Tempur Sealy Reports First Quarter Results

• Announces Agreement to Acquire Mattress Firm
• Reports EPS of $0.48 and Adjusted EPS⁽¹⁾ of $0.53
• Declares First Quarter Dividend of $0.11 per share
• Reaffirms 2023 Adjusted EPS⁽¹⁾ Guidance Range of $2.60 - $2.80

LEXINGTON, Ky., May 9, 2023 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX) and Mattress Firm Group Inc. ("Mattress Firm") today announced that Tempur Sealy has signed a definitive agreement to acquire Mattress Firm, the nation's largest mattress specialty retailer, in a cash and stock transaction valued at approximately $4.0 billion. The Company expects the transaction to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals. A separate press release related to the announcement of this transaction can be found on the Company's investor relations website at investor.tempursealy.com.

The Company today also announced financial results for the first quarter ended March 31, 2023 and reaffirmed financial guidance for the full year 2023.

FIRST QUARTER 2023 FINANCIAL SUMMARY

• Total net sales decreased 2.5% to $1,208.1 million as compared to $1,239.5 million in the first quarter of 2022. On a constant currency basis⁽¹⁾, total net sales decreased 0.5%, with a decrease of 1.2% in the North America business segment and an increase of 1.7% in the International business segment.
• Gross margin was 41.4% as compared to 42.2% in the first quarter of 2022. Adjusted gross margin⁽¹⁾ was 41.8% in the first quarter of 2023. There were no adjustments to gross margin in the first quarter of 2022.
• Operating income decreased 24.0% to $143.3 million as compared to $188.6 million in the first quarter of 2022. Adjusted operating income⁽¹⁾ was $153.4 million in the first quarter of 2023. There were no adjustments to operating income in the first quarter of 2022.
• Net income decreased 34.7% to $85.3 million as compared to $130.7 million in the first quarter of 2022. Adjusted net income⁽¹⁾ was $92.9 million in the first quarter of 2023. There were no adjustments to net income in the first quarter of 2022.
• Earnings per diluted share ("EPS") decreased 30.4% to $0.48 as compared to $0.69 in the first quarter of 2022. Adjusted EPS⁽¹⁾ was $0.53 in the first quarter of 2023. There were no adjustments to EPS in the first quarter of 2022.

 

KEY HIGHLIGHTS
(in millions, except percentages and per common share amounts)	Three Months Ended				% Reported Change
	March 31, 2023		March 31, 2022
Net sales	$                      1,208.1		$                      1,239.5		(2.5) %
Net income	$                           85.3		$                         130.7		(34.7) %
Adjusted net income (1)	$                           92.9		$                         130.7		(28.9) %
EPS	$                           0.48		$                           0.69		(30.4) %
Adjusted EPS (1)	$                           0.53		$                           0.69		(23.2) %

Company Chairman and CEO Scott Thompson commented, "Our first quarter performance reflects the strength of our industry-leading business model, as we continued to outperform the broader industry against a challenging operating backdrop. Though the U.S. industry conditions were slightly less favorable than anticipated as a result of heightened macroeconomic pressures, we performed largely in-line with our first quarter expectations. In the second quarter, our expectation is that our consolidated sales will return to growth year over year, supported by the strong reception to our newly launched products, encouraging order trends quarter to date, and fully lapping the challenging prior year comps in the first quarter.

Thompson continued, "Today we also announced that we have signed a definitive agreement to acquire Mattress Firm, the nation's largest mattress specialty retailer. This acquisition aligns with our strategy of acquiring companies that extend our competitive advantages, enable us to move closer to consumers, and facilitate continued innovation. This combination will complement Tempur Sealy's extensive product development and manufacturing capabilities with vertically integrated retail. The two companies have grown over the last 35 years with a mutual focus on providing customers the best sleep products in the world. We are thrilled to formally bring these teams together."

Business Segment Highlights

The Company's business segments include North America and International. Corporate operating expenses are not included in either of the business segments and are presented separately as a reconciling item to consolidated results.

