Tempur Sealy International Inc Stock

Hello, everyone. Thank you for joining us, and welcome to the Somnigroup business update call. [Operator Instructions] I'll now hand the call over to Lauren Avritt, Director of Investor Relations. Lauren, please go ahead.

Good morning, and welcome to the Somnigroup International Business Update Call regarding the closing of our acquisition of Leggett & Platt. Joining me today are Scott Thompson, our Chairman, President and CEO; and Bhaskar Rao, our Executive Vice President and CFO. Before we begin, I'd like to remind you that this call contains forward-looking statements within the meaning of federal securities laws, including statements about expected synergies, accretion, future financial performance and capital allocation. These statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied. Please refer to our SEC filings for a full description of the risks and factors that could cause results to differ.

With that, I'll turn the call over to Scott.

Thank you, Lauren, and good morning, everyone. Today is a significant day. We have officially closed the Leggett & Platt transaction, and I'm pleased to welcome the Leggett & Platt team to the Somnigroup family. This milestone marks the next chapter in our strategic journey and one we believe strengthens Somnigroup's competitive position around the world.

A few facts on Somnigroup post-closing. Over $11 billion in trailing 12-month sales, over $750 million trailing 12 months net income, $20 billion enterprise value, $15 billion market cap. Over 170 manufacturing plants around the world. 2,800-plus retail stores with various formats customized for each international market. Over 40 e-commerce websites, selling direct to consumer with aggregate sales of over $500 million per year. 36,000 talented associates led by a very experienced management team. And customers, both retail and wholesale in over 100 countries. We are building a special vertically integrated company with numerous competitive advantages, outstanding cash flow generation attributes, a diversified customer base and a passionate workforce dedicated to customers in various markets and industries.

What we see in Leggett & Platt is a company with 143-year long legacy of exceptional people, world-class manufacturing, strong commitment to customer service and best-in-class expertise in bedding components. They also have a long track record as one of our most important suppliers. We know them well, and they know us well. That familiarity is an asset as we move forward as a combined company. First and foremost, the combination deepens our vertical integration, and it adds significant scale expanding sourcing opportunities, enhancing operational flexibility to a portfolio of assets that is already industry-leading. It also extends our reach across industries beyond bedding which will provide the company solid free cash flow and growth as markets normalize and these strategies are implemented. Strategically and economically, this is the right deal at the right time with the right partner.

Let me take you through how this transaction advances the strategic pillars we outlined at our Investor Day last March. Global scale and vertical integration, relentless consumer-centric innovation, relentless cash generation, disciplined capital allocation and a uniquely favorable position in the $120 billion global bedding market recovery. The Leggett & Platt acquisition checks every one of these boxes. Most directly, it strengthened our vertical integration advantages. Leggett & Platt is a primary supplier of important components to the bedding industry and particularly to our own manufacturing operations. They supply innerspring units, specialty foam and other key components to producers around the world, bringing their capabilities in-house further fortifies our supply chain in an uncertain world and allows us to optimize cost and drive quality end-to-end in the supply chain. The combination brings component engineering closer to mattress design and closer to the consumer insights we generate every day across our retail platform. That proximity supports accelerated innovation cycles. It means we can develop more cost-effective and consumer-centric products.

In addition to expanding our addressable market in bedding, Leggett & Platt's product portfolio includes automotive seating systems, furniture components, geo components, and hydraulic cylinders also allow us to participate in industries beyond global bedding. These diversified sales streams as well as Leggett & Platt's geographic footprint broadens our earnings base, and mitigates reliance on any single category, product or geographic market.

Let me say a word about how we intend to operate Leggett & Platt within the Somnigroup portfolio. Leggett & Platt will operate as a stand-alone business unit within Somnigroup, consistent with our approach with Tempur Sealy, Mattress Firm and Dreams. We believe this decentralized operating model is one of our structural advantages. It allows each business unit to stay close to its customers and markets and quickly respond and develop strategies in an ever-changing world, while also benefiting from Somnigroup's expertise, scale, strong balance sheet and operational leverage.

A word on leadership. First, we're very fortunate that Leggett & Platt has an experienced workforce dedicated to quality and customer service, which is led by a strong committed executive team with depth and a passion to succeed. To enhance their leadership structure, you most likely saw we announced the appointment Tyson Hagale as President of Leggett & Platt. Tyson is a 25-year Leggett & Platt veteran with a broad expertise across all corners of the business, including strategic planning, operational leadership and M&A. Most recently, he served as President of the Bedding Products segment, delivering results and operational improvements through some of the most dynamic conditions in the industry has ever seen. He knows Leggett & Platt well, including the non-bedding components. Karl Glassman will continue to lead Leggett & Platt as CEO over the near term, working closely with Tyson and Somnigroup executives as we bring the companies together. I'm looking forward to working with Karl and Tyson.

Moving to near-term strategic initiatives. We expect some early wins. We have long believed that high-quality innerspring systems represent a meaningful point of differentiation and important feature for customers. While the mattress category has traditionally emphasized finished product branding, we see the opportunity to elevate awareness of underlying technologies and components that contribute to comfort, support, durability and overnight fleet quality. Simply put, what is in your mattress matters. As a result, we are working to amplify the differentiated innovation by incorporating Leggett & Platt innerspring branding on the exterior selected mattress products. We believe this approach helps highlight the value of the technology inside the mattress while creating greater transparency and confidence for customers at the point of purchase. This initiative will initially roll out with our launch of the all-new Stearns & Foster collection this fall. It represents an important step in our broader strategy to increase consumers' recognition of the premium component of engineering that differentiates our products. We believe stronger visibility of the Leggett & Platt innerspring technology can enhance the consumer shopping experience, support our retail partners' merchandising efforts and further reinforce the value proposition of mattresses that incorporate our technology.

Ultimately, we view this as much more than a branding initiative. This is a reflection of the strategic vision behind the acquisition of Leggett & Platt's bedding business and the unique capabilities that the transaction creates. By bringing ownership of innersprings, the heart of the bed, into the portfolio we are now able to more closely integrate component innovation, mattress design, driving consumer engagement. We believe that position enables us to set higher standards for innovation, durability, quality and transparency across the industry, while creating connection between the technology inside the mattress and the magic consumers experience every night. We should also note that Mattress Firm as it continues to focus on customer first, recently communicated to its supplier base, new and more stringent merchandising criteria, including the qualification of key component inputs, both Leggett & Platt's innerspring systems and the foams produced by ECS, their specialty foam operations have been qualified under these enhanced standards. This is direct validation of the quality and consistency that Leggett & Platt brings us to our supply chain. I'll say it again, what is inside your mattress matters.

In closing, I want to leave you with a few key thoughts. We are the leading vertically integrated bedding company in the world. We now forge our own steel, create our own springs and foam. We design and build our own products. We develop and market our brands and sell our products, which cover all price points in a balanced omnichannel format across the world. We believe that the $120 billion global bedding market remains structurally intact and positioned to normalize from its historically depressed levels. Now let's be clear, the bedding market has experienced an extended period of weakness, and we have used that time deliberately to build the platform you see today, while also growing adjusted EPS and deleveraging. We are investing ahead of the recovery and building our brands, driving upper funnel advertising and strengthening our infrastructure. It's not a question if the bedding market is going to turn around. It's a question of when and whether you are positioned to lead when it does, and we are positioned to win and win big.

With that, I'll turn the call over to Bhaskar.

Thank you, Scott. Let me start with some housekeeping items on our reporting structure going forward. Leggett & Platt will be reported as a single consolidated reportable segment within Somnigroup, consistent with our other reporting segments, Tempur Sealy North America, Tempur Sealy International and Mattress Firm. Now moving to synergies. When we announced this transaction, we identified approximately $50 million in synergy opportunities on an annual run rate basis, focused on sourcing, operations and product innovation. That figure was based primarily on our internal diligence work at that time. Since then, we have worked with Leggett to refine our expectations. As a result of the team's combined efforts, we are increasing that synergy estimate by 50% to $75 million on an annual run rate basis with additional opportunities in our synergy funnel that will be evaluated over the next year. .

Within sourcing, we see opportunities to expand profitability by bringing select components in-house and/or improving purchasing economics across our supplier base. To date, we have included $35 million of sourcing related synergies in our target. One of the most immediate and tangible examples is innersprings. Beginning in January 1, 2027, we expect to manufacture over 90% of our total U.S. spring needs internally, creating a meaningful cost savings opportunity and further strengthening integration across the business. We are reviewing additional supply chain opportunities and expect our combined sourcing efforts to support greater cost efficiency, particularly in chemicals. In addition, we expect the broader platform to create savings across third-party professional services.

