- Consolidated Net Sales Increases 4.8% to Approximately
$1.3 Billion
- Expands Consolidated Gross Margins and Operating
Margins
- Realizes Robust Cash Flow from Operations of Approximately
$150 Million
- Declares Third Quarter Dividend of $0.11 per share
LEXINGTON, Ky., Aug. 3, 2023
/PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX)
announced financial results for the second quarter ended
June 30, 2023 and updated financial
guidance for the full year 2023.
SECOND QUARTER 2023 FINANCIAL
SUMMARY
- Total net sales increased 4.8% to $1,269.7 million as compared to $1,211.0 million in the second quarter of 2022.
On a constant currency basis(1), total net sales
increased 5.0%, with an increase of 5.3% in the North America business segment and an increase
of 3.9% in the International business segment.
- Gross margin was 42.7% as compared to 41.0% in the second
quarter of 2022. Adjusted gross margin(1) was 42.9% as
compared to 41.7% in the second quarter of 2022.
- Operating income increased 10.4% to $158.8 million as compared to $143.9 million in the second quarter of 2022.
Adjusted operating income(1) was $171.8 million as compared to $159.9 million in the second quarter of
2022.
- Net income increased 2.0% to $92.4
million as compared to $90.6
million in the second quarter of 2022. Adjusted net
income(1) was $102.0
million as compared to $103.2
million in the second quarter of 2022.
- Earnings per diluted share ("EPS") increased 2.0% to
$0.52 as compared to $0.51 in the second quarter of 2022. Adjusted
EPS(1) was $0.58 in the
second quarter of 2023 and 2022.
KEY
HIGHLIGHTS
|
|
(in millions, except
percentages and per common share amounts)
|
Three Months
Ended
|
|
%
Reported
Change
|
June 30,
2023
|
|
June 30,
2022
|
Net sales
|
$
1,269.7
|
|
$
1,211.0
|
|
4.8 %
|
Net income
|
$
92.4
|
|
$
90.6
|
|
2.0 %
|
Adjusted net income
(1)
|
$
102.0
|
|
$
103.2
|
|
(1.2) %
|
EPS
|
$
0.52
|
|
$
0.51
|
|
2.0 %
|
Adjusted EPS
(1)
|
$
0.58
|
|
$
0.58
|
|
— %
|
Company Chairman and CEO Scott
Thompson commented, "Our continued market outperformance in
the second quarter reflects the momentum we are driving through our
execution of our long term initiatives. All three of our leading
U.S. brands - Tempur, Sealy and Stearns & Foster - performed
well in the quarter, significantly ahead of where we believe the
U.S. industry trended. We were also pleased with the second quarter
performance of our International business. The successful Tempur
international launch, combined with Dreams' crisp retail execution,
is driving continued share gains worldwide and positioning us well
for the future. This quarter's results were delivered in markets
that were a bit less robust than we expected. Our global industry
outperformance partially mitigated the negative impact of these
headwinds. While we look forward to a recovering market, this
challenged environment has allowed us to demonstrate the strength
of our global business model as we realized solid earnings and
strong operating cash flows.
"Regarding the pending Mattress Firm acquisition, we are
currently responding to the Federal Trade Commission's second
request. Mattress Firm's recent quarterly results, which it
reported yesterday, were consistent with our expectations. We
continue to expect to close the transaction in 2024 and look
forward to bringing the Mattress Firm team onboard."
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 increased 5.4% to $1,016.8 million as
compared to $964.7 million in
the second quarter of 2022, primarily driven by the
success of new product launches for Tempur and Stearns &
Foster. On a constant currency basis(1), North America net sales increased 5.3% as
compared to the second quarter of 2022. Gross margin was
39.7% as compared to 37.9% in the second quarter of 2022. Adjusted
gross margin(1) was 39.9% as compared to 38.7% in the
second quarter of 2022. Operating margin was 17.1% as compared to
15.1% in the second quarter of 2022. Adjusted operating
margin(1) was 17.4% as compared to 16.5% in the second
quarter of 2022.
North America net sales through
the wholesale channel increased $48.2
million, or 5.7%, to $896.0
million, as compared to the second quarter of 2022.
North America net sales through
the direct channel increased $3.9
million, or 3.3%, to $120.8
million, as compared to the second quarter of
2022.
North America adjusted gross
margin(1) improved 120 basis points as compared
to the second quarter of 2022. The improvement was
primarily driven by pricing actions and normalizing commodity
costs, partially offset by product launch costs and operational
headwinds. North America adjusted
operating margin(1) improved 90 basis points as compared
to the second quarter of 2022. The improvement was primarily driven
by the improvement in gross margin.