North America net sales decreased 1.3% to $919.6 million as compared to $931.4 million in the first quarter of 2022. This decline was primarily driven by continued macroeconomic pressures impacting U.S. consumer behavior. On a constant currency basis⁽¹⁾, North America net sales decreased 1.2% as compared to the first quarter of 2022. Gross margin was 37.4% as compared to 37.8% in the first quarter of 2022. Adjusted gross margin⁽¹⁾ was 37.9% in the first quarter of 2023. There were no adjustments to gross margin in the first quarter of 2022. Operating margin was 14.8% as compared to 16.7% in the first quarter of 2022. Adjusted operating margin⁽¹⁾ was 15.3% in the first quarter of 2023. There were no adjustments to operating margin in the first quarter of 2022.

North America net sales through the wholesale channel decreased $7.0 million, or 0.9%, to $804.3 million, as compared to the first quarter of 2022. North America net sales through the direct channel decreased $4.8 million, or 4.0%, to $115.3 million, as compared to the first quarter of 2022.

North America adjusted gross margin⁽¹⁾ improved 10 basis points as compared to gross margin in the first quarter of 2022. The improvement was primarily driven by pricing actions, partially offset by operational headwinds and product launch costs. North America adjusted operating margin⁽¹⁾ declined 140 basis points as compared to operating margin in the first quarter of 2022. The decline was primarily driven by operating expense deleverage partially offset by the improvement in gross margin.

International net sales decreased 6.4% to $288.5 million as compared to $308.1 million in the first quarter of 2022. This decline was primarily driven by unfavorable foreign exchange. On a constant currency basis⁽¹⁾, International net sales increased 1.7% as compared to the first quarter of 2022. Gross margin was 54.0% as compared to 55.3% in the first quarter of 2022. Operating margin was 15.3% as compared to 21.7% in the first quarter of 2022.

International net sales through the wholesale channel decreased $4.5 million, or 4.0%, to $108.3 million as compared to the first quarter of 2022. International net sales through the direct channel decreased $15.1 million, or 7.7%, to $180.2 million as compared to the first quarter of 2022.

International gross margin declined 130 basis points as compared to the first quarter of 2022. The decline was primarily driven by product launch costs, offset by pricing actions. International operating margin declined 640 basis points as compared to the first quarter of 2022. The decline was primarily driven by operating expense deleverage associated with product launch costs, the decline in gross margin and Asia joint venture performance.

Corporate operating expense increased to $36.9 million as compared to $33.6 million in the first quarter of 2022. Corporate adjusted operating expense⁽¹⁾ was $31.7 million in the first quarter of 2023. There were no adjustments to operating expense in the first quarter of 2022.

Consolidated net income decreased 34.7% to $85.3 million as compared to $130.7 million in the first quarter of 2022. Adjusted net income⁽¹⁾ was $92.9 million in the first quarter of 2023. There were no adjustments to net income in the first quarter of 2022. EPS decreased 30.4% to $0.48 as compared to $0.69 in the first quarter of 2022. Adjusted EPS⁽¹⁾ was $0.53 in the first quarter of 2023. There were no adjustments to EPS in the first quarter of 2022.

The Company ended the first quarter of 2023 with total debt of $2.9 billion and consolidated indebtedness less netted cash⁽¹⁾ of $2.8 billion. Leverage based on the ratio of consolidated indebtedness less netted cash⁽¹⁾ to adjusted EBITDA⁽¹⁾ was 3.24 times for the trailing twelve months ended March 31, 2023.

During the first quarter of 2023, the Company repurchased 1.0 million shares of its common stock for a total cost of $35.7 million. Over the last twelve months, the Company has repurchased 7.4 million shares of its common stock for a total cost of $208.3 million. As of March 31, 2023, the Company had approximately $774.5 million available under its existing share repurchase authorization.

Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on June 6, 2023, to shareholders of record at the close of business on May 23, 2023.