Beyond procurement, we also see opportunity in how the combined company operates. Leggett's global manufacturing and logistics capability, together with global manufacturing and logistics networks of the legacy Somnigroup business create opportunities to improve the combined cost structure. To date, we have included $30 million of operations related operating opportunity in our synergy target. This includes projects to optimize manufacturing and capture efficiencies across logistics, including chemical storage, warehousing and ocean freight, as well as the elimination of duplicative public company costs. Finally, turning to our innovation pipeline. The acquisition brings component engineering, mattress design and consumer insights closer together, supporting more cost-effective and consumer-centric product development. Our current synergy target contemplates a $10 million EBITDA benefit from these opportunities. Taken together, these initiatives reinforce our confidence in the transaction's value creation potential. We believe they will enhance operational efficiency, support sustainable cost savings and drive long-term value creation. In terms of timing, we expect to realize approximately $25 million of synergy benefit to the calendar year 2027, with full realization over a 3-year period. In addition, over time, we expect to identify more benefits of this combination.

Turning to the financial impact of Somnigroup. The transaction is expected to be approximately $0.35 to $0.40 accretive on an annualized run rate basis before synergies based on the current operating environment. We expect approximately $0.10 of EPS accretion for the partial year 2026 on sales from Leggett of approximately $1.2 billion after intercompany sales elimination. We are revising our annual guidance up by $0.10 as a result. We expect approximately 6.5% of Leggett sales in the period will be to other Somnigroup segment and therefore, will be eliminated for financial reporting purposes. Consistent with prior expectations in accordance with GAAP, Somnigroup expects to incur approximately $50 million of annualized noncash expense from the adjustment to fair value of the acquired Leggett business, which will primarily impact cost of goods and we expect to incur approximately $10 million of annualized noncash expense from the adjustment to fair value of acquired Leggett bonds, which will impact interest expense. We anticipate these noncash items will be pro forma financial adjustments in accordance with the terms of our credit facility.

The transaction has reduced Somnigroup's net financial leverage by approximately 0.2x and Somnigroup expects to end the year towards the midpoint of a target leverage range of 2 to 3x adjusted EBITDA. The combination with an all-stock transaction valued approximately $2.3 billion based on Somnigroup's closing share price on August 25, 2026, and inclusive of Leggett's existing net debt. We have issued approximately 20.6 million shares in connection with the transaction. We expect our weighted average share count for Q3 to be 221 million shares and for a full year to be 220 million shares.

A few words on our long-term targets. At our March Investor Day, we set a 2028 EPS target of $5.15 representing a 24% compound annual growth rate from 2025. That target was set in the first quarter prior to the close of this transaction. Our plan is to incorporate the Leggett impact and updated industry conditions at that time into our long-term outlook when we report Q4 results.

With that, let me turn the call back to the operator to open it up for questions.

[Operator Instructions] Your first question comes from the line of Susan Maklari from Goldman Sachs.

I wanted to ask a bit about the upside to the accretion as we get some of this volume that does flow into Leggett, I think you mentioned in your prepared remarks that over 90% of your innerspring production will now be internal. Leggett has done a lot of work on their cost structure in the last couple of years, can you talk about what that means in terms of the margin profile of the business? And how we should think about the upside to that profitability if we do that an industry recovery or when we get an industry recovery?

Sure. Thank you, Susan. I'll take the first part of that, then I'll pass it over to Bhaskar to work on the margin a little bit. I mean, first of all, the acquisition, we're getting great people, both associates and leadership, which obviously is our first filter on any acquisition or combination we're doing. I think what's interesting about this acquisition and your question kind of points it out, is we think we invested in Leggett's restructuring before Wall Street did. And we're putting our chips with the Leggett team on what we believe was a very successful restructuring that just you couldn't see very well as the industry has been in decline here in the last few quarters.

We think we purchased the company during a trough, which is great and the potential for the flow-through on the upswing, we think, is enormous, not even before you start talking about just the synergies. And we were able to deleverage the Somnigroup company a little bit, which, again, enhances the buybacks in 2027 and beyond. So from our standpoint, we feel really good about it. And what we're really doing, if you look at it, both with the Mattress Firm transaction, the Leggett transaction, we're not just making more SGI efficient, but we're quite frankly, making the bedding industry more efficient through these acquisitions and restructurings, Bhaskar, do you want to talk a little bit about the margin potential?

Absolutely. So when you think about the restructuring that Leggett has accomplished, really fantastic job by that management team, let's call it, about $70 million on a run rate annualized basis, that the team has been very successful in taking out. And when you think about the industry, and when you think about it coming back, traditionally, I think about the flow through, the contribution margin, somewhere around 25% to 30%. And as you think about the -- specifically the bedding industry coming back, typically, it trends toward the higher end of that range, call it, 35%. So with the combination of the restructuring activities that Leggett has accomplished and even before thinking about the synergies and when you think about innersprings as an area where the volume could come back as the industry comes back, as I would think of as something in excess of that 35% would be a reasonable way to think about it.

I think to be also clear, Bhaskar, you don't have any revenue synergies in your number that we're committed to at this point, and I think it's interesting what we're doing. We're working on the branding of the Leggett & Platt spring technology. And also, quite frankly, just having some influence and having some friends in the industry, and helping them look at some of the components that Leggett & Platt produces in its bedding area.

Your next question comes from the line of Pedro Gil with Morgan Stanley.

Congratulations on closing the acquisition in good timing ahead of schedule. I wanted to ask you about the 2025 financial targets, realizing it's still early and we'll get more detail down the line. But how should we think about Leggett's contribution to the overall earnings power going into 2028, coupled with the potential for a longer or slower path to industry recovery that you alluded to on the last earnings call? Is $5 per share, or slightly above $5 per share still the right level to think about for Somnigroup's earnings power in 2028? And what are the levers that get you there in terms of share gains, synergies, capital returns, et cetera?

Sure. Thank you. And we talked a little bit about this on the second quarter earnings call. When we did the $5.15, obviously, we didn't have the Leggett acquisition. We had some capital allocation in the model, but not very much and didn't have much benefit from the allocation of capital, which is, obviously, it's important to note that, that's internally generated capital as opposed to leverage. And so clearly, the Leggett transaction is structurally -- before any advantages from a synergy standpoint or any industry recovery is structurally very accretive. And I think Bhaskar you tagged about it, like $0.35 to $0.40, and I'm just going to call that structurally accretive that is not included in that projection, we'll call it.

At the same time, as you know, in that projection, we were looking for the industry to begin its turnaround a little earlier than we've currently experienced. So you've got one, we'll call it, a good guy in our terminology, you got one bad guy that you will have to roll through in the $5.15.. Having said that, what I said on the second quarter earnings call, which I certainly believe it probably even more now, if we got to know more and more about Leggett is that the $5.15 is certainly still in play, There's going to be some moving around of some of the assumptions in any long-term projection. But I would consider $5.15 certainly build in the game.

And with the Leggett acquisition, the upside on those numbers in an industry recovery in the out years is higher.

And I guess, to do a little bit on the building blocks, Bhaskar, you can help me a little bit, but you open up a whole new funnel of synergies which we didn't have before. Like Bhaskar said in his part, we've got a commitment of $75 million, but I think the whole group and the people working on it would be disappointed if that was all that ultimately came from a synergy standpoint.

Your next question comes from the line of Bobby Griffin at Raymond James.

Congrats on the deal and the time this morning. I guess, Scott, I wanted to touch on a comment you made in your remarks about an updated communication with just Mattress Firm suppliers. I think that's kind of interesting just in the sense that there's been probably an expansion of suppliers of components in this industry over the last 3 to 5 years, so can you maybe expand upon that aspect and the narrowing of their supplier kind of base or list? And then how do we think about that potential upside in the context of your $75 million synergy target? If I'm hearing you correctly, it seems that, that would not be included in the $75 million, and that seems like it could be a decent bit of upside, especially if it's driving business back into Leggett's facilities, which are now at a low utilization given where the industry is today and all the fixed costs they've taken out.

