% | - Total net sales increased **52.5%** to **$1,880.8 million** in Q2 2025, primarily due to **$948.8 million** from Mattress Firm sales, offset by intercompany sales elimination[122](index=122&type=chunk) - Gross margin improved **200 basis points** to **44.0%** in Q2 2025, driven by the elimination of intercompany sales to Mattress Firm and operational efficiencies in Tempur Sealy North America[122](index=122&type=chunk)[133](index=133&type=chunk) - Operating income increased **3.8%** to **$179.9 million** in Q2 2025, but net income decreased **6.7%** to **$99.0 million**, and diluted EPS decreased **21.7%** to **$0.47**[122](index=122&type=chunk) [THREE MONTHS ENDED JUNE 30, 2025 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2024](index=30&type=section&id=THREE%20MONTHS%20ENDED%20JUNE%2030%2C%202025%20COMPARED%20TO%20THE%20THREE%20MONTHS%20ENDED%20JUNE%2030%2C%202024) Net sales significantly increased for the three months ended June 30, 2025, due to the Mattress Firm acquisition, but net income and EPS declined [NET SALES](index=31&type=section&id=NET%20SALES_3M) Consolidated net sales increased 52.5% for the three months ended June 30, 2025, primarily driven by Mattress Firm sales, despite a decrease in Tempur Sealy North America sales - Consolidated net sales increased **52.5%** to **$1,880.8 million** (**51.7%** on a constant currency basis) for the three months ended June 30, 2025[128](index=128&type=chunk) - Mattress Firm contributed **$948.8 million** in net sales for the quarter[132](index=132&type=chunk) - Tempur Sealy North America net sales decreased **34.8%** (**$340.0 million**), primarily due to a **30.8%** decline from intercompany sales elimination to Mattress Firm and a **6.7%** decrease from a customer's acquisition[132](index=132&type=chunk) - Tempur Sealy International net sales increased **15.0%** (**$38.4 million**), driven by new product launches (**10.0%** on a constant currency basis)[132](index=132&type=chunk) [GROSS PROFIT](index=31&type=section&id=GROSS%20PROFIT_3M) Consolidated gross margin improved by 200 basis points to 44.0% for the three months ended June 30, 2025, driven by Tempur Sealy North America's improvements Gross Profit and Margin by Segment (Three Months Ended June 30) | Segment | Gross Profit 2025 ($ in millions) | Gross Margin 2025 (%) | Gross Profit 2024 ($ in millions) | Gross Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 348.2 | 54.5% | 393.7 | 40.2% | 14.3% | | Tempur Sealy International | 141.6 | 48.2% | 123.9 | 48.6% | (0.4)% | | Mattress Firm | 337.4 | 35.6% | — | —% | 35.6% | | **Consolidated** | **827.2** | **44.0%** | **517.6** | **42.0%** | **2.0%** | - Tempur Sealy North America gross margin improved **1,430 basis points**, primarily due to the elimination of sales to Mattress Firm (**1,590 basis points**) and operational efficiencies (**60 basis points**), partially offset by expense deleverage and product launch costs[133](index=133&type=chunk) - Mattress Firm gross margin was **35.6%** for the three months ended June 30, 2025[133](index=133&type=chunk) [OPERATING EXPENSES](index=32&type=section&id=OPERATING%20EXPENSES_3M) Consolidated operating expenses increased by $289.0 million (83.2%) for the three months ended June 30, 2025, primarily due to Mattress Firm's expenses and corporate charges Operating Expenses Breakdown (Three Months Ended June 30) | Expense Type | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Advertising expenses | 189.5 | 119.3 | 70.2 | 58.8% | | Other selling and marketing expenses | 271.0 | 120.3 | 150.7 | 125.3% | | General, administrative and other expenses | 175.9 | 107.8 | 68.1 | 63.2% | | **Total operating expenses** | **636.4** | **347.4** | **289.0** | **83.2%** | - Mattress Firm operating expenses were **$270.1 million** for the three months ended June 30, 2025[139](index=139&type=chunk) - Corporate operating expenses increased **$14.3 million** (**36.8%**), driven by business combination charges related to the Mattress Firm Acquisition[139](index=139&type=chunk) [OPERATING INCOME](index=33&type=section&id=OPERATING%20INCOME_3M) Consolidated operating income increased by $6.6 million, but operating margin declined by 440 basis points, influenced by the Mattress Firm acquisition Operating Income and Margin by Segment (Three Months Ended June 30) | Segment | Operating Income 2025 ($ in millions) | Operating Margin 2025 (%) | Operating Income 2024 ($ in millions) | Operating Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 130.1 | 20.4% | 180.4 | 18.4% | 2.0% | | Tempur Sealy International | 39.8 | 13.6% | 31.8 | 12.5% | 1.1% | | Mattress Firm | 63.2 | 6.7% | — | —% | 6.7% | | Corporate expenses | (53.2) | N/A | (38.9) | N/A | N/A | | **Total operating income** | **179.9** | **9.6%** | **173.3** | **14.0%** | **(4.4)%** | - Tempur Sealy North America operating income decreased **$50.3 million**, but operating margin improved **200 basis points**, driven by gross margin improvement offset by operating expense deleverage and a **$9.8 million loss** on disposal of Sleep Outfitters[147](index=147&type=chunk) - Mattress Firm operating income was **$63.2 million** with an operating margin of **6.7%**, including a **$4.1 million loss** on disposal of **73 retail stores**[147](index=147&type=chunk) [INTEREST EXPENSE, NET](index=33&type=section&id=INTEREST%20EXPENSE%2C%20NET_3M) Net interest expense increased significantly by $39.1 million (117.1%) for the three months ended June 30, 2025, due to increased variable rate debt Interest Expense, Net (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Interest expense, net | 72.5 | 33.4 | 39.1 | 117.1% | - The increase in interest expense was primarily driven by increased average levels of outstanding variable rate debt[143](index=143&type=chunk) [INCOME TAX PROVISION](index=33&type=section&id=INCOME%20TAX%20PROVISION_3M) The income tax provision decreased by $30.8 million, and the effective tax rate declined to 3.1% due to lower income and stock compensation benefits Income Tax Provision (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Income tax provision | 3.2 | 34.0 | (30.8) | (90.6)% | | Effective tax rate | 3.1% | 24.2% | (21.1)% | N/A | - The decrease in income tax provision was driven by a decrease in income before income taxes and certain discrete items, including the favorable impact of stock compensation deductibility[146](index=146&type=chunk) [SIX MONTHS ENDED JUNE 30, 2025 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2024](index=34&type=section&id=SIX%20MONTHS%20ENDED%20JUNE%2030%2C%202025%20COMPARED%20TO%20THE%20SIX%20MONTHS%20ENDED%20JUNE%2030%2C%202024) Net sales increased substantially for the six months ended June 30, 2025, due to the Mattress Firm acquisition, but operating income, net income, and EPS declined Six Months Ended June 30, 2025 vs 2024 | Metric | 2025 ($ in millions) | 2024 ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------- | | Net sales | 3,485.5 | 2,423.0 | 43.8% | | Gross profit | 1,407.7 | 991.9 | 41.9% | | Operating income | 193.1 | 304.8 | (36.6)% | | Net income attributable to Somnigroup | 65.9 | 182.4 | (63.8)% | | Diluted EPS | 0.32 | 1.02 | (68.6)% | [NET SALES](index=35&type=section&id=NET%20SALES_6M) Consolidated net sales increased 43.9% for the six months ended June 30, 2025, primarily driven by Mattress Firm sales, despite a decrease in Tempur Sealy North America