International net
sales increased 2.7% to $252.9 million as compared to $246.3
million in the second quarter of 2022. On a constant
currency basis(1), International net sales increased
3.9% as compared to the second quarter of 2022. Gross margin was
54.9% as compared to 53.1% in the second quarter of 2022. Operating
margin was 13.4% as compared to 14.5% in the second quarter of
2022.
International net sales through the wholesale channel increased
$1.9 million, or 2.1%, to
$93.2 million as compared to the
second quarter of 2022. International net sales through the direct
channel increased $4.7 million, or
3.0%, to $159.7 million as compared
to the second quarter of 2022.
International gross margin improved 180 basis points as compared
to the second quarter of 2022. The improvement was primarily driven
by favorable mix and pricing actions. International operating
margin declined 110 basis points as compared to the second quarter
of 2022. The decline was primarily driven by operating expense
deleverage to support product launch initiatives, partially offset
by the improvement in gross margin.
Corporate operating expense increased to
$49.2 million as compared to
$38.0 million in the second quarter
of 2022, primarily driven by transaction costs of $10.6 million related to the pending acquisition
of Mattress Firm. Corporate adjusted operating
expense(1) was $38.6
million as compared to $34.7
million in the second quarter of 2022.
Consolidated net income increased 2.0% to $92.4 million as compared to $90.6 million in the second quarter
of 2022. Adjusted net income(1) decreased 1.2% to
$102.0 million as compared to
$103.2 million in the second quarter
of 2022. EPS increased 2.0% to $0.52 as compared to $0.51 in the second quarter
of 2022. Adjusted EPS(1) was $0.58 in the second quarter of 2023 and 2022.
The Company ended the second quarter of 2023 with total debt of
$2.8 billion and consolidated
indebtedness less netted cash(1) of $2.7 billion.
Leverage based on the ratio of consolidated indebtedness less
netted cash(1) to adjusted
EBITDA(1) was 3.10 times for the trailing
twelve months ended June 30, 2023.
Additionally, today the Company announced that its Board of
Directors declared a quarterly cash dividend of $0.11 per share, payable on August 31, 2023,
to shareholders of record at the close of business on
August 17, 2023.
Recent Events
As previously disclosed, the Company identified a cybersecurity
event on July 23, 2023, involving
certain of the Company's information technology ("IT") systems. The
Company has begun the process to bring certain of its critical IT
systems back online and has resumed operations. The forensic
investigation remains ongoing and the Company continues to assess
the impact of this event on its business, operations, and financial
results.
Financial Guidance
For the full year 2023, the Company updated its expectations for
an adjusted EPS(1) range of $2.50 to $2.70.
This contemplates the Company's current outlook that sales will be
flat to slightly up versus prior year.
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 financial results today, August 3, 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 Company's expectations regarding the
impact of the cybersecurity incident on its business, operations
and financial results, 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
including, among others, the ongoing forensic investigation of the
cybersecurity incident, the effectiveness of the Company's incident
response and the business continuity plans and the ongoing
assessment of the impact of the cybersecurity event on its
business, operations and financial results. These potential risks
include the factors discussed in the Company's Annual Report on
Form 10-K for the year ended December 31, 2022 and in the
Company's Quarterly Reports on Form 10-Q for the quarter ended
March 31, 2023. 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
|
|
|
|
Six Months
Ended
|
|
|
|
June
30,
|
|
Chg %
|
|
June
30,
|
|
Chg %
|
|
2023
|
|
2022
|
|
|
|
2023
|
|
2022
|
|
|
Net sales
|
$ 1,269.7
|
|
$ 1,211.0
|
|
4.8 %
|
|
$ 2,477.8
|
|
$ 2,450.5
|
|
1.1 %
|
Cost of
sales
|
727.4
|
|
714.5
|
|
|
|
1,435.6
|
|
1,431.2
|
|
|
Gross profit
|
542.3
|
|
496.5
|
|
9.2 %
|
|
1,042.2
|
|
1,019.3
|
|
2.2 %
|
Selling and marketing
expenses
|
270.2
|
|
252.9
|
|
|
|
526.9
|
|
496.4
|
|
|
General, administrative
and other expenses
|
117.5
|
|
102.3
|
|
|
|
222.0
|
|
199.9
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(4.2)
|
|
(2.6)
|
|
|
|
(8.8)
|
|
(9.5)
|
|
|
Operating
income
|
158.8
|
|
143.9
|
|
10.4 %
|
|
302.1
|
|
332.5
|
|
(9.1) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
33.6
|
|
23.7
|
|
|
|
66.4
|
|
44.6
|
|
|
Other (income)
expense, net
|
(0.2)
|
|
0.7
|
|
|
|
(0.1)
|
|
(0.6)
|
|
|
Total other expense,
net
|
33.4
|
|
24.4
|
|
|
|
66.3
|
|
44.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
125.4
|
|
119.5
|
|
4.9 %
|
|
235.8
|
|
288.5
|
|
(18.3) %
|
Income tax
provision
|
(32.2)
|
|
(28.3)
|
|
|
|
(56.7)
|
|
(66.4)
|
|
|
Net income before
non-controlling interest
|
93.2
|
|
91.2
|
|
2.2 %
|
|
179.1
|
|
222.1
|
|
(19.4) %
|
Less: Net income
attributable to non-controlling interest
|
0.8
|
|
0.6
|
|
|
|
1.4
|
|
0.8
|
|
|
Net income attributable
to Tempur Sealy International, Inc.