Yes. So let me do the easy part of the question first, which is it is not included in any of the synergy numbers, that initiative, and I think you framed it correctly. It is hopeful that, that pushes volume into their organization, which has been rightsized, so that part is the easy part of the question. To kind of go off on a tangent a little bit, I mean one of the things that's been a little frustrating in the bedding industry is some people have been including components in their beds, sometimes even luxury beds, which I would consider to be less than optimal for the customer. And because the components are in the bed, you can't see them. I think the quality, some luxury beds has deteriorated as they try to get a cost advantage. That is not something that Sealy and Tempur have done. It's something that strategically, shoot, I think, 7 years ago, we made a firm decision that we were not going to do.

And so I think the neat thing about what we're doing is Leggett is absolutely world-class in making springs. I think everybody in the bedding industry knows it, and being able to highlight their quality is important. And we have Mattress Firm leading the way as they've got a customer-first focus now, which is also part of their strategic initiative. Certainly aligns with them making sure they're giving their customers the best value. And so we've talked to the suppliers of Mattress Firm. We have formally kind of put a program in place that we're going to qualify internal components to make sure that the customers and Mattress Firm are getting the best and getting what they're paying for.

And of course, obviously, that plays right into Leggett and ECS, and I think will probably result in some incremental volume. But each of the suppliers to Mattress Firm will have to decide what they think. And then hopefully, it influences other retailers and others to think about that because I think that's a big issue in the industry to make sure that we have quality components.

Your next question comes from the line of Rafe Jadrosich with Bank of America.

I just wanted to follow-up on the sourcing synergies that the 90% of -- the expectation that you'll be 90% internal sourcing for your springs. Can you talk about where that is today, like what that delta is? How much you're getting from Leggett versus either other suppliers or internal right now, so like what that changes? And then does that include anything with Elite Comfort Systems in the foam side? Or is that all -- that sourcing number all innersprings?

Yes. We were under a long-term contract with Leggett pre-combination of 80% of our springs in the U.S., this is just a U.S. comp discussion coming from Leggett, so you should think about it as incrementally 10%, and we'll probably be a little bit north of 90% over time would be my guess. That number is in the synergies. There's nothing significant currently in the synergy number on the ECS side as we work through the ECS side of the house. We have a great supplier currently, what I'm going to call base foam, and they're doing a great job, and we're working with them and working with ECS and trying to find an optimal structure there, but we've got great suppliers on the base foam already.

Your next question comes from Peter Keith with Piper Sandler.

Congratulations on the combination. I wanted to just ask about Leggett's existing bedding customers, and if you or Leggett have had any interactions with them in recent months. Now that the two companies are combined, would some of the other third-party mattress manufacturers think of leaving Leggett, or are you trying to present the plan that might make it either difficult or too attractive for them to leave?

Well, it's an interesting industry, and so obviously, I know their customers, they know our customers, and of course, I've had conversations with our customers and their customers all the time. I'm going to call, in general, your question is about channel conflict, that the combination might bring. I'm not feeling any channel conflict and don't expect any headwind from channel conflicts related to the transaction based on conversations with customers, but probably more importantly, the quality of the products that Leggett produces is very high, and the way these products get produced en masse from a competitive standpoint, it's hard to stand up an operation that can be as efficient on the components.

So it's an economic issue there, and there's really no strategic reason why one of their customers would think the combination threatens them in any way. We're here to serve all customers in an omnichannel strategy, which is similar to how we go to retail. If you think about Mattress Firm, that was a more complicated, what I call channel conflict strategy we had to work through. This is much less complicated than the Mattress Firm channel conflict strategy was.

Your next question comes from Brad Thomas with KeyBanc Capital Markets.

Congrats as well on closing the deal here. I was wondering, Bhaskar, if you could talk a little bit about the outlook for sales and for EBITDA for the underlying business over the back half of the year and next year. I know that they've been seeing some pressure from challenges in the industry, but obviously going through some restructuring. Just kind of ex synergies, what are you guys modeling and what are some of the core assumptions in that?

If I didn't know better, I'd say you're asking -- hold on, he's trying to ask for 2027 guidance early, isn't he, Bhaskar? Would he be doing that?

Yes, we're very familiar with that concept.

Okay. Well, just talk but don't answer his question. Go ahead.

Got it. So the way I would think about it, as it relates to 2027, as we get in and out of the fourth quarter, we'll have lots more commentary about '27, but specifically on 2026, when I think about the rest of the year associated with Leggett, obviously, before synergies, think about it somewhere around $1 billion, call it, $1.25 billion. That's on an as-reported basis, so as reported, meaning with the elimination, and add about $90 million of intercompany associated with that.

When I think about, what does that look like from a shaping standpoint is the fourth quarter, one would expect is a bit of growth and just think about what the industry was doing last year, so in the fourth quarter, a bit of growth. And from a third quarter standpoint, tough comp prior year, so perhaps a bit of decline. As I think about adjusted EBITDA is -- think about $120 million for the rest of the year and think about 2/3 of that being in the fourth quarter and the balance of that being in the -- sorry, in the fourth quarter with the balance of that being in the third quarter. When I think about the drivers of sales is a couple of items, specifically focusing on the fourth quarter is a bit of volume as resulting from Leggett's continue to execute against their plan as well as just from a comp from a prior year standpoint. When I think about the drivers of EBITDA, a couple of things, one is metal margins, so just the price/cost relationship, and then continuing to benefit from a restructuring standpoint. So year-over-year, a bit of growth in the fourth quarter from an EBITDA standpoint, and then as I think about the third quarter, revenue declines.

[Operator Instructions] Your next question comes from Jonathan Matuszewski with Jefferies.

You alluded to the Stearns & Foster launch as maybe the first example of embedding Leggett-branded marketing, and so my question is kind of beyond this, are there other ways you envision impressing the quality of componentry upon consumers directly? And how will the messaging of Mattress Firm RSAs change with prospective customers in store?

Yes. Great question. Think about our retail bedding floor, which doesn't necessarily need to be the Mattress Firm, you'll have some visual badging on Stearns & Foster bed that highlights American-made high-quality springs made by Leggett, and you're going to be sitting next to another bed, which is a luxury bed that does not have that badging and may or may not even be able to tell you where their springs came from. The RSAs will be trained that springs matter, which has historically been in the industry like a long time ago, but it's lost a little bit of its energy over time. And I think it will be a competitive advantage, which I think may have some people think about what springs they have in their bed. So I think it's broader than Mattress Firm, but we'll see. But yes, to answer your question, the training on the RSAs will also be enhanced on the quality and the endurability of the Leggett springs.

Your next question is with Keith Hughes with Truist Securities.

Good news on adding Tyson, that will help long term. He does know the business very well. I guess on the non-bedding businesses, there's been a lot of speculation from investors what's going to happen to those. It doesn't sound like you have anything new to announce, but what will be the evaluation period? How will you decide whether that's something you're going to keep or maybe invest in moving forward or something that might not be part of the future of Somnigroup?

Sure. And we agree, we're thrilled about Tyson moving up from a leadership standpoint. I'm going to call that -- we call that the other, other business in Leggett because we have to have names for these things so we can keep it straight. And if you look at the other, other business of Leggett, which is the non-bedding business is what you're talking about, and if you say like it's, give or take, round numbers, their EBITDA is maybe 20% of the consolidated Somnigroup. And then you look at Leggett and you say, how much is the other, other is in Leggett, it's probably 60%. So in our terminology, the other, other business represents about 12% of consolidated Somnigroup's EBITDA. So we're talking about a relatively small piece of the consolidated group, just to get everybody on the same page, so think 12%.

If you then drill down into the other, other what you would determine is that they're generally have got some tough headwinds they've been experiencing in those industries. And from a cyclicality standpoint are generally at trough or close to trough from an industry standpoint. And we purchased them at a reasonable multiple at their trough earnings. That's the way we think about them. And then if you look at those businesses as we did during due diligence, and look at their attributes, you say, is this a business you want to be in? What do you think about it long term? What do you think about the management teams, return on invested capital, all of that kind of stuff.

You would come -- we came to the conclusion that these are good businesses. There's not anything structurally wrong with them, good people, solid operations. And so we're working with those management teams over time, looking at their strategies, they're putting together their long-term perspective, and we'll study them. And I suspect that we will come to the conclusion, these are good businesses. No reason to sell, and we don't need the cash. We don't have financial pressure. So if I sold them, I would get some cash. I don't know what I'd do with it. I guess I'd buy more stock back that I'm going to be buying otherwise. So unless there's a reason to sell them, there is no reason for us not to keep those businesses and incubate them, grow them, continue to monitor them like we would do any business, whether it be in Leggett or Tempur Sealy or Mattress Firm, anything else we do. But I don't think we're going to have -- we're not talking to anybody about disposing of them. But like everybody, including myself, we have to earn our stripes every year, and so I think that's kind of the way we think about them.

