Tempur Sealy International, Inc.

Good day and thank you for standing by. Welcome to the Tempur-Sealy fourth quarter 2023 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Aubrey Moore, Investor Relations. Please go ahead.

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. 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 a 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 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 2023 fourth quarter and full year earnings call. I'll begin with some highlights from the quarter and full year and then turn the call over to Bhaskar to review our financial performance in more detail and discuss our 2024 guidance. After that, I'll provide an update of our proposed acquisition of Mattress Room before opening up the call for Q&A. In the fourth quarter of 2023, net sales were approximately $1.2 billion, and adjusted EPS was 53 cents. Our results were in line with our expectation for the quarter, with sales and adjusted EPS approximately consistent with prior years. Turning to a few highlights for 2023. First, I'd like to highlight our resilience of our business model, our robust cash flow and industry-leading balance sheet. Our solid financial position has given us flexibility to capitalize on the industry's opportunities. We're delivering strong operating cash flow, investing in the business, and outperforming the broader betting market in North America and internationally. In the last three years, we've generated over 1.0 billion in cash flow after investing 1.3 billion in advertising. and over 600 million in CapEx. We believe that strategic investments in our brands, capabilities, and capacity enabled us and our retailers to succeed in a dynamic environment. Versus the prior year, adjusted EBITDA to net debt leverage declined from 3.1 to 2.87. We expect to continue to reduce our leverage in the coming quarters as we prepare for the closing of the proposed Mattress Firm transaction. The U.S. bedding industry, which is our largest market, was challenged in 2023. Based on preliminary figures, we believe the category units were down double digits versus the prior year, and the U.S. produced mattress units were below the 20-year trough for the industry. However, we have recently seen stabilization of the category demand. The international markets we operate in have generally demonstrated similar trends on a consolidated basis. Over the prior two decades, the betting industry has consistently grown through both ASP and unit expansion over time. We anticipate that the category will return to its historical trends of consistent growth. With our strong financial position, resilient operating model, and the recent investments we've made in the business, Tempur-Sealy is uniquely positioned to reap the benefits of an improving market. The second item I'd like to highlight is our successful rollout of our new iconic premium products and continued expansion of our extensive manufacturing capabilities. These actions in 2023 solidified our position as a leading vertically integrated global betting company. Internationally, we successfully launched an all-new lineup of temper mattresses, pillows, and bedpaces in over 90 markets, introducing new innovation and expanding our total addressable market globally. The consumer-centric innovation and expanded price points in the new collections are driving positive traction in a broad range of customers, including our legacy ultra-premium consumers at mattress prices at $3,000 and above, as well as consumer shopping for mattresses starting at $2,000. The reaction to the new product has been positive. On the cost side, we have streamlined the construction of the new product to maximize manufacturing efficiency and enhance our ability to efficiently customize products to meet customers' needs in diverse markets and channels. In the U.S., The new Temper Breeze and Stearns and Foster product portfolio completed their rollout in 2023 and realized notable year-over-year growth. The Temper Breeze portfolio achieved double-digit sales growth and a 5% increase in mattress and foundation ASP, while Stearns and Foster portfolio also delivered strong sales growth over the same period. These premium brands significantly outperformed the markets and drove higher ASP for the entire category at a time when retailers are dealing with reduced floor traffic.