|
$
92.4
|
|
$
90.6
|
|
2.0 %
|
|
$
177.7
|
|
$
221.3
|
|
(19.7) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
0.54
|
|
$
0.52
|
|
3.8 %
|
|
$
1.03
|
|
$
1.24
|
|
(16.9) %
|
Diluted
|
$
0.52
|
|
$
0.51
|
|
2.0 %
|
|
$
1.01
|
|
$
1.20
|
|
(15.8) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
172.1
|
|
174.1
|
|
|
|
172.1
|
|
178.3
|
|
|
Diluted
|
176.8
|
|
178.8
|
|
|
|
176.8
|
|
183.7
|
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(in
millions)
|
|
|
June 30,
2023
|
|
December 31,
2022
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
101.8
|
|
$
69.4
|
Accounts receivable,
net
|
476.1
|
|
422.6
|
Inventories
|
529.3
|
|
555.0
|
Prepaid expenses and
other current assets
|
146.9
|
|
148.2
|
Total Current
Assets
|
1,254.1
|
|
1,195.2
|
Property, plant and
equipment, net
|
850.9
|
|
791.1
|
Goodwill
|
1,080.9
|
|
1,062.3
|
Other intangible
assets, net
|
717.6
|
|
715.8
|
Operating lease
right-of-use assets
|
568.0
|
|
506.8
|
Deferred income
taxes
|
12.7
|
|
11.3
|
Other non-current
assets
|
86.6
|
|
77.3
|
Total Assets
|
$
4,570.8
|
|
$
4,359.8
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
362.6
|
|
$
359.8
|
Accrued expenses and
other current liabilities
|
452.8
|
|
432.7
|
Short-term operating
lease obligations
|
114.8
|
|
105.5
|
Current portion of
long-term debt
|
73.6
|
|
70.4
|
Income taxes
payable
|
2.9
|
|
12.8
|
Total Current
Liabilities
|
1,006.7
|
|
981.2
|
Long-term debt,
net
|
2,707.5
|
|
2,739.9
|
Long-term operating
lease obligations
|
507.3
|
|
453.5
|
Deferred income
taxes
|
117.6
|
|
114.0
|
Other non-current
liabilities
|
84.2
|
|
83.5
|
Total
Liabilities
|
4,423.3
|
|
4,372.1
|
|
|
|
|
Redeemable
non-controlling interest
|
9.4
|
|
9.8
|
|
|
|
|
Total Stockholders'
Equity (Deficit)
|
138.1
|
|
(22.1)
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders' Equity
(Deficit)
|
$
4,570.8
|
|
$
4,359.8
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(in
millions)
(unaudited)
|
|
|
Six Months
Ended
|
|
June
30,
|
|
2023
|
|
2022
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income before
non-controlling interest
|
$
179.1
|
|
$
222.1
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
66.4
|
|
61.3
|
Amortization of
stock-based compensation
|
24.2
|
|
26.9
|
Amortization of
deferred financing costs
|
1.9
|
|
1.9
|
Bad debt
expense
|
4.2
|
|
3.8
|
Deferred income
taxes
|
0.8
|
|
(6.7)
|
Dividends received
from unconsolidated affiliates
|
3.4
|
|
3.9
|
Equity income in
earnings of unconsolidated affiliates
|
(8.8)
|
|
(9.5)
|
Foreign currency
adjustments and other
|
(1.1)
|
|
0.2
|
Changes in operating
assets and liabilities
|
(19.6)
|
|
(237.4)
|
Net cash provided by
operating activities
|
250.5
|
|
66.5
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of property,
plant and equipment
|
(112.7)
|
|
(130.2)
|
Other
|
0.4
|
|
1.1
|
Net cash used in
investing activities
|
(112.3)
|
|
(129.1)
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
1,005.7
|
|
1,317.9
|
Repayments of
borrowings under long-term debt obligations
|
(1,033.3)
|
|
(771.7)
|
Proceeds from exercise
of stock options
|
0.8
|
|
0.2
|
Treasury stock
repurchased
|
(35.9)
|
|
(612.0)
|
Dividends
paid
|
(39.8)
|
|
(36.2)
|
Repayments of finance
lease obligations and other
|
(8.9)
|
|
(8.4)
|
Net cash used in
financing activities
|
(111.4)
|
|
(110.2)
|
|
|
|
|
NET EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
5.6
|
|
(17.6)
|
Increase (decrease) in
cash and cash equivalents
|
32.4
|
|
(190.4)
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
69.4