Your next question is with Jeff Lick with Stephens.

And I'll hand my congratulations on getting this closed. Scott or Bhaskar, I was wondering, you guys are obviously very deliberate, very thoughtful, very strategic. I was wondering if you could share, as you were looking at this acquisition, what were some of the things that you worried about either going into the acquisition or going forward? What are some of the things that you were -- were investment considerations that you thought, this is what concerns us, this is what could go wrong?

Sure. The first one is always the easy part of the question, it's people, and I can't stress that enough. I mean, I think everybody knows that if you look at the history of business in combination, especially large ones, the success ratio is not great. There's a lot of hype usually going into them, and then you look back in the execution of the acquisitions generally don't meet expectations. And I think if you go back and actually study them, it's like 80% of that has to do with people and culture merger. And so the first question I think we ask ourselves, are these partners, are these people we want to work with, do we have confidence in them at all levels. It's not a one-person show at any company. And so that would be the first thing that we've quite frankly been thinking about for a long time, and study, and we feel very good about that. So that's the -- that would be the first filter.

The second filter is are these businesses we know something about, countries we do business in and can we "handle" it? Where are we, we'll call it, the mother ship, are we ready for because this is a significant combination. It has some complexity to it. Are we ready? And that, again, gets to be a people issue as to how are we doing with our Mattress Firm group and that leadership, which is doing a great job. How are we doing with Tempur Sealy, and that leadership and they're doing a great job. Is the organization ready for it? So that would be the second item right off the table. And we obviously concluded we were. And you can see the performance of those business units are strong.

Then I think you think where are you in the cycle, and are we buying -- are we fixing to do something at the top of the market, which is not -- no matter what, buying something that's top the market is not good, so how are we feeling about the underlying industries of each of the businesses, where are they within their cycle? And I think it's pretty clear that all of the businesses are at the lower part of the cycle. Whether we're exactly at trough or not, I don't know, but we're damn near close to trough if we're not in the -- already out of trough, I don't know. But it seemed like the right time from it, so we worked through those.

And then you look at structurally how you're going to put this on the business. And as you can tell by the structure, we mitigated the financial risk, the transaction by using stock, so that we were able to deleverage the company in an accretive transaction. And so from our standpoint, we got the businesses we wanted at the time we wanted in the financial structure we wanted. It looks like a great opportunity. We still have lots of work to do. We still have to execute, but it really did tick all the boxes from our standpoint.

Your next question comes from the line of Michael Lasser with UBS.

There are very few examples where one company such as Somnigroup control such a disproportionate amount of the profitability within the sector, and the bedding industry is interesting in that historically, it's relied heavily on pricing as a key contributor to the overall growth of the sector. So my two-part question is, a, Scott, do you see any changes in the overall economics of the bedding industry as a result of Somnigroup's unique position; and b, how are you looking at the overall pricing architecture of the industry moving forward as a key contributor to the overall top line results?

Thank you for the question, and there's probably some of my lawyers on the phone now that are going like, I hope he doesn't really say much on that question, but let me talk about -- first of all, you're right. It's a couple of things that are really unique. It's really unique that a company was able to take a downturn, and the downturn has been, on a historical basis, it's been the worst downturn ever, and be able to build what we've built. I mean it really is game changing. And you're right, I don't know what percentage of worldwide bedding profits Somnigroup now has, but it's large, we'll say it.

As far as the pricing architecture, I think the profitability of the bedding industry is going to be enhanced as we take out redundant costs and we add synergies. I think the economists and certainly, history would be the FTC would look at that and expect that some of that would creep into the customers' pocket. And maybe it does, maybe it doesn't. But from a competitive advantage standpoint, it certainly should create a competitive advantage in the marketplace.

Your next question comes from Bobby Griffin with Raymond James.

Bhaskar, I was just curious given this combination as well, Mattress Firm, what's the updated fixed variable cost of the new kind of call it, Somnigroup enterprise? And I guess I'm thinking more in the context of you guys now owning Leggett steel mill facility?

Absolutely. So on an adjusted basis, Leggett historically has been around 25%, 75% fixed variable. And from a legacy standpoint, we've been a tick higher than that. So as you blend those together, think about it around 30% fixed, 70% variable. So what's nice about that...

It's not much on a material standpoint.

Not really, when you think about the SGI stand-alone basis that you got adding Leggett, yes, we would tick a bit lower but not materially. But what I would say is that whether you look at the restructuring activities at Leggett or what SGI has been able to accomplish as we get units -- as I said many times, as we get units going through a plant, it spreads out the fix, so it's very attractive from a flow-through standpoint.

Your next question comes from Pedro Gil with Morgan Stanley.

I also would like to ask you on capital returns. It looks like Somnigroup and Leggett combined are now delivering close to $1 billion in free cash flow trailing 12 months pro forma. How should we think about the timing and the amount of cash returns to shareholders, including share buybacks? There haven't been a lot in the first half of the year -- for the back half of the year and into 2027?

Sure. I think nothing's really changed from our capital allocation strategy. I mean, we still have a target of 50% free cash flow to spend for 2026, and we'll report on that activity whenever, I guess, probably we file the Qs or the Ks. As I said, I think on the second quarter earnings call, we're being cautious, not because of anything in the business that we see, but one, because a little bit because in the Middle East; and two, we have quite a few, very small but quite a few little acquisition targets we've talked to over time.

And as there's stress in the system, we -- there might be some opportunities there. Again, on all of those, they're very small. There's nothing in the pipeline anywhere close to the size of a Leggett or a Mattress Firm either in '26 or probably toward '27. So with that statement and your understanding of our cash flows and potential earnings and all of that, you end up with a significant amount of free cash flow. We've told people that think about our target leverage maybe at the midpoint of 2.5, just for thinking about it. And that would squeeze you to a significant amount of stock buyback primarily focused in '27 unless there's some kind of black swan or something that's out there that we bump into that we see. So we're expecting that to be very robust in stock repurchase over the, call it, next probably the foreseeable future, but for sure for the next 24 months.

Your next question comes from Peter Keith with Piper Sandler.

Big picture on the industry and potential rebound, so it looks like we're now entering our fifth year of mattress industry sales declines. We do have positive GDP growth, there's been a tax refund cycle earlier in the year. When you guys are thinking about the industry rebounding and getting better, what do you think needs to happen in the economy looking forward? And I understand housing would be an easy answer, but we all agree that, that's a minority of total mattress sales purchases?

The real answer is housing is an incremental headwind or incremental tailwind usually not hugely material, but you'd rather have a tailwind than a headwind. It's consumer confidence which I would point back into a little less -- a little more stable environment because look, these are discretionary goods, they are expensive and so when consumers are not confident and sentiment is really negative, they have -- some portion of the customers tend to postpone. It's interesting because it's in-floor traffic. The customer who actually is in the funnel to purchase a bed, once in the funnel, gets through the funnel fairly quickly, or in standard form and it gets into the store and the closing rates are very strong.

So you don't have an issue on pricing. You don't have an issue on quality of products, quite frankly, the products, ours and others in the bedding industry are good. You've got a strong kind of health and wellness concept that goes through the industry. People do care about their bed. They do care about their health, and people with means are showing up and buying. Who's not showing up are the more of the entry-level customers, if you want to say, the K economy or whatever or people who are a little unsettled by current events. So the first thing I'd say is we just need less drama in the world. And we've had it a few times, okay, where there's a period where there's a little less drama, and you can see it in the numbers. I mean, floor traffic picks up, sales pick up, but then we get some tariff drama, some Middle East drama and people's hands go back into their pockets. That would be my first answer to that.