sales - Consolidated net sales increased **43.9%** to **$3,485.5 million** (**44.0%** on a constant currency basis) for the six months ended June 30, 2025[151](index=151&type=chunk) - Mattress Firm contributed **$1,542.5 million** in net sales for the stub period[155](index=155&type=chunk) - Tempur Sealy North America net sales decreased **28.5%** (**$534.9 million**), primarily due to a **24.2%** decline from intercompany sales elimination to Mattress Firm and a **7.3%** decrease from a customer's acquisition[155](index=155&type=chunk) - Tempur Sealy International net sales increased **10.1%** (**$54.9 million**), driven by new product launches (**8.8%** on a constant currency basis)[155](index=155&type=chunk) [GROSS PROFIT](index=35&type=section&id=GROSS%20PROFIT_6M) Consolidated gross margin declined by 50 basis points to 40.4% for the six months ended June 30, 2025, despite improvements in Tempur Sealy North America Gross Profit and Margin by Segment (Six Months Ended June 30) | Segment | Gross Profit 2025 ($ in millions) | Gross Margin 2025 (%) | Gross Profit 2024 ($ in millions) | Gross Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 588.2 | 43.7% | 730.4 | 38.9% | 4.8% | | Tempur Sealy International | 290.9 | 48.6% | 261.5 | 48.1% | 0.5% | | Mattress Firm | 528.6 | 34.3% | — | —% | 34.3% | | **Consolidated** | **1,407.7** | **40.4%** | **991.9** | **40.9%** | **(0.5)%** | - Tempur Sealy North America gross margin improved **480 basis points**, driven by intercompany sales elimination (**990 basis points**), operational efficiencies (**90 basis points**), and favorable mix, but offset by expense deleverage, commodity cost inflation, product launch costs, and **$78.0 million** of one-time business combination accounting adjustments[156](index=156&type=chunk) - Mattress Firm gross margin was **34.3%** for the stub period[156](index=156&type=chunk) [OPERATING EXPENSES](index=36&type=section&id=OPERATING%20EXPENSES_6M) Consolidated operating expenses increased by $513.4 million (73.9%) for the six months ended June 30, 2025, primarily due to Mattress Firm's expenses and corporate charges Operating Expenses Breakdown (Six Months Ended June 30) | Expense Type | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Advertising expenses | 332.4 | 227.3 | 105.1 | 46.2% | | Other selling and marketing expenses | 490.7 | 239.0 | 251.7 | 105.3% | | General, administrative and other expenses | 385.4 | 228.8 | 156.6 | 68.4% | | **Total operating expenses** | **1,208.5** | **695.1** | **513.4** | **73.9%** | - Mattress Firm operating expenses were **$454.5 million** for the stub period[162](index=162&type=chunk) - Corporate operating expenses increased **$51.6 million** (**59.6%**), driven by business combination charges related to the Mattress Firm Acquisition[162](index=162&type=chunk) [OPERATING INCOME](index=37&type=section&id=OPERATING%20INCOME_6M) Consolidated operating income decreased by $111.7 million, and operating margin declined by 710 basis points due to expense deleverage Operating Income and Margin by Segment (Six Months Ended June 30) | Segment | Operating Income 2025 ($ in millions) | Operating Margin 2025 (%) | Operating Income 2024 ($ in millions) | Operating Margin 2024 (%) | Margin Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | :---------------- | | Tempur Sealy North America | 170.4 | 12.7% | 314.8 | 16.7% | (4.0)% | | Tempur Sealy International | 90.9 | 15.2% | 76.6 | 14.1% | 1.1% | | Mattress Firm | 70.0 | 4.5% | — | —% | 4.5% | | Corporate expenses | (138.2) | N/A | (86.6) | N/A | N/A | | **Total operating income** | **193.1** | **5.5%** | **304.8** | **12.6%** | **(7.1)%** | - Tempur Sealy North America operating income decreased **$144.4 million**, with operating margin declining **400 basis points** due to operating expense deleverage offset by gross margin improvement, and a **$9.8 million loss** on disposal of Sleep Outfitters[169](index=169&type=chunk) - Mattress Firm operating income was **$70.0 million** with an operating margin of **4.5%**, including a **$4.1 million loss** on disposal of **73 retail stores**[169](index=169&type=chunk) [INTEREST EXPENSE, NET](index=37&type=section&id=INTEREST%20EXPENSE%2C%20NET_6M) Net interest expense increased substantially by $66.1 million (97.6%) for the six months ended June 30, 2025, driven by increased variable rate debt Interest Expense, Net (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Interest expense, net | 133.8 | 67.7 | 66.1 | 97.6% | - The increase in interest expense was primarily driven by increased average levels of outstanding variable rate debt[166](index=166&type=chunk) [INCOME TAX PROVISION](index=37&type=section&id=INCOME%20TAX%20PROVISION_6M) The income tax provision decreased by $68.0 million, resulting in an effective tax benefit of (24.9)% for the six months ended June 30, 2025, due to lower income and stock compensation benefits Income Tax Provision (Six Months Ended June 30) | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------------------- | :--------- | | Income tax (benefit) provision | (13.3) | 54.7 | (68.0) | (124.3)% | | Effective tax rate | (24.9)% | 23.0% | (47.9)% | N/A | - The decrease in income tax provision was driven by a decrease in income before income taxes and certain discrete items, including the net favorable impact of stock compensation deductibility[168](index=168&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity is derived from operations and credit facilities, with the Mattress Firm Acquisition significantly impacting working capital and debt levels - Principal sources of funds are cash flows from operations, borrowings in capital markets and credit facilities, and cash on hand. Principal uses include debt payments, acquisitions, dividends, capital expenditures, and working capital[170](index=170&type=chunk) - Working capital shifted to a deficit of **$294.5 million** as of June 30, 2025, from a surplus of **$105.1 million** at December 31, 2024, primarily due to a **$250.5 million** increase in short-term operating lease obligations from the Mattress Firm Acquisition[171](index=171&type=chunk) - Cash used in investing activities increased by **$2,818.4 million** for the six months ended June 30, 2025, primarily due to the Mattress Firm Acquisition[174](index=174&type=chunk) - Total debt increased to **$4,951.6 million** as of June 30, 2025, from **$3,844.5 million** at December 31, 2024. The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was **3.56 times**, within the 2023 Credit Agreement covenant limit of **5.00 times**[177](index=177&type=chunk)[178](index=178&type=chunk) - The Company expects its target leverage ratio to return to **2.0 to 3.0 times** in 2026, with a primary focus on debt repayment[183](index=183&type=chunk)[186](index=186&type=chunk) [Non-GAAP Financial Information](index=40&type=section&id=Non-GAAP%20Financial%20Information) This section reconciles non-GAAP financial measures like adjusted net income, EPS, EBITDA, and adjusted EBITDA for operational clarity and debt covenant compliance - Non-GAAP financial measures are provided to better reflect underlying operations and trends, excluding items that cause short-term fluctuations[188](index=188&type=chunk) - These measures are used for managing the business, evaluating performance, setting operational goals, and providing comparability for investors[189](index=189&type=chunk) [Adjusted