Financial Guidance

For the full year 2023, the Company reaffirmed its expectations for an adjusted EPS⁽¹⁾ range of $2.60 to $2.80. This contemplates the Company's current sales outlook for mid single digit year-over-year growth.

The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions and risks, many of which are outside the Company's control. The Company is unable to reconcile forward–looking adjusted EPS, a non–GAAP financial measure, to EPS, its most directly comparable forward–looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact EPS in 2023.

Conference Call Information

Tempur Sealy International, Inc. will host a live conference call to discuss the announced Mattress Firm acquisition and the Company's financial results today, May 9, 2023, at 8:00 a.m. Eastern Time. The call will be webcast and can be accessed on the Company's investor relations website at investor.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days. 

Non-GAAP Financial Measures and Constant Currency Information

For additional information regarding EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash (all of which are non-GAAP financial measures), please refer to the reconciliations and other information included in the attached schedules. For information on the methodology used to present information on a constant currency basis, please refer to "Constant Currency Information" included in the attached schedules.

Forward-Looking Statements

This press release contains statements that may be characterized as "forward-looking," within the meaning of the federal securities laws. Such statements might include information concerning one or more of the Company's plans, guidance, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "assumes," "estimates," "expects," "guidance," "anticipates," "might," "projects," "plans," "proposed," "targets," "intends," "believes," "will", "contemplates" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the announced Mattress Firm acquisition, the Company's expected quarterly results and full year guidance, the Company's quarterly cash dividend, the Company's share repurchase targets, the Company's expectations regarding geopolitical events including the war in Ukraine, the macroeconomic environment including its impact on consumer behavior, foreign exchange rates and fluctuations in such rates, the bedding industry, financial infrastructure, adjusted EPS for 2023 and subsequent periods and the Company's expectations for increasing sales and adjusted EPS growth, product launches, expected hiring and advertising, capital project timelines, channel growth, acquisitions and commodities outlook. Any forward-looking statements contained herein are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations, meet its guidance, or that these beliefs will prove correct.

Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from any that may be expressed herein as forward-looking statements. These potential risks include the factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

About Tempur Sealy International, Inc.

Tempur Sealy is committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and retailer of bedding products worldwide, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our popular non-branded offerings consist of value-focused private label and OEM products. At Tempur Sealy we understand the importance of meeting our customers wherever and however they want to shop and have developed a powerful omni-channel retail strategy. Our products allow for complementary merchandising strategies and are sold through third-party retailers, our over 700 Company-owned stores worldwide and our e-commerce channels. With the range of our offerings and variety of purchasing options, we are dedicated to continuing to turn our mission to improve the sleep of more people, every night, all around the world into a reality.

Importantly, we are committed to carrying out our global responsibility to protect the environment and the communities in which we operate. As part of that commitment, we have established the goal of achieving carbon neutrality for our global wholly owned operations by 2040.

Investor Relations Contact:

Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com

(1) This is a non-GAAP financial measure. Please refer to "Non-GAAP Financial Measures and Constant Currency Information" below.

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in millions, except percentages and per common share amounts)
(unaudited)
	Three Months Ended
	March 31,				Chg %
	2023		2022
Net sales	$                       1,208.1		$                       1,239.5		(2.5) %
Cost of sales	708.2		716.7
Gross profit	499.9		522.8		(4.4) %
Selling and marketing expenses	256.7		243.5
General, administrative and other expenses	104.5		97.6
Equity income in earnings of unconsolidated affiliates	(4.6)		(6.9)
Operating income	143.3		188.6		(24.0) %
Other expense, net:
Interest expense, net	32.8		20.9
Other expense (income), net	0.1		(1.3)
Total other expense, net	32.9		19.6
Income before income taxes	110.4		169.0		(34.7) %
Income tax provision	(24.5)		(38.1)
Net income before non-controlling interest	85.9		130.9		(34.4) %
Less: Net income attributable to non-controlling interest	0.6		0.2
Net income attributable to Tempur Sealy International, Inc.	$                            85.3		$                          130.7		(34.7) %
Earnings per common share:
Basic	$                            0.50		$                            0.72		(30.6) %
Diluted	$                            0.48		$                            0.69		(30.4) %
Weighted average common shares outstanding:
Basic	172.0		182.6
Diluted	176.8		188.5