And the second answer is we need to continue to have the industry advertise, have effective advertising, make sure it's compelling and get it placed in a way in the marketplace that consumers are seeing the ads and that it's influencing them to think about their bed to get into the purchase funnel. The biggest -- the issue is getting people triggered to think about their beds. If you look at the installed base, and this isn't like the car business where you can look at a VIN and you know exactly what the average age of all the cars are on the road, how many miles they've driven. We don't have that kind of data, but there is no question if you look at the volume declines over what -- you're right, into the fifth year that the products that are in the marketplace are probably older than they've ever been. There's also no question that beds do wear out, and there's no question that people are going to sleep on beds. The industry is structurally sound. There's nothing that's threatening the industry from a structural standpoint. So that's why I kind of go back to -- I don't know, I can't tell you the exact turn, but there's -- but everything points to what we just need is a little more stability in the way the consumers are thinking about the world.

There are no further questions at this time, so I will now turn the call back to Scott Thompson, CEO, for closing remarks.

Thank you, operator. Leggett & Platt makes Somnigroup a more vertically integrated and diversified company, better positioned to lead the bedding industry recovery and generate substantial value for customers over the long term. We look forward to updating you on our progress in the coming months. We appreciate your continued support. To our over 36,000 associates around the world, thank you for what you do every day to make the company successful to our customers. Thank you for your outstanding representation of our component and brands and to our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. Operator, this ends the call today.

Thank you. This concludes today's call. Thank you all for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Somnigroup Second Quarter 2026 Earnings Call. [Operator Instructions] I'll now hand the conference over to Lauren Avritt, Director of Investor Relations. Lauren, Go ahead.

Thank you, operator. Good morning, 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. 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 website at www.somnigroup.com, and filed with the SEC. Our comments will supplement the detailed information provided in the press release.

And with that, it's my pleasure to turn the call over to Scott.

Good morning, and thank you for joining us on our second quarter 2026 earnings call. I'll begin with a review of our quarterly highlights before turning the call over to Bhaskar, who'll discuss our financial results and 2026 earnings outlook in greater detail. I'll then provide you with a brief update on a proposed Leggett & Platt combination and then open the call up for questions.

We are pleased to deliver a record second quarter in adjusted earnings per share. Against a cautious consumer background and ongoing macroeconomic uncertainty, we generated net sales of $1.8 billion, adjusted EBITDA of $297 million and adjusted EPS of $0.58, a 9% increase from the prior year. These results reflect our brand strength, a diversified global business model and consistent disciplined execution across our operations, this in a market that we believe to be down mid- to high single digits over prior years.

Turning to our first highlight. Mattress Firm delivered results ahead of the broader U.S. market, supported by its industry-leading scale, effective marketing strategy and broad product assortment that's designed to meet the wide range of consumer needs.

We continue to refine our merchandising assortment at Mattress Firm to better align it with customers' preferences. Following very encouraging results from a 3-month pilot program of Kingsdown's products in 200 Mattress Firm stores, which demonstrated improved performance versus certain other products, we have expanded our relationship with Kingsdown and expect to meaningfully increase the brand's presence across the floor over the next 6 months. The collection is expected to be available in nearly 800 stores nationwide and brings customers' luxury, traditional innerspring options focused on elevated comfort, premium craftsmanship and lasting support.

Our differentiated sleep expert model, supported by ongoing technology investments and a highly trained sales organization, continues to resonate with customers. Also, we've made steady progress on our store refresh program, on track to be completed in 2027, and on our brand wall program expected to wrap up this year. Both programs are designed to elevate the in-store shopping experience. The improved store environment, combined with enhanced product training and new technology are supporting an improved store experience for customers, which we believe, over time, will drive future sales.

Our second highlight is the continued success of our international growth strategy. While the operating environment remains volatile, our International business once again delivered solid results and gained share across many of our key markets. Our legacy Tempur International business again outperformed the broader industry, benefiting from the strength of the Tempur brand, ongoing marketing investments and strong local execution.

Dreams continued to strengthen its brand assortment, customer engagement and its best-in-class operating model while managing through a difficult macro backdrop, a highly promotional competitive landscape and an ERP implementation that is going well, but has created some transitory challenges.

Over the past several years, we've advanced our global vertical integration strategy by expanding company-owned retail footprint through expansion of our own Tempur retail stores, combined with targeted acquisitions such as Dreams in the U.K., SOVA in Sweden and our recently announced acquisition of Danish retailer, SENG. Each acquisition deepens our ability to connect directly with consumers, showcase our brands and strengthen our market position.

Our third highlight is the execution of our new Stearns & Foster product launch, which remains on track and is expected to strengthen our price architecture across the portfolio and drive higher average selling price. Refreshed collection features and upgraded the cooling system, a more robust micro-coil support layer and a new approach to a hybrid technology, this redesign positions the brand more distinctly in the premium segment and is designed to expand our footprint.

To optimize pricing across our portfolio, we are increasing the entry-level price of Stearns & Foster so that it minimizes the overlap with the high end of our ceiling [indiscernible], and we are focusing on the higher-end products of Stearns & Foster. We have increased the number of high-end models by over 50% in the new collection.

Our planned national advertising campaign will highlight the craftsmanship and heritage for Stearns & Foster brand as the longest tenured mattress brand in America, while also reinforcing the connection between our advanced materials, quality sleep and the overall health and wellness.

Our marketing strategy balances investments in broad reach channels with highly targeted digital media. The launch will begin at the end of the third quarter and continue to roll out through the early 2027. Most of the expected financial benefit will materialize in 2027 and beyond.

Our fourth highlight is the continued resilience of Tempur Sealy North America's business despite softness in the broader bedding market and supply chain disruptions. Our investments in high-quality advertising, disciplined cost management and increased balance of share at Mattress Firm each contributed to another quarter of solid performance. We also benefited from the strength of our manufacturing and supply chain operations, which effectively navigated a dynamic global environment. The operational discipline remains an important differentiator of our business and supports our ability to execute during complicated market conditions.

With that, I'll turn the call over to Bhaskar.

Thank you, Scott. In the second quarter of 2026, consolidated sales were a solid $1.8 billion, and adjusted earnings per share was $0.58, up 9% over prior year. There are approximately $16 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.

As a reminder, we have now fully lapped the Mattress Firm acquisition in the first quarter of this year, and we have lapped the related divestitures of Sleep Outfitters and certain Mattress Firm retail locations in May. We will present like-for-like commentary for Tempur Sealy North America on a stand-alone basis, which will include the intercompany sales to Mattress Firm and adjust for the divestitures.

Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $922 million in the second quarter and same-store sales grew slightly. Mattress Firm adjusted gross margin decreased 240 basis points to 33.3%, driven by product mix, consumer financing costs, investments in Mattress Firm stores and deleverage.

The impact of product mix on gross margin percentage was primarily driven by the increased balance of share of Tempur Sealy products as Tempur Sealy's supply contract is structured to provide a portion of Mattress Firm economics in the form of cooperative advertising credits. This reduces Mattress Firm's operating expenses, but delivers a lower product gross margin percentage versus other products.

When looked at on a conforming basis, there is no material impact on operating margin from the product mix change. It is just landscaping within the income statement.

Mattress Firm adjusted operating margin declined 130 basis points to 6.5%, driven by consumer financing costs, the investments in store and deleverage I mentioned a moment ago.

Turning to Tempur Sealy North America. Sales were flat on a like-for-like basis, with like-for-like net sales to the wholesale channel also flat. Our sales with third-party retailers decreased 5% after normalizing floor model, representing continued outperformance relative to an industry we believe was down mid- to high single digits.

Like-for-like net sales for the direct channel decreased 1% in the second quarter.

North American adjusted gross margins increased a robust 680 basis points to 61.8%, driven by the achievement of synergies, operational efficiencies and mix, partially offset by commodity cost inflation before pricing actions.

We achieved $30 million of net benefit from sales and cost synergies in the second quarter.

North American adjusted operating margin improved 400 basis points to 26.7% in the quarter, driven by the improvement in gross margin, partially offset by investments in cooperative advertising as noted a moment ago.

Turning to Tempur Sealy International results. International net sales grew 2% on a reported basis and 1% on a constant currency basis. Our legacy International business delivered another strong quarter, supported by the continued execution as we broaden our consumer reach.

Our Dreams business, as noted by Scott, continue to navigate a difficult environment given a very tough U.K. market and the recent ERP implementation.

Our International gross margins declined 80 basis points to 47.4%, driven by commodity cost inflation before pricing actions, partially offset by operational efficiencies.

Our International operating margin declined 120 basis points to 12.4%, primarily driven by the decline in gross margin.

