Tempur Sealy International, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Tempur-Sealy 4th Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Aubrey Moore, Investor Relations. Thank you. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone, and thank you for participating in today's call. Joining me in our headquarters are Scott Thompson, Chairman, President, and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A. Forward-looking statements that we make during this call are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements, including the company's expectations regarding sales, earnings, net income, and adjusted EBITDA, and the anticipated performance for 2021 and subsequent periods involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's business. The factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating, and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings, including but not limited to annual reports on Form 10-K and the company's quarterly reports on Form 10-Q under the headings Special Notes Regarding Forward-Looking Statements and or Risk Factors. Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will include non-GAAP financial information. The press release contains reconciliations of this non-GAAP financial information to the most directly comparable GAAP information, except as otherwise discussed in the press release, as well as information regarding methodology used in our constant currency presentations. We have posted the press release on the company's investor website at investor.tempersealy.com and have also filed it with the SEC. Our comments will supplement the detailed information provided in the press release. And now, with that introduction, it's my pleasure to turn the call over to Scott.

Thank you, Aubrey. Good morning, and thank you for joining us on our 2020 fourth quarter full-year earnings call. Our thoughts continue to be with those around the world whose lives have been impacted by the global health crisis. I want to say a sincere thank you to our employees who have helped us manage successfully through this unprecedented time. while also managing the challenges of the pandemic on themselves and their family. I'm proud of the team's commitment and their efforts to ensure the safety of our employees and the customers, despite the challenging operating environment. I'll begin with a few highlights of our financial performance, followed by an update on our competitive position, which we believe is the strongest in the company's history. Then we'll provide an overview of our progress on ESG initiatives. Oscar will then review our record financial performance in more detail and discuss our 2021 financial guidance. Finally, I'll conclude with some thoughts on why we are very optimistic about the future. In the fourth quarter, our global sales grew 21% year-over-year. The sales growth It's driven by broad-based demand across geographies and channels. Retail partners continue to win with our products, and our online sales stood out once again in the U.S. with web sales doubling compared to prior year. This strong sales performance combined with favorable company-wide margins resulted in record fourth-quarter adjusted EBITDA of $240 million, an increase of 57%. And adjusted EPS, of 67 cents, an increase of 97 percent. Gap EPS increased over 200 percent versus prior year. Though our financial results this quarter were strong, we continued to face supply chain issues as consumer demand exceeded manufacturing capacity. These supply chain issues primarily impacted our Sealy and Sherwood North American operations and prevented our financial results from being even stronger. We're expecting these constraints to mitigate significantly by early second quarter. For the full year, global sales grew 18 percent, $3.7 billion. Our adjusted EBITDA per the credit facility agreement grew 54 percent to a record $780 million, and our adjusted EPS grew 94 percent to $1.94. GAAP EPS grew 91 percent to $1.64. Our growth has been driven by two factors, a healthy industry and our competitive position within the industry. Solid underlying industry fundamentals and our strong product offering enabled reinvestment in advertising, creating a flywheel effect that benefits all players. Our industry is also benefiting from consumers' increased focus on home-related spending. which has accelerated as a result of the pandemic. I would point out, however, that our North America sales grew over 20% in the two quarters prior to the pandemic, well above the industry level during that period. This highlights that while we have benefited from the uptick in consumer spending along with the rest of the industry, the majority of our growth, our current growth, is coming from market share gains, driven by our strong competitive position within the industry. The investments we've made in people, processes, for the past five years have resulted in our market-leading position. I'd like to highlight five key areas, product superiority, brand strength, manufacturing efficiency and quality, omnichannel distribution platform, and substantial cash flow in Fortress Balance Sheet. In our business, It always starts and ends with exceptional product. When I joined the company in 2015, Tempur was known for its innovative products while Sealy and Stearns and Foster brands were recognized for their rich heritage. Over the past five years, we've worked to merge the strengths of both of these great brands to make each of them stronger. At Tempur, we introduced an entirely new formulation of the Tempur-Pedic material in connection with the largest, most successful Tempur-Pedic product rollout in the company's history. In fact, in 2020, for the second year in a row, Tempur-Pedic ranked number one in the U.S. mattress satisfaction report by J.D. Power. We are honored to have earned this distinction for the third time in four years. Tempur-Pedic changed the mattress industry several decades ago with the introduction of a revolutionary sleep technology. And we expect to continue to be a leading innovator in the mattress industry in the future. Tempra has successfully addressed the two biggest reported issues associated with poor sleep, sleeping hot and snoring. Over the years we've addressed the first difficulty of sleeping hot with our proprietary cooling technology. Today to address the second issue, snoring, we're rolling out the only sleep system on the market that features snore detection and response with the Ergo SmartBase Sleep Tracker. SmartBase has state-of-the-art sensors that monitor the consumer's heart rate, breathing rate, sleep cycle, and sends personalized sleep analytics and coaching to the consumer's smartphone via Sleep Tracker app. Retailers are telling us that this product is a game-changer, driving ASP and adjustable base attachment rate. I should also point out that the new smart base provides us valuable end-user highlights about their sleep behavior. This proprietary data will bring us closer to the customer and drive further product development and insights. In our international business, we're developing a new line of temper mattresses with both the end consumer and third-party retailers in mind. These new models are expected to closely mirror innovation that we've met with success here in the U.S., while