Net Income and Adjusted EPS](index=41&type=section&id=Adjusted%20Net%20Income%20and%20Adjusted%20EPS) Adjusted net income and EPS are presented to provide additional information by excluding specific non-recurring or non-operational items Adjusted Net Income and Adjusted EPS (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Net income | 99.0 | 106.1 | | Business combination charges | 17.6 | — | | Loss on disposal of business | 13.9 | — | | Disposition-related costs | 9.2 | — | | Transaction costs | 4.9 | 7.3 | | Supply chain transition costs | 1.3 | — | | Adjusted income tax provision | (32.8) | (1.7) | | **Adjusted net income** | **113.1** | **111.7** | | **Adjusted earnings per common share, diluted** | **0.53** | **0.63** | [Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income (Expense) and Adjusted Operating Margin](index=41&type=section&id=Adjusted%20Gross%20Profit%2C%20Adjusted%20Gross%20Margin%2C%20Adjusted%20Operating%20Income%20(Expense)%20and%20Adjusted%20Operating%20Margin) These non-GAAP measures adjust gross profit and operating income for specific items, with adjusted gross margin at 44.2% and adjusted operating income at $224.4 million Adjusted Gross Profit and Operating Income (Consolidated, Three Months Ended June 30, 2025) | Metric | Consolidated (3 Months Ended June 30, 2025) ($ in millions) | Margin (%) | | :----------------------------------- | :---------------------------------------------------------- | :--------- | | Gross profit | 827.2 | 44.0% | | Adjustments (Disposition-related costs, Supply chain transition costs) | 4.4 | | | **Adjusted gross profit** | **831.6** | **44.2%** | | Operating income (expense) | 179.9 | 9.6% | | Adjustments (Business combination charges, Loss on disposal of business, Disposition-related costs, Transaction costs, Supply chain transition costs) | 44.5 | | | **Adjusted operating income (expense)** | **224.4** | **11.9%** | Adjusted Gross Profit and Operating Income (Consolidated, Three Months Ended June 30, 2024) | Metric | Consolidated (3 Months Ended June 30, 2024) ($ in millions) | Margin (%) | | :----------------------------------- | :---------------------------------------------------------- | :--------- | | Gross profit | 517.6 | 42.0% | | Operating income (expense) | 173.3 | 14.0% | | Adjustments (Transaction costs) | 7.3 | | | **Adjusted operating income (expense)** | **180.6** | **14.6%** | [EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash](index=43&type=section&id=EBITDA%2C%20Adjusted%20EBITDA%20and%20Consolidated%20Indebtedness%20less%20Netted%20Cash) This section reconciles net income to EBITDA and adjusted EBITDA, and total debt to consolidated indebtedness less netted cash, for credit agreement compliance EBITDA and Adjusted EBITDA (Three Months Ended June 30) | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | | :----------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Net income | 99.0 | 106.1 | | Interest expense, net | 72.5 | 33.4 | | Income tax provision | 3.2 | 34.0 | | Depreciation and amortization | 69.1 | 50.6 | | **EBITDA** | **243.8** | **224.1** | | Adjustments (Business combination charges, Loss on disposal of business, Disposition-related costs, Transaction costs, Supply chain transition costs) | 47.0 | 7.3 | | **Adjusted EBITDA** | **290.7** | **231.4** | EBITDA, Adjusted EBITDA, and Consolidated Indebtedness (Trailing Twelve Months Ended June 30, 2025) | Metric | Trailing Twelve Months Ended June 30, 2025 ($ in millions) | | :----------------------------------- | :---------------------------------------------------------- | | Net income | 267.8 | | Interest expense, net | 184.3 | | Transaction-related interest expense, net | 16.6 | | Income tax provision | 50.6 | | Depreciation and amortization | 240.0 | | **EBITDA** | **759.3** | | Adjustments (Acquisition-related costs, Transaction costs, Customer-related transition charges, Business combination charges, Supply chain transition costs, Loss on disposal of business, Disposition-related costs, Cybersecurity event) | 273.5 | | **Adjusted EBITDA** | **1,032.8** | | Adjustments (Loss from unrestricted subsidiary, Earnings from Mattress Firm prior to acquisition, Future cost synergies) | 329.6 | | **Adjusted EBITDA per credit facility** | **1,362.4** | | **Consolidated indebtedness less netted cash** | **4,853.5** | | **Ratio of consolidated indebtedness less netted cash to adjusted EBITDA** | **3.56 times** | - The 2023 Credit Agreement requires a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than **5.00 times**; the Company's ratio was **3.56 times** as of June 30, 2025[208](index=208&type=chunk) [Critical Accounting Policies and Estimates](index=47&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No material changes occurred in critical accounting policies during the period, except for business combinations, which require significant judgment in fair value determination - No material changes to critical accounting policies and estimates occurred during the six months ended June 30, 2025, except for business combinations[213](index=213&type=chunk) - Business combinations are accounted for using the acquisition method, requiring estimates and valuation techniques for fair values of acquired assets and assumed liabilities, particularly for intangible assets like the Mattress Firm trade name[214](index=214&type=chunk) - Goodwill is recorded as the excess of purchase price over net assets acquired. Adjustments to preliminary fair values can be made within a one-year measurement period[215](index=215&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risks are interest rate risk from variable-rate debt and foreign currency exchange risk, with hedging activities undertaken for net investments - The Company's primary exposure to interest rate risk is from variable-rate debt agreements (e.g., 2023 Credit Agreement) tied to SOFR[218](index=218&type=chunk) - As of June 30, 2025, variable-rate debt totaled **$3,255.4 million**. A **100 basis point increase** in interest rates would reduce income before income taxes by an estimated **$32.6 million**[218](index=218&type=chunk) - The Company converted **$25.0 million** of its **4.00%** fixed-rate USD-denominated 2029 Senior Notes to fixed-rate DKK-denominated debt in Q2 2025, designating these cross-currency swap agreements as net investment hedges. An additional **$75.0 million** was converted in July 2025[219](index=219&type=chunk)[220](index=220&type=chunk) [ITEM 4. Controls and Procedures](index=48&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of June 30, 2025, with Mattress Firm's controls included, though its operations are excluded from the 2025 internal control assessment - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[221](index=221&type=chunk) - The Mattress Firm Acquisition led to the inclusion of Mattress Firm's controls within the Company's internal controls over financial reporting[222](index=222&type=chunk) - Mattress Firm's operations will be excluded from the Company's assessment of internal control over financial reporting for the year ending December 31, 2025, in accordance with SEC guidance[222](index=222&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides other required information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [ITEM 1. Legal Proceedings](index=48&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference, with no material adverse effect expected - Information on legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies,' in the financial statements[223](index=223&type=chunk) [ITEM 1A. Risk Factors](index=48&type=section&id=ITEM%201A.