Now I'd like to give a brief update on commodity inflation and related pricing actions. We implemented modest pricing actions following the July 4 promotional period to offset higher input and freight costs. As we discussed last quarter, the timing of the cost increases preceded the implementation of our pricing actions, creating an approximately $10 million onetime headwind to Tempur Sealy profits in the second quarter. We expect those impacts to be offset by pricing actions in the second half of the year.

I want to point out, we grew earnings in the quarter almost 10%, while fully absorbing the inflationary environment.

Now moving to Somnigroup's balance sheet and cash flow items. At the end of the second quarter, consolidated debt less cash was $4.3 billion, and our leverage ratio under our senior credit facility was 2.99x, returning to our target leverage range of 2 to 3x, demonstrating our strong cash flow generation and disciplined capital allocation approach.

We also further strengthened our capital structure through the refinancing and upsizing of our credit facility. The amended facility extends maturities to 2031, increases liquidity and allowed us to reduce higher cost debt, lowering future interest expense.

Turning to our cash flow performance. In a muted market, we delivered record operating cash flow of $236 million and free cash flow of $182 million. We have reduced our net debt by more than $500 million over the trailing 12 months, while fully supporting growth initiatives and returning over $160 million to shareholders in the form of dividends and buybacks.

Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Tempur Sealy and Mattress Firm, which we expect to represent approximately 24% of global Tempur Sealy 2026 sales. Intercompany eliminations in accordance with GAAP will reduce Timber Sealy sales, but will be margin accretive and neutral to dollars of operating profit.

We expect adjusted earnings per share to be between $2.85 and $3.15 for the full year. This guidance range contemplates a sales at the midpoint of approximately $7.6 billion after intercompany eliminations.

Our annual guidance also reflects our expectation that the global bedding industry will be down mid-single digits year-over-year, Tempur Sealy North America like-for-like sales growing low single digits, International business growing low single digits and like-for-like Mattress Firm sales down slightly.

We also expect reported gross margin slightly above 45%, driven by 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage, partially offset by the impact of Tempur Sealy's pricing actions, which are intended to neutralize commodity inflation, but are margin dilutive.

Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private labels to be in the mid-60s percent of Mattress Firm total sales. This represents an incremental $65 million of adjusted EBITDA benefit for 2026 versus 2025, and approximately $690 million of advertising investments. This all results in an estimated adjusted EBITDA for 2026 of approximately $1.39 billion at the midpoint of our guidance.

Regarding capital expenditures, we expect 2026 CapEx of approximately $225 million, including CapEx of $75 million under our Mattress Firm store refreshes and brand wall program. We expect our CapEx to normalize to $200 million in future years, and for at least 50% of our free cash flow in 2026 to go toward quarterly dividend and share repurchases.

Now I'd like to flag a few modeling items. For the full year 2026, we expect D&A of approximately $310 million, interest expense of approximately $230 million and a tax rate of 25% with diluted share count of 213 million shares.

With that, I'll turn the call back over to Scott.

Thank you, Bhaskar. Well done. In closing, our second quarter results reflect the strength and resilience of our business model, the dedication of our teams and the benefit of a disciplined long-term strategy. We continue to execute well across our global operations, driving growth and creating long-term shareholder value.

Lastly, I'd like to give a brief update on our proposed combination of Leggett & Platt, a leading diversified component manufacturer and long-standing supplier to Somnigroup. We have made significant progress towards finalizing the combination. We have received nearly all regulatory approvals required to consummate the transaction and the required Leggett & Platt shareholder vote is scheduled for August 20. We're expecting to close the transaction before the end of the third quarter. This timing is considerably ahead of our original expectations.

Leggett & Platt will be incorporated into our guidance post closing. We believe the combination will further strengthen our vertical integration framework and enhance consumer-centric innovation. It is expected to expand our addressable market in bedding and into non-bedding industries. It's going to reduce our financial leverage, drive operating cash flow and deliver immediate adjusted EPS accretion before synergies, with opportunities for future shareholder value driving synergies across the combined organization.

We look forward to welcoming Leggett & Platt into our portfolio of industry-leading businesses.

Operator, that concludes our call. Open the call up for questions.

[Operator Instructions] Your first question comes from Susan Maklari from Goldman Sachs.

Scott, I wanted to talk about the revision to the guide. Coming out of the first quarter, it felt like you could still hit the higher end of the range that you had set for earnings. Can you talk about what changed in the quarter that drove the decision to take the numbers down? And how you thought about setting the current range of that $285 million to $315 million? What's implied in there, and how you got to that?

Sure, Susan. Thank you for the question. I mean, like anything, you start with an estimate, and there were puts and takes during the quarter. Some were favorable, some were unfavorable. If I had to just like point at 2 things that were the largest probably unexpected negatives, if we're going to focus on the negatives for a second, obviously, the industry trends in the second quarter were not as strong as we expected. We were expecting what, Bhaskar...

Mid-single digits.

Up, down?

Down.

Down. And what you get?

Mid- to high from an industry standpoint.

So your first thing would be industry, and that's generally the U.S. is what we're talking about there. The other thing, the U.K. operation, Dreams, their ERP system was a little rougher than we expected, and the U.K. market was a little more competitive. Those 2 were the big ones that I would call out, although there were certainly others, some positive, some negative.

The other thing probably that weighed on us was the Middle East activity and that we went back in for Round 2, which has created some additional uncertainty, probably from where we were thinking. Those would be the things that I think of, Bhaskar. Now she asked about in setting the guidance, why don't you talk a little bit about that?

Absolutely. So just to put a -- just to recap again, is that going into the quarter, we had an expectation from an industry standpoint. On a full year basis, our expectation is that the industry will be down low single digits. As we sit here now, our expectation is that the industry will be down mid-single digits. And what that effectively implies for the rest of the year is -- with the inclusion of pricing is that what we saw in the second quarter continues.

So at the midpoint of guide, it's really how we thought about it is that the current trends or current industry trends continue, and as it relates to the initiatives that we have in place, we continue to execute. The other item that we did tweak a bit is our assumption around sales synergies. We did take up our expectation based on the performance in the first half.

Yes. I think the other thing I'd probably -- since you're talking about guide, that influenced us as I think about it, as you were speaking, Bhaskar, is if you look at the second quarter, the first couple of months were solid and looking well. And then we ran into the July 4 holiday period. And I think it's been well documented. But the July 4 holiday period in the U.S. was not robust and was weak. And that was certainly not expected.

The good news is, since that holiday period is over and it ended, call it, July 15 or so, the market has kind of rebounded back to the trend line that it was before. The thing that we look at, we think is probably the best way to look at the U.S. market is Mattress Firm same-store sales because it takes out the inventory fluctuations and order timing that we get over on the Tempur Sealy side. And if you look at Mattress Firm same-store sales post the holiday period, it's running, give or take, flat, where, during the holiday period, it was challenged. But it's good it rebounded, but it's certainly that holiday period was also notable towards the end of the quarter.

Your next question comes from Pedro Gil with Morgan Stanley.

Nice job managing through a difficult environment. I'd like to focus on profitability for a moment. You have remarkable margin expansion in Tempur Sealy North America. Could you expand a little bit on what's driving that in terms of manufacturing efficiencies, synergies? And how you're thinking about that in your guidance for the second half with the additional pricing coming into the mix?

Absolutely. And what we -- our performance in the second quarter was adversely impacted by the commodities ahead of pricing. So we are pleased with our margin performance. So when I think about the key drivers of margin within the second quarter, a couple of things really come through. We continued to execute against our cost synergy target. We realized about $15 million largely as anticipated for the second quarter. And as it relates to the full year is that our expectations remain that we'll continue to drive those cost synergies.

On the sales synergy side, that is where our balance of sales at Mattress Firm what percentage that is relative to what they sell is that we exceeded our expectations, and we have revised our expectations for the full year based on that performance. And how you see that from -- and therefore, from a gross margin expansion perspective, that is also a key driver related to the North America business performance.

And then finally, I would close with is that the productivity. So productivity is those things outside of Mattress Firm is just doing more with less. And our operations group, the rest -- as well as the rest of the organization continues to perform very well. So from a margin standpoint is that we had a nice -- very nice expansion. And then when I think about that on the operating line is that we continue to make those investments that are going to drive future growth, whether it be in the form of advertising or supporting the new Stearns line that we have coming out in the back half.

Your next question comes from Rafe Jadrosich with Bank of America.

Can you talk about just the cadence for the back half for EPS? Like what should we be thinking for 3Q versus 4Q sort of in light of the 3Q to date comments on July 4?