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in millions)
	March 31, 2023		December 31, 2022
ASSETS	(unaudited)
Current Assets:
Cash and cash equivalents	$                           91.0		$                        69.4
Accounts receivable, net	461.5		422.6
Inventories	566.7		555.0
Prepaid expenses and other current assets	151.4		148.2
Total Current Assets	1,270.6		1,195.2
Property, plant and equipment, net	823.2		791.1
Goodwill	1,069.8		1,062.3
Other intangible assets, net	714.6		715.8
Operating lease right-of-use assets	563.1		506.8
Deferred income taxes	12.7		11.3
Other non-current assets	83.1		77.3
Total Assets	$                      4,537.1		$                   4,359.8
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$                         368.1		$                      359.8
Accrued expenses and other current liabilities	441.8		432.7
Short-term operating lease obligations	113.5		105.5
Current portion of long-term debt	74.0		70.4
Income taxes payable	25.4		12.8
Total Current Liabilities	1,022.8		981.2
Long-term debt, net	2,769.0		2,739.9
Long-term operating lease obligations	501.3		453.5
Deferred income taxes	116.5		114.0
Other non-current liabilities	83.9		83.5
Total Liabilities	4,493.5		4,372.1
Redeemable non-controlling interest	8.9		9.8
Total Stockholders' Equity (Deficit)	34.7		(22.1)
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit)	$                      4,537.1		$                   4,359.8

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
	Three Months Ended
	March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before non-controlling interest	$                        85.9		$                      130.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33.8		30.4
Amortization of stock-based compensation	10.8		13.8
Amortization of deferred financing costs	1.0		1.0
Bad debt expense	1.7		1.6
Deferred income taxes	0.7		(1.0)
Dividends received from unconsolidated affiliates	1.5		1.1
Equity income in earnings of unconsolidated affiliates	(4.6)		(6.9)
Foreign currency adjustments and other	(0.8)		(0.1)
Changes in operating assets and liabilities, net of effect of business acquisitions	(30.2)		(85.2)
Net cash provided by operating activities	99.8		85.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(52.1)		(60.3)
Other	0.1		1.0
Net cash used in investing activities	(52.0)		(59.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long-term debt obligations	509.8		528.1
Repayments of borrowings under long-term debt obligations	(477.4)		(216.0)
Proceeds from exercise of stock options	0.8		0.1
Treasury stock repurchased	(35.7)		(494.8)
Dividends paid	(20.8)		(18.7)
Repayments of finance lease obligations and other	(5.1)		(3.5)
Net cash used in financing activities	(28.4)		(204.8)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	2.2		(5.9)
Increase (decrease) in cash and cash equivalents	21.6		(184.4)
CASH AND CASH EQUIVALENTS, beginning of period	69.4		300.7
CASH AND CASH EQUIVALENTS, end of period	$                        91.0		$                      116.3

Summary of Channel Sales

The following table highlights net sales information, by channel and by business segment, for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
(in millions)	Consolidated				North America				International
	2023		2022		2023		2022		2023		2022
Wholesale (a)	$                 912.6		$                 924.1		$                 804.3		$                 811.3		$                 108.3		$                 112.8
Direct (b)	295.5		315.4		115.3		120.1		180.2		195.3
	$              1,208.1		$              1,239.5		$                 919.6		$                 931.4		$                 288.5		$                 308.1

(a)	The Wholesale channel includes all third party retailers, including third party distribution, hospitality and healthcare.
(b)	The Direct channel includes company-owned stores, online and call centers.