%20Risk%20Factors) No new material risk factors are reported for the period - No new material risk factors are reported for the period[224](index=224&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were purchased under public repurchase plans, but shares were acquired to satisfy tax withholding obligations for equity awards Share Purchases (Three Months Ended June 30, 2025) | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) | | :----------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | $— | — | $774.5 | | May 1, 2025 - May 31, 2025 | 1,449,006 | $65.51 | — | $774.5 | | June 1, 2025 - June 30, 2025 | 474 | $52.42 | — | $774.5 | | **Total** | **1,449,480** | | **—** | | - The shares purchased were primarily withheld upon the vesting of equity awards to satisfy tax withholding obligations[225](index=225&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=50&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[228](index=228&type=chunk) [ITEM 4. Mine Safety Disclosures](index=50&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[229](index=229&type=chunk) [ITEM 5. Other Information](index=50&type=section&id=ITEM%205.%20Other%20Information) No directors or executive officers adopted 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or executive officers adopted any 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[231](index=231&type=chunk) [ITEM 6. Exhibits](index=51&type=section&id=ITEM%206.%20Exhibits) This section provides an index of exhibits filed with the report, including corporate governance, debt instruments, and certifications - The exhibits include corporate governance documents (e.g., Certificate of Incorporation, By-laws), debt instruments (e.g., Indentures for 2029 and 2031 Senior Notes, 2023 Credit Agreement Amendment No. 4), employment agreements, and certifications (CEO, CFO)[233](index=233&type=chunk) - The report also includes financial statements formatted in Inline XBRL[233](index=233&type=chunk) [Signatures](index=52&type=section&id=Signatures) This section contains the required signatures, certifying the submission of the report [Report Signatures](index=52&type=section&id=Report%20Signatures) This section contains the required signatures, certifying the submission of the report on behalf of Somnigroup International Inc. - The report is signed by Bhaskar Rao, Executive Vice President and Chief Financial Officer, on August 8, 2025[237](index=237&type=chunk)

[Q2 2025 Financial Performance Overview](index=1&type=section&id=Q2%202025%20Financial%20Performance%20Overview) Somnigroup's Q2 2025 saw significant net sales growth driven by the Mattress Firm acquisition, despite a decline in GAAP net income and diluted EPS [Second Quarter 2025 Financial Summary](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Summary) In Q2 2025, Somnigroup reported a significant 52.5% increase in net sales to $1,880.8 million, primarily driven by the inclusion of Mattress Firm sales, while GAAP net income decreased by 6.7% to $99.0 million and diluted EPS fell 21.7% to $0.47 Q2 2025 Financial Highlights vs. Q2 2024 | (in millions, except per share amounts) | June 30, 2025 | June 30, 2024 | % Reported Change | | :--- | :--- | :--- | :--- | | **Net sales** | $1,880.8 | $1,233.6 | 52.5% | | **Net income** | $99.0 | $106.1 | (6.7)% | | **Adjusted net income** | $113.1 | $111.7 | 1.3% | | **EPS** | $0.47 | $0.60 | (21.7)% | | **Adjusted EPS** | $0.53 | $0.63 | (15.9)% | - The **52.5% increase** in total net sales was primarily driven by the inclusion of **$948.8 million** from Mattress Firm sales, offset by the accounting elimination of **$263.5 million** in intercompany sales[7](index=7&type=chunk) - Gross margin improved to **44.0%** from 42.0% in Q2 2024, with adjusted gross margin also increasing to **44.2%**[7](index=7&type=chunk) [Key Highlights & Management Commentary](index=1&type=section&id=Key%20Highlights%20%26%20Management%20Commentary) Management attributes strong quarterly performance to the successful Mattress Firm combination, new Sealy line launch, and robust international sales growth, with direct sales now comprising 66% of net sales - The successful combination with Mattress Firm is a key driver of market outperformance, with synergy realization ahead of plan[5](index=5&type=chunk) - Other growth drivers include the North American launch of the new Sealy product line and continued strong sales growth in the international business[5](index=5&type=chunk) - Direct sales as a percentage of total net sales increased significantly to **66%** from 23% in the prior year, reflecting the structural shift from the Mattress Firm acquisition[1](index=1&type=chunk) [Business Segment Performance](index=2&type=section&id=Business%20Segment%20Performance) Analysis of segment performance reveals the significant impact of the Mattress Firm acquisition on sales channels and profitability, alongside strong international growth [Mattress Firm](index=2&type=section&id=Mattress%20Firm) The newly acquired Mattress Firm segment contributed $948.8 million in net sales for Q2 2025, all through the direct sales channel, recording a gross margin of 35.6% and an operating margin of 6.7% Mattress Firm Q2 2025 Performance | Metric | Value | | :--- | :--- | | **Net Sales** | $948.8 million | | **Gross Margin** | 35.6% | | **Adjusted Gross Margin** | 35.7% | | **Operating Margin** | 6.7% | | **Adjusted Operating Margin** | 7.8% | [Tempur Sealy North America](index=2&type=section&id=Tempur%20Sealy%20North%20America) Tempur Sealy North America's net sales decreased by $340.0 million to $638.4 million, primarily due to the accounting elimination of $263.5 million in intercompany sales to Mattress Firm, yet adjusted gross and operating margins significantly improved - Net sales decreased to **$638.4 million**, primarily impacted by the accounting elimination of **$263.5 million** in sales to Mattress Firm[9](index=9&type=chunk) - Wholesale channel sales decreased by **$320.8 million**, driven by the intercompany elimination and a **6.7%** decrease from a customer's acquisition that foreclosed distribution[9](index=9&type=chunk) - Adjusted gross margin improved by **1480 basis points** to **55.0%**, and adjusted operating margin improved by **430 basis points** to **22.7%**, mainly due to the elimination of lower-margin sales to Mattress Firm and operational efficiencies[10](index=10&type=chunk) [Tempur Sealy International](index=2&type=section&id=Tempur%20Sealy%20International) The Tempur Sealy International segment delivered robust performance with net sales increasing **15.0%** to **$293.6 million**, driven by successful new product launches and operating expense leverage International Net Sales Growth (Q2 2025) | Metric | Growth Rate | | :--- | :--- | | **Reported Net Sales** | +15.0% | | **Constant Currency Net Sales** | +10.0% | | **Wholesale Channel Sales** | +13.6% | | **Direct Channel Sales** | +15.9% | - Operating margin improved by **110 basis points** to **13.6%**, primarily driven by operating expense leverage[11](index=11&type=chunk) [Corporate Expenses](index=2&type=section&id=Corporate%20Expenses) Corporate operating expenses