Tempur Sealy International, Inc.

Ladies and gentlemen, thank you for standing by. Your conference call shall begin momentarily. Again, thank you for standing by. Your conference call shall begin momentarily. Thank you. Thank you. Thank you for standing by, and welcome to the Temporary Sealy Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star then 1 on your touchtone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference to our host, Ms. Audrey Moore of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Good morning, everyone, and thank you for participating in today's call. Joining me today 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. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties. and actual results may differ materially due to the variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. Under the headings, special note regarding forward-looking statements and 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 also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which has been posted on the company's investor website at investor.tempersealy.com and filed 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, everyone, and thank you for joining us on our 2021 third quarter earnings call. I'll begin with a few highlights of our record third quarter financial performance. Oscar then will review our financial performance in more detail. Finally, I will conclude with some comments on our building blocks for future growth. We're pleased to report robust third quarter results. The team continues to deliver strong results all around the world. In the third quarter of 2021, sales grew 20% year over year, with strong performances across North America and the international segments, and with growth across all brands, channels, and price points. Our strong sales performance was driven by our company initiatives, strong demand for Tempur-Pedic products in the U.S., and a solid betting industry backdrop worldwide. Adjusted earnings per share for the third quarter with 88 cents, an increase of 19 percent versus the same period last year. I should also note that we've grown sales and adjusted EPS double digits for nine out of the last 10 quarters. I'd now like to highlight a couple of items from the quarter. First, we are pleased to officially welcome the DREAMS organization, our recent acquisition in the U.K., to the Tempur-Sealy family. The addition of DREAMS furthers our vertical integration and omnichannel growth strategies. We are successfully integrating the business, and it is performing well. It's ahead of its initial expectations, both from a top-line and bottom-line perspective. We expect over time to leverage our combined track record of operational excellence to realize unbudgeted synergies, which will further drive profitability. Second, Consistent with our legacy of launching innovative products, we're excited to highlight some of our new products in North America and around the world. Starting with North America, we plan to launch a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer-appealing mid-market price point. Designed to target the niche market of consumers looking for a non-traditional feel, at a non-premium price point. We're also planning to launch a Sealy-branded eco-friendly mattress collection made with responsible sourced material. Furthermore, in early 2022, in addition to the emerging niche markets we plan to address, we're launching a new line of premium Sealy products targeted to a wide variety of customers, which includes a new lineup of industry-leading hybrids. This new Sealy lineup is intended to extend the brand's leadership in the industry by offering superior support and new proprietary material. Looking ahead to late 2022, the team is also working on the next line of Stearns and Foster products. These products are designed to further distinguish our high-end traditional innerspring brand from the competition and appeal to concerning consumers that prefer a traditional innerspring mattress. While Stearns & Foster is on track to have record sales this year, supported by a record amount of advertising dollars, we see ample opportunity to further expand consumers' awareness of this segment through the introduction of new products and continuing advertising. Turning to international. As we have previously announced, we are launching a new line of temper products in our European and Asian Pacific markets next year. These new products will feature the innovative Tempur-Pedic technologies that experienced great success in the U.S. and will be sold at a wider price range compared to the legacy Tempur international offerings. Next, I'd like to highlight our recent capital allocation activities. During the last 12 months, we've allocated over a billion dollars in capital, acquiring dreams, repurchasing shares, paying dividends, and investing in our ongoing operations. At the same time, our robust earnings drove a reduction in our leverage ratio. In the third quarter, we opportunistically repurchased $190 million of our shares, bringing our total share repurchase over the last 12 months to approximately $700 million at an average price of $36 per share. Regarding recent investments in the business, over the last 12 months, we've opened three new manufacturing facilities, Additionally, we recently broke ground on our third domestic foam pouring plant in Crawfordsville, Indiana, which is planned to be operational in 2023. And we're also expanding our manufacturing footprint within existing facilities and overall warehousing space in several locations. We're investing to dramatically reduce our exposure to future supply chain disruptions by expanding our capacity to hold key chemical inputs and expand safety stock of certain products. The operational investments we are making today are part of a broader strategy to expand our North American manufacturing capacity, which will allow us to service the long-term demand outlook that we see for our industry-leading brands and products. As you know, Sealy and Temper brands are currently ranked as number one and number two best-selling mattresses in the United States. The next highlight is our worldwide wholesale business, which grew a robust 11 percent this quarter, as compared to the same period last year. We were pleased with these performances, especially given the strong prior year sales comp and the fact that we were unable to ship all of the market demand in the quarter. As expected, our customers continued to be on allocation, and we exited the quarter with a record backlog. Post-quarter end, the normal market seasonality has allowed us to make significant progress on working down our seaweed backlog. Thus, we recently took customers off of allocation. Unfortunately, due to the tremendous demand for Tempur-Pedic products in North America and domestic supply chain issues, the backlog for Tempur-Pedic expanded in the third quarter. We expect to work down this backlog in the fourth quarter, and enter 2022 better positioned to fully meet consumers' demand. Across both brands, our total backlog has increased from the end of the second quarter by about $100 million as of September 30th, 2021. Turning to the final item I'd like to highlight, our direct-to-consumer business had another record quarter, growing 79% over the third quarter of 2020 and growing 17 percent excluding the Dreams acquisition. With this quarter's strong performance, our third quarter direct-to-consumer sales has grown a compound annual growth rate of 45 percent over the last five years. On an annual run rate basis, our direct channel is now on track to generate over a billion dollars of sales. Our company-wide retail stores had a standout performance this quarter. The Dream stores and our legacy company-owned stores both drove double-digit same-store sales growth year over year. Our e-commerce operation also performed very well this quarter. We continue to see robust sales growth driven by double-digit improvement in conversion and average order value. Our commitment to investing in the online presence of Tempur-Pedic brands is paying off. While we are pleased with our results, I should once again remind you that both our wholesale and direct sales in North America have been constrained in the quarter. The supply chain constraints once again forced us to turn away business this quarter. We estimate this was about $100 million. Considering this and the unrealized sales from our increased backlog, our sales could have been higher by over $200 million this period. Turning to our growth outlook and drivers. I'm pleased to reaffirm our expectations that 2021 sales will grow approximately 60% over 2019, a period not impacted by COVID. Our sales and earnings growth over the two-year period has significantly outpaced the overall industry. So I'd like to take a moment to remind you what we said last quarter about the components of this growth. We estimate that about half of our two-year growth is attributable to our new retail partnerships. Another 35% of our growth is derived from our M&A activities and share gains from previously untapped addressable markets. We estimate only about 15% of our expected two-year growth comes from the broader industry. We attribute our performance to our commitment to driving our four key initiatives. First, to develop the highest quality bedding products in all the markets that we serve. Second, promote worldwide brands with compelling marketing. Third, optimize our powerful omnichannel distribution platform. And fourth, drive increased EBITDA and prudently deploy capital. Our clear long-term initiatives, robust free cash flow, and solid balance sheet have supported the explosive growth that we've generated over the last two years. We expect to drive future double-digit sales and EPS growth in 2022 and beyond. With that, I'll turn it over to Oscar.