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(in millions, except percentages, ratios and per common share amounts)

The Company provides information regarding adjusted net income, EBITDA, adjusted EBITDA, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance, or an alternative to total debt as a measure of liquidity. The Company believes these non-GAAP financial measures provide investors with performance measures that better reflect the Company's underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin. The adjustments management makes to derive the non-GAAP financial measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP financial measure, but which management does not consider to be the fundamental attributes or primary drivers of the Company's business.

The Company believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying results from operations and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company's business, to evaluate its consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP financial measures include that these measures do not present all of the amounts associated with the Company's results as determined in accordance with GAAP. These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable financial measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information about these non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure, please refer to the reconciliations on the following pages.

Constant Currency Information

In this press release the Company refers to, and in other press releases and other communications with investors the Company may refer to, net sales, earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure. These references to constant currency do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance.

Adjusted Net Income and Adjusted EPS

A reconciliation of reported net income to adjusted net income and the calculation of adjusted EPS is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes at the end of this release.

The following table sets forth the reconciliation of the Company's reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended March 31, 2023 and 2022:

	Three Months Ended
(in millions, except per share amounts)	March 31, 2023		March 31, 2022
Net income	$                           85.3		$                        130.7
Restructuring costs and other (1)	5.2		—
ERP system transition (2)	3.2		—
Operational start-up costs (3)	1.7		—
Adjusted income tax provision (4)	(2.5)		—
Adjusted net income	$                           92.9		$                        130.7
Adjusted earnings per common share, diluted	$                           0.53		$                          0.69
Diluted shares outstanding	176.8		188.5

Please refer to Footnotes at the end of this release.

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

A reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin, respectively, and operating income (expense) and operating margin to adjusted operating income (expense) and adjusted operating margin, respectively, are provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes at the end of this release.

The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended March 31, 2023.

	1Q 2023
(in millions, except percentages)	Consolidated		Margin		North America		Margin		International		Margin		Corporate
Net sales	$          1,208.1				$            919.6				$            288.5				$                 —
Gross profit	$             499.9		41.4 %		$            344.0		37.4 %		$            155.9		54.0 %		$                 —
Adjustments:
ERP system transition (2)	3.2				3.2				—				—
Operational start-up costs (3)	1.7				1.7				—				—
Total adjustments	4.9				4.9				—				—
Adjusted gross profit	$             504.8		41.8 %		$            348.9		37.9 %		$            155.9		54.0 %		$                 —
Operating income (expense)	$             143.3		11.9 %		$            136.0		14.8 %		$              44.2		15.3 %		$            (36.9)
Adjustments:
Restructuring costs and other (1)	5.2				—				—				5.2
ERP system transition (2)	3.2				3.2				—				—
Operational start-up costs (3)	1.7				1.7				—				—
Total adjustments	10.1				4.9				—				5.2
Adjusted operating income (expense)	$             153.4		12.7 %		$            140.9		15.3 %		$              44.2		15.3 %		$            (31.7)

The following table sets forth the Company's reported gross profit and operating income (expense) for the three months ended March 31, 2022. The Company had no adjustments to gross profit or operating income (expense) for the three months ended March 31, 2022.

	1Q 2022
(in millions, except percentages)	Consolidated		Margin		North America		Margin		International		Margin		Corporate
Net sales	$          1,239.5				$            931.4				$             308.1				$                 —
Gross profit	$             522.8		42.2 %		$            352.4		37.8 %		$             170.4		55.3 %		$                 —
Operating income (expense)	$             188.6		15.2 %		$            155.4		16.7 %		$               66.8		21.7 %		$            (33.6)

Please refer to Footnotes at the end of this release.

EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash

The following reconciliations are provided below:

• Net income to EBITDA and adjusted EBITDA
• Ratio of consolidated indebtedness less netted cash to adjusted EBITDA
• Total debt, net to consolidated indebtedness less netted cash

Management believes that presenting these non-GAAP measures provides investors with useful information with respect to the Company's operating performance, cash flow generation and comparisons from period to period, as well as general information about the Company's leverage.