increased to $53.2 million from $38.9 million in the prior year, mainly due to business combination charges related to the Mattress Firm acquisition - Corporate operating expenses rose to **$53.2 million**, primarily driven by charges related to the Mattress Firm acquisition[11](index=11&type=chunk) [Financial Position and Outlook](index=2&type=section&id=Financial%20Position%20and%20Outlook) The company's financial position reflects the impact of the Mattress Firm acquisition on debt and assets, while management provides an optimistic outlook with raised full-year adjusted EPS guidance [Consolidated Financial Position](index=2&type=section&id=Consolidated%20Financial%20Position) The company's consolidated net income for Q2 2025 decreased by 6.7% to $99.0 million, with total debt reaching $5.0 billion and a leverage ratio of 3.56 times adjusted EBITDA as of June 30, 2025 - The decrease in EPS was primarily driven by launch costs for the new Sealy® product line and a customer's acquisition which foreclosed distribution, offset by accretion from the Mattress Firm acquisition[12](index=12&type=chunk) Debt and Leverage as of June 30, 2025 | Metric | Value | | :--- | :--- | | **Total Debt** | $5.0 billion | | **Consolidated Indebtedness less Netted Cash** | $4.9 billion | | **Leverage Ratio (to adjusted EBITDA)** | 3.56 times | [Full Year 2025 Financial Guidance](index=3&type=section&id=Full%20Year%202025%20Financial%20Guidance) Somnigroup has raised its financial guidance for the full year 2025, now expecting adjusted EPS to be in the range of $2.40 to $2.70, incorporating approximately 11 months of Mattress Firm operations and recent divestitures - The company raised its full-year 2025 adjusted EPS guidance to a new range of **$2.40 to $2.70**[13](index=13&type=chunk) - The guidance accounts for about **11 months** of Mattress Firm operations and the divestiture of Sleep Outfitters and **73** Mattress Firm stores[13](index=13&type=chunk) [Capital Allocation](index=3&type=section&id=Capital%20Allocation) The Board of Directors declared a quarterly cash dividend of $0.15 per share, demonstrating a continued commitment to returning capital to shareholders - A quarterly cash dividend of **$0.15 per share** was declared, payable on September 5, 2025, to shareholders of record on August 21, 2025[14](index=14&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) A detailed review of the consolidated financial statements reveals the significant impact of the Mattress Firm acquisition on the income statement, balance sheet, and cash flows [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the three months ended June 30, 2025, net sales grew 52.5% to $1,880.8 million, while operating income increased 3.8% to $179.9 million, though higher interest expense contributed to a 6.7% decline in net income Income Statement Summary (Three Months Ended June 30) | (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | **Net sales** | $1,880.8 | $1,233.6 | 52.5% | | **Gross profit** | $827.2 | $517.6 | 59.8% | | **Operating income** | $179.9 | $173.3 | 3.8% | | **Net income** | $99.0 | $106.1 | (6.7)% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets significantly increased to $11.38 billion from $5.98 billion at year-end 2024, primarily due to the Mattress Firm acquisition, leading to substantial increases in goodwill, intangible assets, and operating lease right-of-use assets, alongside a rise in total liabilities to $8.53 billion Balance Sheet Highlights (as of June 30, 2025) | (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | $11,376.2 | $5,980.4 | | **Goodwill** | $4,585.2 | $1,066.7 | | **Total Liabilities** | $8,526.2 | $5,412.1 | | **Long-term debt, net** | $4,803.3 | $3,740.4 | | **Total Stockholders' Equity** | $2,841.1 | $559.0 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash provided by operating activities was $292.5 million, while net cash used in investing activities was substantial at $2.88 billion, dominated by $2.82 billion for acquisitions, funded by $940.2 million from financing activities Cash Flow Summary (Six Months Ended June 30) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $292.5 | $280.8 | | **Net cash used in investing activities** | $(2,878.1) | $(59.7) | | **Net cash provided by (used in) financing activities** | $940.2 | $(195.0) | [Supplementary Financial Information](index=8&type=section&id=Supplementary%20Financial%20Information) This section provides additional financial details, including a summary of channel sales and reconciliations of non-GAAP financial measures to provide a clearer view of underlying business performance [Summary of Channel Sales](index=8&type=section&id=Summary%20of%20Channel%20Sales) The acquisition of Mattress Firm fundamentally shifted the company's sales mix, with direct channel sales surging to $1,238.1 million and representing 66% of consolidated sales in Q2 2025, while wholesale sales decreased due to reclassification Consolidated Net Sales by Channel (Q2 2025 vs Q2 2024) | (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | **Wholesale** | $642.7 | $950.5 | | **Direct** | $1,238.1 | $283.1 | | **Total** | $1,880.8 | $1,233.6 | [Reconciliation of Non-GAAP Financial Measures](index=9&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides detailed reconciliations of GAAP measures to non-GAAP measures such as adjusted net income, adjusted EPS, adjusted EBITDA, and adjusted operating income, excluding items like business combination charges and transaction costs [Adjusted Net Income and Adjusted EPS](index=10&type=section&id=Adjusted%20Net%20Income%20and%20Adjusted%20EPS) For Q2 2025, reported net income of $99.0 million was adjusted for items including $17.6 million in business combination charges and a $13.9 million loss on business disposal, resulting in an adjusted net income of $113.1 million and an adjusted EPS of $0.53 Reconciliation of Net Income to Adjusted Net Income (Q2 2025) | (in millions) | Amount | | :--- | :--- | | **Net income** | $99.0 | | Business combination charges | $17.6 | | Loss on disposal of business | $13.9 | | Disposition-related costs | $9.2 | | Transaction costs | $4.9 | | Supply chain transition costs | $1.3 | | Adjusted income tax provision | $(32.8) | | **Adjusted net income** | $113.1 | [Adjusted Gross Profit and Operating Income](index=11&type=section&id=Adjusted%20Gross%20Profit%20and%20Operating%20Income) In Q2 2025, consolidated operating income of $179.9 million was adjusted by $44.5 million for items like business combination charges and loss on business disposal, resulting in an adjusted operating income of $224.4 million, or an 11.9% margin - Consolidated adjusted operating income for Q2 2025 was **$224.4 million**, representing a margin of **11.9%**, compared to reported operating income of **$179.9 million** (**9.6%** margin)[43](index=43&type=chunk) [EBITDA, Adjusted EBITDA, and Leverage](index=13&type=section&id=EBITDA%2C%20Adjusted%20EBITDA%2C%20and%20Leverage) For the trailing twelve months ended June 30, 2025, the company calculated an Adjusted EBITDA per its credit facility of $1,362.4 million, resulting in a leverage ratio of 3.56 times, which is below the credit agreement's covenant of less than 5.00 times Leverage Ratio Calculation (TTM ended June 30, 2025) | (in millions, except ratio) | Amount | | :--- | :--- | | **Adjusted EBITDA per credit facility** | $1,362.4 | | **Consolidated indebtedness less netted cash** | $4,853.5 | | **Leverage Ratio** | 3.56 times | - The company's leverage ratio of **3.56x** is in compliance with its 2023 Credit Agreement covenant, which requires the ratio to be below **5.00x**[50](index=50&type=chunk)