|
|
300.7
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
101.8
|
|
$
110.3
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by business segment, for the three months
ended June 30, 2023 and 2022:
|
Three Months Ended
June 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Wholesale
(a)
|
$
989.2
|
|
$
939.1
|
|
$
896.0
|
|
$
847.8
|
|
$
93.2
|
|
$
91.3
|
Direct
(b)
|
280.5
|
|
271.9
|
|
120.8
|
|
116.9
|
|
159.7
|
|
155.0
|
|
$
1,269.7
|
|
$
1,211.0
|
|
$
1,016.8
|
|
$
964.7
|
|
$
252.9
|
|
$
246.3
|
|
|
(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 June 30, 2023 and 2022:
|
Three Months
Ended
|
(in millions, except
per share amounts)
|
June 30,
2023
|
|
June 30,
2022
|
Net income
|
$
92.4
|
|
$
90.6
|
Transaction costs
(1)
|
10.6
|
|
—
|
Operational start-up
costs (2)
|
2.4
|
|
3.1
|
ERP system transition
(3)
|
—
|
|
9.4
|
Restructuring costs
(4)
|
—
|
|
4.1
|
Adjusted income tax
provision (5)
|
(3.4)
|
|
(4.0)
|
Adjusted net
income
|
$
102.0
|
|
$
103.2
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
0.58
|
|
$
0.58
|
|
|
|
|
Diluted shares
outstanding
|
176.8
|
|
178.8
|
|
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 June 30,
2023:
|
2Q
2023
|
(in millions, except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
1,269.7
|
|
|
|
$
1,016.8
|
|
|
|
$
252.9
|
|
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
542.3
|
|
42.7 %
|
|
$
403.4
|
|
39.7 %
|
|
$
138.9
|
|
54.9 %
|
|
$
—
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operational start-up
costs (2)
|
2.4
|
|
|
|
2.4
|
|
|
|
—
|
|
|
|
—
|
Adjusted gross
profit
|
$
544.7
|
|
42.9 %
|
|
$
405.8
|
|
39.9 %
|
|
$
138.9
|
|
54.9 %
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
158.8
|
|
12.5 %
|
|
$
174.1
|
|
17.1 %
|
|
$
33.9
|
|
13.4 %
|
|
$
(49.2)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs
(1)
|
10.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.6
|
Operational start-up
costs (2)
|
2.4
|
|
|
|
2.4
|
|
|
|
—
|
|
|
|
—
|
Total
adjustments
|
13.0
|
|
|
|
2.4
|
|
|
|
—
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (expense)
|
$
171.8
|
|
13.5 %
|
|
$
176.5
|
|
17.4 %
|
|
$
33.9
|
|
13.4 %
|
|
$
(38.6)
|
|
Please refer to
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 June 30, 2022:
|
2Q
2022
|
(in millions, except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
1,211.0
|
|
|
|
$
964.7
|
|
|
|
$
246.3
|
|
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
496.5
|
|
41.0 %
|
|
$
365.8
|
|
37.9 %
|
|
$
130.7
|
|
53.1 %
|
|
$
—
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ERP system transition
(3)
|
5.4
|
|
|
|
5.4
|
|
|
|
—
|
|
|
|
—
|
Operational start-up
costs (2)
|
2.5
|
|
|
|
2.5
|
|
|
|
—
|
|
|
|
—
|
Total
adjustments
|
7.9
|
|
|
|
7.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross
profit
|
$
504.4
|
|
41.7 %
|
|
$
373.7
|
|
38.7 %
|
|
$
130.7
|
|
53.1 %
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
143.9
|
|
11.9 %
|
|
$
146.1
|
|
15.1 %
|
|
$
35.8
|
|
14.5 %
|
|
$
(38.0)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ERP system transition
(3)
|
9.4
|
|
|
|
8.2
|
|
|
|
—
|
|
|
|
1.2
|
Restructuring costs
(4)
|
3.9
|
|
|
|
1.8
|
|
|
|
—
|
|
|
|
2.1
|
Operational start-up
costs (2)
|
2.7
|
|
|
|
2.7
|
|
|
|
—
|
|
|
|
—
|
Total
adjustments
|
16.0
|
|
|
|
12.7
|
|
|
|
—
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (expense)
|
$
159.9
|
|
13.2 %
|
|
$
158.8
|
|
16.5 %
|
|
$
35.8
|
|
14.5 %
|
|
$
(34.7)
|
|
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 June 30, 2023 and 2022:
|
Three Months
Ended