The Company's credit agreement (the "2019 Credit Agreement") provides the definition of adjusted EBITDA. Accordingly, the Company presents adjusted EBITDA to provide information regarding the Company's compliance with requirements under the 2019 Credit Agreement.

The following table sets forth the reconciliation of the Company's reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended March 31, 2023 and 2022:

	Three Months Ended
(in millions)	March 31, 2023		March 31, 2022
Net income	$                         85.3		$                      130.7
Interest expense, net	32.8		20.9
Income taxes	24.5		38.1
Depreciation and amortization	45.0		44.8
EBITDA	$                       187.6		$                      234.5
Adjustments:
Restructuring costs and other(1)	5.2		—
ERP system transition (2)	3.2		—
Operational start-up costs (3)	1.7		—
Adjusted EBITDA	$                       197.7		$                      234.5

Please refer to Footnotes at the end of this release.

The following table sets forth the reconciliation of the Company's net income to the calculations of EBITDA and adjusted EBITDA for the trailing twelve months ended March 31, 2023:

	Trailing Twelve Months Ended
(in millions)	March 31, 2023
Net income	$                                                           410.3
Interest expense, net	114.9
Income tax provision	105.4
Depreciation and amortization	182.2
EBITDA	$                                                           812.8
Adjustments:
Loss from discontinued operations, net of tax (5)	0.4
ERP system transition (2)	18.7
Restructuring costs and other (1)	15.2
Operational start-up costs (3)	8.2
Adjusted EBITDA	$                                                           855.3
Consolidated indebtedness less netted cash	$                                                        2,772.7
Ratio of consolidated indebtedness less netted cash to adjusted EBITDA	3.24 times

Under the 2019 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA. For the trailing twelve months ended March 31, 2023, the Company's adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2019 Credit Agreement.

The ratio of consolidated indebtedness less netted cash to adjusted EBITDA is 3.24 times for the trailing twelve months ended March 31, 2023. The 2019 Credit Agreement requires the Company to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times.

The following table sets forth the reconciliation of the Company's reported total debt to the calculation of consolidated indebtedness less netted cash as of March 31, 2023. "Consolidated Indebtedness" and "Netted Cash" are terms used in the 2019 Credit Agreement for purposes of certain financial covenants.

(in millions)	March 31, 2023
Total debt, net	$                                2,843.0
Plus: Deferred financing costs (6)	19.6
Consolidated indebtedness	2,862.6
Less: Netted cash (7)	89.9
Consolidated indebtedness less netted cash	$                                2,772.7

Please refer to Footnotes at the end of this release.

 

Footnotes:

(1)	In the first quarter of 2023, the Company recorded $5.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm. In the trailing twelve months ended March 31, 2023, the Company recognized $15.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm and headcount reductions related to organizational changes.
(2)	In the first quarter of 2023, the Company recorded $3.2 million of charges related to the transition of its ERP system, including labor, logistics, training and travel. In the trailing twelve months ended March 31, 2023, the Company recognized $18.7 million of charges related to the transition of its ERP system.
(3)	In the first quarter of 2023, the Company recorded $1.7 million of operational start-up costs related to the capacity expansion of its manufacturing and distribution facilities in the U.S., including personnel and facility related costs. In the trailing twelve months ended March 31, 2023, the Company recognized $8.2 million of operational start-up costs.
(4)	Adjusted income tax provision represents the tax effects associated with the aforementioned items.
(5)	Certain subsidiaries in the International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement. Therefore, these subsidiaries are excluded from the Company's adjusted financial measures for covenant compliance purposes.
(6)	The Company presents deferred financing costs as a direct reduction from the carrying amount of the related debt in the Condensed Consolidated Balance Sheets. For purposes of determining total debt for financial covenant purposes, the Company has added these costs back to total debt, net as calculated per the Condensed Consolidated Balance Sheets.
(7)	Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as restricted subsidiaries in the 2019 Credit Agreement.

 

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SOURCE Tempur Sealy International, Inc.