100%. Good question. So just to get us grounded is that at the midpoint, that would imply about a 10% year-on-year EPS increase. What we've seen in the first half of the year is about a 10% increase. So therefore, in the back half, that expectation continues. The one thing to be mindful of, as you think about phasing between Q3 and Q4, a couple of things, yes, Rafe, one should be mindful of what we saw on the 4th of July. However, as Scott pointed out, things have stabilized since then. But just as a reminder in the prior year is that the third quarter of 2025, it was -- on a relative basis, it was strong. So when you think about the phasing between Q3 and Q4, we'd expect growth in EPS in both quarters, but more of that in Q4 versus in Q3.

Your next question comes from Bobby Griffin with Raymond James.

Congrats on getting the [indiscernible] look like Leggett deal is getting done ahead of schedule. I guess, Scott, I wanted to double-click inside the U.S. industry and kind of get more of your view of what do you think is going on from a demand perspective? I mean you guys are calling the quarter actually a little slower than 1Q. You compare that to some of the residential furniture reports we've seen recently, which is admittedly not the same product, but correlated and it looks like it's getting a little bit better. So do you think there's a distribution shift that's taking place here that's negative between the marketplaces or outside Mattress Firm? Or just any other color on kind of what you think is going on with the demand environment and the fact that it's actually getting worse and we're seeing it stabilize in some other areas of related products?

Yes. Great question, Bobby. I mean if you just kind of talk about the industry in general in the U.S., I think I think Leggett's out today with their numbers, and I think they were calling, call it, springs down...

Low double.

Low double digits. So between that and what we see in other things. So I think we've got a pretty good read on the industry numbers. Obviously, we've had some of our key advertisers have had some restructuring during the period. That's probably not helpful to the industry because their advertising has been limited. But as far as relative to furniture, and I'm not an expert in the furniture side of the house. But at least it's been my experience that we have these periods where, for a quarter or 2, furniture does better than bedding and bedding does better than furniture. And I think that, that's all we're experiencing.

I don't think there's anything systemic or different going on in bedding process or bedding sales. We're probably creating more pent-up demand than we really want to create. But now, I mean -- and I think the other thing, other trend that is very evident every quarter and continues to get probably larger every quarter is that the large retailers are clearly taking share from the smaller retailers. We see that in our orders, and there is a shift from distribution from that standpoint.

Our own Tempur stores are certainly doing better. They're comping up. They were up almost 3% in the second quarter. When we look at online, and our online business was much improved from the first quarter, but still slightly negative, if I remember correctly, Bhaskar.

That's correct.

And then when we do our channel checks to, call it, web-based sellers, it is clearly the web side of the industry has been challenged. And I think the brick-and-mortar side of the house has done better. And that would include throwing in the big online companies, too. So we're not seeing -- we're seeing more of a move, I think the brick-and-mortar and a little bit away from web compared to like 3 years ago. Those would be the primary trends that I can think of from a distribution standpoint.

Your next question comes from Keith Hughes with Truist.

Keith, if you're speaking, we can't hear you.

Might be the easiest question I've gotten all day.

Can you hear me now?

We can hear you now.

Okay. I'm not sure what happened. Let me start again, and I will as you a harder question. The commodity the commodity costs you referred to $10 million. I think that was Tempur-Sealy numbers, a pretty small number compared to what's been going on in petrochemical markets. if you could just talk, is that a net number with productivity or other offsets? And what do you expect to be facing in the second half of the year on that topic?

Absolutely. So what I would tell -- so the $10 million is the impact as a result of the Middle Eastern crisis. So let me put a finer point on that. Coming into the year, we had an expectation about commodities, perhaps a little bit of a headwind for us. However, as a result of the Middle Eastern crisis as well as some supply disruption around Lyondell, et cetera, is that the industry, not only us, the industry faced inflationary environment. The industry as well as us, we put some pricing out there and our pricing went in after the 4th of July promotional period. So therefore, in the second quarter, we had a transitory impact where we faced a headwind of about $10 million.

And then just as a reminder, from a pricing standpoint, we put enough price in there to make up for the $10 million in the back half of the year, and that's still our expectation that, that will happen. As it relates to commodities just overall, is that things have moved around a bit. Some things have come in, let's say, MDI, TDI perhaps a little bit, but then we see some pressures in other areas. Largely speaking, is that what we anticipated, call it, around $90 million of annualized inflation. That's what we saw coming into the quarter. That's where we sit today. Again, puts and takes within that portfolio, but largely consistent.

Your next question comes from Peter Keith with Piper Sandler.

On the industry backdrop, I was wondering too if you think there's any dynamics from a K-shaped economy? It's kind of caught my attention. I think you said you had a mix benefit to Tempur-Sealy North America and then also higher financing costs for Mattress Firm. So both of those would indicate maybe some strength in Tempur. So I don't know what do you see high end versus low end overall?

Sure. No question there's a K. Entry-level bedding has been the hardest hit by far, and luxury bedding, we'll call it, has been very resilient and at times strong. The financing cost, and we don't take credit risk, but in the Mattress Firm organization, we do pay for the 0% financing. And it has gone up because we're selling more higher-end beds, and interest rates have ticked up some during the year where we expected them to tick down. So there's no question that the -- and not just us, but all the bedding retailers are living off of ASP, improved higher-end product. And we're seeing the upper end customer showing up not being particularly price sensitive. Closing rates are strong. But the entry level is definitely challenged.

Your next question comes from Michael Lasser with UBS.

As you bring together all of the various pieces of the bedding -- preeminent bedding player around the world, are you seeing more risk at least in the short term from 2 areas? One, that third-party sellers of Tempur-Sealy products are pulling back and that is exacerbating some of the sales challenges in addition to the industry? And two, given the complexity of the business that it's just becoming a little bit more difficult to manage as evidenced by some of the ERP interruptions that were experienced in the U.K.? And how does that influence how you think about the back half and into 2027 from an earnings power standpoint for the business?

Well, good. I got 1 really easy question and 1 really hard question out of you. But the easy question is impact on sales from third parties. No, we're not seeing any significant impact or pullback on sales of what we call the other retailers. Generally, what you're focusing on is that when we say that is the U.S. other retailers other than Mattress Firm, we were down 5%, which is, give or take, what we were down in the first quarter. That is slightly less than we believe the industry was down. So I think from the way we would look at it, we would say we incrementally actually took some share in the other, other.

You have to be a little careful when we talk the other, other because that is generally smaller retailers. So there's also a share shift going between smaller retailers and larger ones. But no, we're not seeing any impact in that area.

The second question as to complexity. First of all, the opportunity creation that we get when we -- as we grow, I think you'll see over the next few years, the synergies are significant and the innovation will be significant. But you asked about complication, is it harder, [indiscernible]? Without question. I mean, everybody is working harder. We have added some complexity to the business.

You mentioned ERP and ERP Dreams thing we work through, that's not really a factor. That's simply a company that needed to upgrade their systems and we worked through it. in the Leggett transaction, we'll have some complications, but we'll also have greater opportunities from that acquisition. So you see it in the margin profile, and that's just getting started. We haven't even begun to realize the synergies from the logistics savings, the distribution savings that we'll have -- and you can see that we've been able to do some things with people like Kingsdown and Mattress Firm. And of course, we own a little bit of Kingstone too, that is something that unique and we have some interesting plans for Leggett and some of the bedding assets of Leggett that we think more than offset the complexity. But yes, it is more complex, and we have spent time internally delegating authority and responsibilities to key players so that we can continue to be on top of the business and continue to grow.

Just a finer point on the ERP that we put in place in dreams like with all things, when you put something new in, there are some transitory issues in the grand scheme of things. they are taking orders, they are shipping, et cetera. But there is the first time through and some distraction as it relates to the new system. But the system I just want to reiterate the system is functioning. We're just working through it.

And that at most, that's maybe another 1 quarter. I don't think that's going to be -- that's not a big issue going forward from my perspective. I think it was just a little choppy back considering the market was a little choppy at the same time for this quarter.

Your next question comes from Brad Thomas with KeyBanc Capital Markets.

I wanted to ask about the multiyear financial outlook that when you presented it called for about a 24% CAGR to 2028. I know that a part of that comes from industry growth. And so I was hoping you could just share your latest thoughts on what you think the underlying growth can be if the industry stays stagnant for a couple more years?