Financial Performance - Net sales for the three months ended March 31, 2025, were $1,604.7 million, a 35% increase from $1,189.4 million in the same period of 2024[16] - Gross profit for the same period was $580.5 million, compared to $474.3 million, reflecting a gross margin improvement[16] - Operating income decreased to $13.2 million from $131.5 million year-over-year, indicating challenges in operational efficiency[16] - The net loss attributable to Somnigroup International Inc. was $33.1 million, compared to a net income of $76.3 million in the prior year[16] - The company reported a comprehensive loss income of $2.8 million for the quarter, down from a comprehensive income of $60.5 million in the previous year[18] - For the three months ended March 31, 2025, Somnigroup reported a net loss of $32.8 million, a significant decline compared to a net income of $76.8 million for the same period in 2024[26] - The company experienced a cash inflow from operating activities of $106.4 million, down from $130.2 million year-over-year[26] - Somnigroup's total stockholders' equity as of March 31, 2025, was $2,741.7 million, a decrease from $3,332.5 million as of March 31, 2024[24] - The company declared dividends of $0.15 per share, totaling $31.5 million for the quarter[26] - The effective tax rate for the three months ended March 31, 2025, was 33.5%, significantly higher than the 21.2% rate for the same period in 2024[82] Acquisition and Integration - The company completed the acquisition of Mattress Firm on February 5, 2025, which operates over 2,200 retail locations and a growing e-commerce platform[29] - Cash used in investing activities totaled $2,858.9 million, primarily due to the Mattress Firm acquisition[26] - The Mattress Firm Acquisition was completed on February 5, 2025, for an aggregate purchase price of approximately $5.2 billion, consisting of $3.1 billion in cash and 34.2 million shares valued at $65.65 each[47] - The company borrowed $625.0 million and $679.5 million under its credit facilities to finance the Mattress Firm Acquisition, along with $1,592.0 million released from escrow[48] - The preliminary purchase price consideration for Mattress Firm totaled $5,418.7 million, netting to $5,151.7 million after accounting for cash acquired[52] - The preliminary fair value of assets acquired in the Mattress Firm Acquisition was $7,107.3 million, while the preliminary fair value of liabilities assumed was $1,955.6 million, resulting in net consideration transferred of $5,151.7 million[55] - The company incurred transaction costs of $50.2 million related to the Mattress Firm Acquisition during the three months ended March 31, 2025[58] - Goodwill resulting from the Mattress Firm Acquisition amounted to $3,473.0 million, reflecting future economic benefits expected from the acquisition[57] - The Mattress Firm Acquisition contributed revenue of $593.7 million and net income of $0.8 million for the three months ended March 31, 2025[59] Debt and Assets - Total assets increased significantly to $11,329.7 million from $5,980.4 million, primarily due to the acquisition of Mattress Firm[20] - Long-term debt rose to $4,920.7 million from $3,740.4 million, reflecting increased leverage following strategic acquisitions[20] - As of March 31, 2025, total debt was $5,069.9 million, an increase from $3,844.5 million as of December 31, 2024[66] - The company was in compliance with all applicable debt covenants as of March 31, 2025[68] - The company reported accrued expenses and other current liabilities of $649.3 million as of March 31, 2025, up from $393.9 million at the end of 2024[79] Inventory and Expenses - Inventory levels increased to $680.8 million, up from $447.0 million, indicating potential overstock or supply chain issues[20] - Inventories increased to $680.8 million as of March 31, 2025, compared to $447.0 million as of December 31, 2024, with finished goods rising from $300.5 million to $530.9 million[35] - The accrued warranty expense balance increased to $58.6 million as of March 31, 2025, from $33.6 million as of December 31, 2024, due to amounts accrued and liabilities assumed from the Mattress Firm Acquisition[36] - Somnigroup's depreciation and amortization expenses increased to $57.7 million in Q1 2025 from $39.2 million in Q1 2024[26] - The total stock-based compensation expense for the three months ended March 31, 2025, was $8.4 million, down from $9.2 million in the same period of 2024[80] - Capital expenditures for the three months ended March 31, 2025, totaled $24.0 million[90] Market Conditions and Future Outlook - The company anticipates ongoing challenges in the macroeconomic environment, including inflation and competition, which may impact future performance[9] - The integration of Mattress Firm is expected to enhance market share and sales growth, although realization of synergies remains uncertain[9] - The company expects no material impact from the OECD's proposed global minimum effective tax of 15.0% on its financial results in 2025[83] - The company had approximately $774.5 million remaining under its share repurchase authorization as of March 31, 2025[75] - There were no material changes to the company's foreign currency exposure for the three months ended March 31, 2025[180]

Financial Performance - First Quarter 2025 net sales increased by 34.9% to $1,604.7 million compared to $1,189.4 million in the first quarter of 2024, driven by Mattress Firm's sales of $593.7 million for the stub period[4][7] - The Company reported a net loss of $(33.1) million in the first quarter of 2025, a decline of 143.4% compared to net income of $76.3 million in the same period last year[4][7] - Adjusted net income for the first quarter of 2025 was $97.0 million, an increase of 8.1% from $89.7 million in the first quarter of 2024[4][7] - Net sales for the three months ended March 31, 2025, were $1,604.7 million, a 34.9% increase compared to $1,189.4 million in the same period of 2024[26] - Gross profit increased by 22.4% to $580.5 million from $474.3 million year-over-year[26] - Operating income decreased significantly by 90.0% to $13.2 million from $131.5 million in the prior year[26] - Adjusted earnings per common share (diluted) were $0.49, slightly down from $0.50 in the previous year[39] Debt and Liabilities - Total debt at the end of the first quarter of 2025 was $5.1 billion, with consolidated indebtedness less netted cash at $5.0 billion, resulting in a leverage ratio of 3.51 times adjusted EBITDA[13] - Total liabilities rose to $8,579.4 million from $5,412.1 million, indicating a significant increase in debt levels[29] - Total debt as of March 31, 2025, was $5,033.0 million, with consolidated indebtedness less netted cash at $4,958.8 million[53] - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility was 3.51 times for the trailing twelve months ended March 31, 2025[51] Acquisition Impact - Operating income decreased to $13.2 million in the first quarter of 2025 from $131.5 million in the same period last year, primarily due to costs associated with the Mattress Firm acquisition[7][10] - Corporate