also substantially increasing the addressable market for the temper products internationally. The team has made significant progress, and we expect to begin targeting this expanded addressable market in 2022. For the last five years, we've introduced innovative new products from Sealy, including the award-winning Sealy Hybrid, which has allowed Sealy to reclaim its position as the number one bedding brand in North America. This year in North America, we are refreshing our Sealy portfolio with the launch of new models of Posturpedic Plus, Posturpedic, and Essential product lines. These models offer superior support and feature Sealy, Chill, and Surface Guard technologies, making this product the ideal choice for the consumer searching for high-quality sleep. To make the new product rollout as seamless as possible, we're launching this refresh in two phases over the course of 2021. We've already started shipping the Essentials and the Posturepedic and expect to complete that rollout in the second quarter. We will then start shipping the high-margin Sealy Posturepedic Plus line in the back half of the year. We've received great feedback from retailers and consumers on the full line. We expect this launch to further our gains in market share and extends Sealy's lead as the number one mattress brand in North America. The second area that I'd like to highlight is our brand strength. Tempur-Pedic was the original direct-to-consumer mattress company with a marketing model focused heavily on television advertising. However, over time, the ways in which consumers engage the media has changed. Over the past few years, we've updated our advertising model to focus more on digital and social media channels that allow us to reach the modern customer. This improved media mix combined with compelling messaging has proven to be a powerful combination to ensure that our industry-leading brands remain top of mind for the consumer. Over the past year, we've seen significant increase in consumer consideration and purchase intent. In fact, according to recent consumer survey, Tempur-Pedic boasts the highest intent-to-purchase score since we started tracking it in 2017. Our global 2021 marketing plan is to aggressively support our innovative betting products through investing significant marketing dollars to promote our worldwide brands. We expect to spend a record amount of marketing dollars in 2021 on for Tempur-Pedic, Seeley, and Stearns and Foster. Our record investment across television and digital media ensures our products are always top of mind for consumers wherever they are on their purchase journey. The third area that I'd like to highlight is manufacturing efficiency and quality. It's been a multi-year journey to optimize manufacturing efficiency across our Seeley and Tempur plants. We've made significant investments in our people, facilities, and supporting IT structure. As a result, our operations have a solid foundation, making us the preferred provider of premium differentiated bedding products. Fourth, our powerful omnichannel distribution platform. As we all know, consumers' buying habits and expectations have evolved. For a brand to be relevant today, consumers expect that the brand will have an integrated omnichannel presence. Today, we have a more balanced distribution footprint in North America than we did just a few years ago, led by a diversified group of strong retail partners and a rapidly growing direct business. On the third-party retail front, we continue to build momentum as we selectively add to our footprint. In fact, we recently added new distribution to several established retail chains. At the same time, we've been focused on building our own direct consumer channel, both online and with brick-and-mortar retail stores. The development of our e-commerce business has been particularly important as consumers have grown more comfortable shopping for betting online. The trend towards online purchases has accelerated during the pandemic, and we believe that consumers will continue to lean in to the digital channel. In fact, 20 percent of our sales occur online, either through our own website or through third-party retailer websites. This percentage has increased tenfold over the past five years. We've also built out a network of Tempur-Pedic branded retail stores that offer consumers a differentiated, high-end, low-pressure sales experience. These stores serve as a halo, elevating our brand throughout the entire local market. In 2020, we opened 21 new stores and currently operate a total of 78 locations in the U.S. Our Manhattan store is performing well and is on track to become our highest-grossing sales store. For the last five years, our direct-to-consumer business has grown from 3 percent to 13 percent of our total sales. In addition to representing a meaningful component of sales, our direct business is also quite profitable. In fact, we believe that we have one of the fastest-growing, most profitable direct-to-consumer betting businesses in the world. Finally, I'd like to highlight our substantial cash flow and fortress balance sheet. Over the past year, our leverage ratio has declined from 2.9 times to 1.7 times. This is one of the lowest debt levels in our industry, and both we and our retail partners view it as a competitive advantage. The improvement in our leverage ratio has been due to increased in earnings power combined with debt pay down. Last quarter, we announced an update to our long-term capital allocation plan, which we remain committed to. Our updated plan includes investments in business, share repurchase, capacity for strategic or creative acquisitions, and for the first time since 2008, the quarterly cash dividend. As we set our 2021 capital allocation strategy, we are targeting to repurchase 6 percent of our shares outstanding. We've increased the allocation to share repurchase from 3 percent to 6 percent this year because we believe our stock represents the most compelling investment opportunity in the current environment. This does not change our long-term plan, but demonstrates our flexibility in our capital allocation strategy. Before turning the call over to Bhaskar, I'd like to highlight our ESG initiatives, which reflect our commitment to our communities and our environment. In the past year, we've made the following progress. First, we established the goal of achieving carbon neutrality for our global wholly owned operations by 2040. Second, achieved a 28 percent reduction in greenhouse gas emissions per unit produced at our wholly owned manufacturing in logistic operations compared to the prior year. Third, improved the percentage of waste recycled in North America or wholly owned manufacturing operations to 91 percent in 2020 compared to 85 percent in 2019. Fourth, established ESG metrics for executive leadership compensation beginning in 2021. Fifth, we've contributed over 100 million in products, stock and cash to charity organizations over the last decade. And finally, we expanded our global employee headcount by 21% in 2020. I should also point out, last month we published our 2021 Corporate Social Values Report, which recaps the 2020 progress in more detail, and you can find that on our webpage. With that, I'll turn it over to Bhaskar to walk you through the financial results in more detail.