|
(in
millions)
|
June 30,
2023
|
|
June 30,
2022
|
Net income
|
$
92.4
|
|
$
90.6
|
Interest expense,
net
|
33.6
|
|
23.7
|
Income
taxes
|
32.2
|
|
28.3
|
Depreciation and
amortization
|
46.3
|
|
44.2
|
EBITDA
|
$
204.5
|
|
$
186.8
|
Adjustments:
|
|
|
|
Transaction costs
(1)
|
10.6
|
|
—
|
Operational start-up
costs (2)
|
2.4
|
|
3.1
|
ERP system transition
(3)
|
—
|
|
9.4
|
Restructuring costs
(4)
|
—
|
|
4.1
|
Adjusted
EBITDA
|
$
217.5
|
|
$
203.4
|
|
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 June 30, 2023:
|
Trailing Twelve
Months Ended
|
(in
millions)
|
June 30,
2023
|
Net income
|
$
412.1
|
Interest expense,
net
|
124.8
|
Income tax
provision
|
109.3
|
Depreciation and
amortization
|
184.3
|
EBITDA
|
$
830.5
|
Adjustments:
|
|
Loss from discontinued
operations, net of tax (6)
|
0.4
|
Transaction costs
(1)
|
15.8
|
ERP system transition
(3)
|
9.3
|
Operational start-up
costs (2)
|
7.5
|
Restructuring costs
(4)
|
5.9
|
Adjusted
EBITDA
|
$
869.4
|
|
|
Consolidated
indebtedness less netted cash
|
$
2,699.1
|
|
|
Ratio of consolidated
indebtedness less netted cash to adjusted EBITDA
|
3.10 times
|
|
Please refer to
Footnotes at the end of this release.
|
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 June 30, 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 3.10 times for the trailing twelve months ended
June 30, 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 June 30,
2023. "Consolidated Indebtedness" and "Netted Cash" are
terms used in the 2019 Credit Agreement for purposes of certain
financial covenants.
(in
millions)
|
June 30,
2023
|
Total debt,
net
|
$
2,781.1
|
Plus: Deferred
financing costs (7)
|
18.8
|
Consolidated
indebtedness
|
2,799.9
|
Less: Netted cash
(8)
|
100.8
|
Consolidated
indebtedness less netted cash
|
$
2,699.1
|
|
Please refer to
Footnotes at the end of this release.
|
Footnotes:
(1)
|
In the second quarter
of 2023, the Company recorded $10.6 million of transaction costs,
primarily related to legal and professional fees associated with
the pending acquisition of Mattress Firm. In the trailing twelve
months ended June 30, 2023, the Company recognized $15.8 million of
transaction costs associated with the pending acquisition of
Mattress Firm.
|
(2)
|
In the second quarter
of 2023, the Company recorded $2.4 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 second quarter of 2022, the Company
incurred $3.1 million of operational start-up costs, including $0.4
million of other expense. In the trailing twelve months ended June
30, 2023, the Company recognized $7.5 million of operational
start-up costs.
|
(3)
|
In the second quarter
of 2022, the Company recorded $9.4 million of charges related to
the transition of its ERP system. In the trailing twelve months
ended June 30, 2023, the Company recognized $9.3 million of charges
related to the transition of its ERP system.
|
(4)
|
In the second quarter
of 2022, the Company recorded $4.1 million of restructuring costs
primarily associated with headcount reductions, including $0.2
million of other expense. In the trailing twelve months ended June
30, 2023, the Company recognized $5.9 million of restructuring
costs primarily associated with headcount reductions related to
organizational changes.
|
(5)
|
Adjusted income tax
provision represents the tax effects associated with the
aforementioned items.
|
(6)
|
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.
|
(7)
|
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.
|
(8)
|
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.