operating expenses rose to $85.0 million in the first quarter of 2025, up from $47.7 million in the same period last year, mainly due to Mattress Firm acquisition costs[13] - The company incurred $114.2 million in acquisition-related costs in Q1 2025, which included $95.4 million in cost of sales[54] - The company recognized $51.9 million in transaction costs associated with the Mattress Firm acquisition in Q1 2025[54] - The company expects to realize $100.0 million in future synergies from the Mattress Firm acquisition for adjusted EBITDA calculations[54] Margins - Gross margin for the first quarter of 2025 was 36.2%, down from 39.9% in the first quarter of 2024, while adjusted gross margin improved to 42.2% from 40.1%[7][10] - Mattress Firm's gross margin for the stub period was 32.2%, with an adjusted gross margin of 35.1%[13] - Adjusted gross profit for Q1 2025 was $677.8 million, reflecting an adjusted gross margin of 42.2%[43] - Adjusted operating income for Q1 2025 was $182.8 million, representing an adjusted operating margin of 11.4%[43] Cash Flow and Assets - Cash and cash equivalents at the end of the period were $111.1 million, down from $117.4 million at the end of 2024[29] - The company reported a net cash used in investing activities of $2,858.9 million, primarily due to acquisitions[31] - Total assets increased to $11,329.7 million as of March 31, 2025, compared to $5,980.4 million at the end of 2024[29] Other Performance Metrics - Tempur Sealy International net sales increased by 5.7% to $304.8 million compared to $288.3 million in the first quarter of 2024, driven by successful new product launches[10] - Adjusted EBITDA for Q1 2025 was $247.9 million, compared to $198.2 million in Q1 2024[48]

International Operations - The company generated approximately 29.2% of its net sales outside of the U.S. for the year ended December 31, 2024[120]. - The acquisition of Mattress Firm was completed on February 5, 2025, which is expected to enhance the company's global market share and sales growth[118]. - The company faces risks from international operations, including compliance with foreign laws and potential geopolitical conflicts, which could impair profitability[120]. Financial Performance - The company announced an increase in its quarterly dividend to $0.15 per share, effective for the first quarter of 2025[130]. - The company generated significant cash flow from operations, which is essential for funding operations, capital expenditures, and debt service[118]. - The company expects to allocate unused cash flows toward repayment of debt[133]. Regulatory and Compliance Risks - The company is subject to various regulatory requirements, including trade, environmental, health, and safety regulations, which may expose it to liability and costly expenditures[123]. - The company is exposed to risks related to climate change, which could impact its operations and financial condition[128]. Leverage and Financial Flexibility - The company operates with a certain amount of leverage, which may limit its flexibility and increase vulnerability to adverse economic conditions[118]. - The company is currently participating in multi-employer pension plans that are underfunded, with some plans in the Red Zone for 2024[126]. Share Repurchase Program - The company has repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million from 2016 through December 31, 2024[133]. - As of December 31, 2024, the company had approximately $774.5 million remaining under the share repurchase authorization[133]. - The share repurchase program was temporarily suspended while the Mattress Firm acquisition was pending[133]. - The share repurchase program may not enhance long-term stockholder value and could be affected by market conditions[133]. Corporate Governance - Delaware law and the company's bylaws contain anti-takeover provisions that could discourage third-party acquisitions[134]. - The Board of Directors could adopt a stockholder rights agreement that may complicate or discourage mergers or tender offers not approved by the Board[134]. Cybersecurity Risks - The company relies on information technology and faces risks associated with cybersecurity incidents, which could affect its business operations[119].

Financial Performance - Fourth Quarter 2024 Net Sales increased 3.2% to $1,207.9 million compared to $1,170.5 million in the fourth quarter of 2023[3] - Fourth Quarter 2024 Adjusted EPS increased 13.2% to $0.60 compared to $0.53 in the fourth quarter of 2023[3] - Consolidated net income decreased 6.7% to $71.9 million compared to $77.1 million in the fourth quarter of 2023[10] - Basic earnings per share for Q4 2024 was $0.41, down 8.9% from $0.45 in Q4 2023[24] - For the three months ended December 31, 2024, the adjusted net income was $107.2 million, an increase of 14.0% compared to $93.9 million for the same period in 2023[38] - The adjusted earnings per share (EPS) for Q4 2024 was $0.60, up from $0.53 in Q4 2023, reflecting a growth of 13.2%[38] - For the full year 2024, the adjusted net income reached $455.1 million, representing a 6.9% increase from $425.6 million in 2023[40] - The adjusted EPS for the year ended December 31, 2024, was $2.55, compared to $2.40 in 2023, marking a 6.3% increase[40] Sales and Revenue - International net sales increased 14.1% to $313.8 million, driven by successful new product launches[8] - North America net sales remained consistent at $894.1 million, with a slight decrease of 0.1% compared to the fourth quarter of 2023[7] - Net sales for Q4 2024 reached $1,207.9 million, a 3.2% increase from $1,170.5 million in Q4 2023[24] - For the full year 2024, the net sales totaled $4,930.9 million, an increase from $4,800.0 million in 2023[48] - Net sales for the full year 2023 reached $4,925.4 million, with a gross profit of $2,128.7 million, representing a gross margin of 43.2%[50] Profitability - Gross profit for the year ended December 31, 2024, was $2,180.1 million, reflecting a 2.4% increase from $2,128.7 million in 2023[24] - Operating income for Q4 2024 was $127.6 million, up 4.7% from $121.9 million in Q4 2023[24] - The adjusted gross profit for Q4 2024 was $546.6 million, with an adjusted gross margin of 45.3%, compared to $517.1 million and 44.2% in Q4 2023[43] - The gross profit for the full year 2024 was $2,180.1 million, with a gross margin of 44.2%, compared to $2,000.0 million and 42.5% in 2023[48] - Adjusted gross profit for the year was $2,152.2 million, with an adjusted gross margin of 43.7%[50] - Operating income for the full year was $607.2 million, translating to an operating margin of 12.3%[50] - Adjusted operating income increased to $695.1 million, with an adjusted operating margin of 14.1%[50] Debt and Cash Flow - The Company ended the fourth quarter of 2024 with total debt of $3.8 billion and a leverage ratio of 2.31 times[10] - Cash and cash equivalents rose to $1,709.7 million by the end of 2024, compared to $74.9 million at the end of 2023[28] - Net cash provided by operating activities for the year ended December 31, 2024, was $666.5 million, an increase from $570.3 million in 2023[28] - For the year ended December 31, 2024, adjusted EBITDA was reported at $923.8 million, with total debt net at $3,809.9 million[54] - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was 2.31 times, well below the 5.00 times limit set by the 2023 Credit Agreement[56] Dividends and Future Projections - The Company announced a 15% increase in quarterly cash dividend to $0.15 per share, marking the fifth increase in recent years[11] - For 2025, the Company expects adjusted EPS between $2.60 to $3.00, representing a 10% increase from the prior year[12] - The Company targets mid single-digit sales growth starting in 2026, with adjusted EPS projected to reach approximately $4.85 by 2028[15] Acquisitions and Costs - The Company completed the acquisition of Mattress Firm on February 5, 2025, positioning itself as the world's largest bedding company[5] - The company incurred transaction costs of $47.8 million for the year ended December 31, 2024, slightly down from $49.0 million in 2023[40] - The company incurred $12.0 million in transaction costs related to the acquisition of Mattress Firm in Q4 2024[60] - Transition charges of $26.7 million were recorded due to a customer's acquisition affecting OEM distribution[60] - Cybersecurity event costs amounted to $14.3 million for the year 2023, with a recovery of $4.9 million from insurance claims in Q4 2024[60] - Operational start-up costs for capacity expansion in the U.S. totaled $3.1 million for the year ended 2024[60]

Core Viewpoint - Wall Street analysts anticipate Tempur Sealy (TPX) to report quarterly earnings of $0.57 per share, reflecting a year-over-year increase of 7.6%, with revenues expected to reach $1.19 billion, up 1.8% from the previous year [1] Earnings Estimates - Revisions to earnings estimates are crucial indicators for predicting investor actions regarding the stock, with empirical research showing a strong correlation between earnings estimate trends and short-term stock performance [2] Key Metrics Estimates - The consensus estimate for 'Net Sales- Direct' is $312.76 million, indicating a year-over-year change of +4% [4] - 'Net Sales- Wholesale' is expected to be $872.15 million, reflecting a change of +0.3% year over year [4] - 'Net Sales- International' is projected to reach $298.50 million, suggesting an increase of +8.5% from the prior year [4] - 'Net Sales- North America' is estimated at $900.80 million, indicating a change of +0.6% from the previous year [5] - 'Net Sales- North America- Direct' is expected to be $131.40 million, reflecting a decrease of -0.9% year over year [5] - 'Net Sales- International- Direct' is projected at $181.36 million, indicating a change of +7.8% from the prior year [6] - 'Net Sales- International- Wholesale' is expected to be $115.10 million, reflecting a change of +7.7% year over year [6] - 'Net Sales- North America- Wholesale' is projected to reach $757.05 million, indicating a decrease of -0.8% from the previous year [7] Stock Performance - Tempur Sealy shares have returned +15.4% over the past month, outperforming the Zacks S&P 500 composite's +4.7% change, with a Zacks Rank 2 (Buy) indicating expected outperformance in the near future [8]

Management Changes - John Eck has stepped down as CEO of Mattress Firm, with a consulting agreement in place for a smooth transition [2] - Scott Thompson, Chairman and CEO of Tempur Sealy, will serve as Interim CEO of Mattress Firm during the transition period [2] - A new CEO for Mattress Firm is expected to be appointed within the next 6 to 9 months [2] Company Rebranding - Tempur Sealy will change its name to Somnigroup International Inc. effective February 18, 2025 [3] - Mattress Firm, Dreams, and Tempur Sealy will operate as decentralized business units under Somnigroup International [3] Business Operations - Mattress Firm and Dreams will continue to operate as multi-branded retailers, while Tempur Sealy will serve third-party retailers and direct-to-consumer channels [3] - Tempur Sealy is a leading designer, manufacturer, distributor, and retailer of bedding products, committed to improving sleep globally [4] Environmental Commitment - The company aims to achieve carbon neutrality for its global wholly owned operations by 2040 [6]

Core Viewpoint - The article emphasizes the importance of identifying and maintaining trends in short-term investing, highlighting that sound fundamentals and positive earnings estimates are crucial for sustaining momentum in stocks [1]. Group 1: Recent Price Strength Screen - The "Recent Price Strength" screen is a unique short-term trading strategy that helps identify stocks with strong fundamentals capable of maintaining an uptrend [2]. - Stocks that pass this screen are typically trading in the upper portion of their 52-week high-low range, indicating bullish sentiment [2]. Group 2: Tempur Sealy (TPX) Analysis - Tempur Sealy (TPX) has shown a solid price increase of 20.2% over the past 12 weeks, indicating investor confidence in its potential upside [3]. - The stock has also increased by 20.7% over the last four weeks, confirming that the upward trend is still intact [4]. - TPX is currently trading at 91.2% of its 52-week high-low range, suggesting it may be on the verge of a breakout [4]. Group 3: Fundamental Strength - TPX holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises [5]. - The Zacks Rank system has a strong track record, with Rank 1 stocks averaging an annual return of +25% since 1988 [6]. - TPX also has an Average Broker Recommendation of 1 (Strong Buy), reflecting high optimism from the brokerage community regarding its near-term price performance [6]. Group 4: Additional Investment Opportunities - Besides TPX, there are several other stocks that meet the criteria of the "Recent Price Strength" screen, suggesting further investment opportunities [7]. - The article encourages exploring over 45 Zacks Premium Screens tailored to different investing styles for potential winning stock picks [7].

Core Viewpoint - Tempur Sealy International, Inc. will change its name to Somnigroup International Inc. to reflect its accelerated omni-channel strategy following the acquisition of Mattress Firm, the largest mattress specialty retailer in the U.S. [1][2] Group 1: Acquisition Details - The acquisition of Mattress Firm was completed for approximately $5 billion, funded by $2.7 billion in cash and 34.2 million shares of common stock [6]. - On a pro forma basis, the company generated about $8 billion in sales over the twelve months ending December 31, 2024, with 85% from North America and 15% from international markets [3]. - The company plans to divest 73 Mattress Firm retail locations and its Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers, to MW SO Holdings Company, LLC in the second quarter of 2025 [7]. Group 2: Strategic Implications - The acquisition is expected to enhance the company's U.S. omni-channel strategy, creating a leading global bedding company with extensive manufacturing capabilities and a broader retail footprint [4]. - The company aims to improve product innovation and customer buying experience through the integration of Mattress Firm [4]. - The addition of Peter Sachse to the Board of Directors is anticipated to provide valuable insights and support for the company's growth strategy [6]. Group 3: Financial Performance and Market Position - The company reported an 80% increase in stock price since the announcement of the acquisition, reflecting shareholder confidence in the long-term strategy [5]. - Approximately 65% of the company's sales come from direct-to-consumer channels, while 35% are from third-party retailers [3].