And then I know we have to hold off another quarter here or at least a few more months on how Leggett may weave into it, but is it fair to presume that perhaps that underlying growth rate should get at least a few points better once the Leggett deal closes?

Okay. Great question. I'm going to talk, but I'm not going to update our perspective. So to be clear, but I can't talk about it because I don't think we're really ready to. But it's a good question, and actually, I'm glad you asked it. Obviously, with any estimate, it has assumptions in it. And since we did, we'll call it, the [ 515 ], the [ 515 ], some of those assumptions are probably going to change whenever we update it. It would not be a surprise to me that when we update it, we will lower the industry growth, right, during that period, which all that really means is there's more pent-up demand. It means the outer years outside of [ 515 ] will probably be more robust, okay? So that's probably, we call that a headwind.

There's also, if you look through that perspective, and look at our current margin profile, our margins are significantly better that's in that profile. And I would be surprised if we update that our margins in that profile aren't stronger. We'll call that a good guy in our terminology. And then in that perspective, we basically, I don't believe, got any significant EPS growth from capital allocation, if I remember correctly, Bhaskar, right?

Not overly significant.

And I think clearly, from our recent capital allocation activity, both with our small acquisition in Europe and the Legget, you can see there's enormous upside as we deploy capital at a high rate of return. So when you mix all that together, I have no idea what that number looks like having done it. But there are puts and takes in it. And if I am -- what I feel today is, I would say we're still in the game on the [ 515 ] plan and looking forward to updating you at the -- when we do the year-end numbers.

Your next question comes from Philip Blee with William Blair.

At your Investor Day in March, you laid out quite a few initiatives that were not included in your synergy targets. I believe logistics consolidation was one, real estate optimization, some of your efforts to revamp the mattress or marketing campaigns, or a few others. Can you just give us an update on these and then when we could start to expect maybe some sort of quantification there?

Sure. And help me out, Bhaskar, if I miss any thing. Mattress Firm marketing strategy plan is well underway based on the share gains that we talked about earlier, looks like it's been successful. But I also don't think that's a journey that's ever over and there's still work to be done, and we'll continue to get better and better. And I think you'll see some leverage, we'll call it, in '27, right? But we have fixed the problem that was there and got creative in the marketplace that we're proud of. And again, that's the share gains to support that, but we can get better.

Logistics is being worked on by a large group. We'll probably be in a position to put some numbers and meat around it probably on the year-end call is based on what the chart I've seen. It's going well. And Leggett is additive to that process, additive being positive, and they'll have to work through that. but that will also be a synergy on that side.

The real estate one takes a little longer. We're getting some benefits, minor, and those will come over the next couple of years. And again, some of the real estate is dependent on how the logistics plan comes together as to where your DCs are and other things. So that's the logistics. [indiscernible] big pots...

I think that's right. I mean, it is fair to say that those items that we identified as opportunities remain as opportunities. And very excited as we get in and out of this year to update some numbers around what those could be.

And I think, the thing is not probably -- I don't know if we talked about it in New York or not. I think we continue to study Mattress Firm's real estate strategy, and I expect that we'll be back in store growth mode here pretty soon as the economics of new stores is more compelling now that the balance of share has normalized and flipped compared to what it was going in. It will not go back to what I call rapid growth. But I would expect going forward net new stores at Mattress Firm. There's some holes in the marketplace that we need to fill in.

Your next question comes from Jeff Lick with Stephens.

Nice job in a difficult environment. I was wondering if you could maybe drill down a little more on the weakness in 4th of July, obviously, this business is a big event business. If I recall, President's Day was pretty good. Memorial Day was pretty good. I'm just wondering your thoughts on any extraordinary circumstances about 4th of July. We're hearing the World Cup did have an impact because it was a pretty big event. And obviously, there was also some calendar shift issues. I'm just wondering if that had any impact in your view or any other granularity?

And then also as it relates to what I would call like the mass affluent and maybe we'll create a new term called the E-shaped economy, you got the super high net worth of mass affluent and the kind of the lower income. I mean, Scott, in your old world, the card business were seeing sales of kind of the mass affluent, the mid-level luxury cards have been weak for a while. And I'm wondering if that maybe is a negative impact on your business as well?

Okay. Great job getting lots of questions in there, all good ones. So I mean, look, sometimes holidays hit, sometimes they don't. You're right, most recent President Day was a very solid holiday. And then July 4, we kind of [indiscernible]. So you get those things. And then like all retailers, you go back and go hunt, wonder why. And I'm glad you used World Cup because we couldn't prove it, which kind of think it too. So maybe it was World Cup, maybe it was the heat dome, all the -- or maybe the way the holidays fell. So -- but I think it was just one of those holidays that didn't hit. I don't think it was any anything significant turning point, it just didn't work. President's Day, the year before, it was '25 was really weak. So you get these. And clearly, the third quarter is all about Labor Day. So we're working through that.

On your E-Shape,which that's a new one for me, and I was ready for K, hadn't thought about E. I'm going to say no, it really is more K because if I look through the sales, Bhaskar, if you look at Sealy Posturepedic, what I think of as high or mid-market, sales has been good. So I don't think in the mid section, we've really felt it that much. But clearly, entry level may be a little higher than entry level, but not mid to luxury, which has been strong.

That's right.

Your next question comes from Marius Mora with Zelman.

Just wanted to follow up on the shift from e-commerce to brick-and-mortar that you alluded to earlier. Is that a function of the K-shaped economy? Does that still hold at comparable price points? Or said differently, have we reached a natural limit to what e-commerce can do in the mattress category?

Yes. I'm not smart enough to know, but I have an opinion. So First of all, I'd say the last part, we've gotten to more of a natural size of e-commerce bedding, difficult product to buy online, can't see, feel it, all that kind of stuff. I think we have reached some of that. I think that's in there. I think the second factor is AI and the way the search engines optimize and go get words. I think all retailers are working through the changes, we'll call it, I'm going to call it from Google Search AI AI. That's probably not technically correct, but I think you know what I mean. And we're still working through that.

It's very apparent to me that large organizations are going to be benefited from that move to the way search engines scrape, in my terminology, for the web, but it is a journey, and it takes -- it's going to take a while. It's going to take a little bit of capital to work through that.

And then the third impact, I think, is people have stopped being dumb and just chase sales with extremely low prices and have gotten more sophisticated about thinking about, well, how much money am I making on this transaction. And did I use, in my terminology, up, which is a customer in the marketplace wanting to buy the product. I use up and up, selling them a bed on the web and not make any money. And if I didn't do that, they might show up at my store where I'm going to have a more reasonable transaction.

So I think I think all retailers, not just us, have gotten smarter about not just throwing stuff on the web, so you can have a big top line sales number. And we certainly have done that. And I think that's been healthy for the business. So that's pushed sales trend down some, but not necessarily been as impactful on profitability.

Your next question comes from William Reuter with Bank of America.

I'll keep it to one, and hopefully, it's simple. After the Leggett & Platt acquisition closes, assuming everything continues to go along the path that it currently is, do you feel like you are at a point where you're comfortable with your business mix and vertical integration? Or do you still see assets across the globe, some are that you would like to have on your wish list and that we'll continue to see future M&A?

Thank you. First thing, I should give our good friends at Leggett kind of call out in the quarter. they reported, they had a very solid quarter in a tough market and grew EPS significantly. So a call out to the Leggett team from that standpoint. As far as our future capital allocation, and we said this, I don't know, for 8 years. We are constantly talking to people all around the world, some retailers, some supply people. And at times, we price things and sometimes they sit for years before the teams get together and can get agreement on price. It's always price. I mean, it's pretty easy strategically to look at companies and for the target and for us to see the benefits, the synergies, get to know each other culturally, kind of the process we go through and then you get into price. So there's some of that it's always in the marketplace.

We may never do another deal, or we may do some more deals in the future. There's nothing out there that is as large as Mattress Firm or as large as Leggett. But there are other assets in the world that I think would be positive both for the Target and for us, and we'll continue to work with them and we'll see if we get it fit.

To the extent that we can't get it priced right, we'll be very disciplined and we're fine not ever buying anything else. And as we generate significant cash flow, we'll clearly be very aggressive in buying our stock as we get down from a leverage standpoint. With one, call it, footnote, there's always an eye to uncertainty in the world, primarily Middle East. We'll keep an eye on that because at times when the world's uncertain capital is very valuable. And so we'll keep an eye on it, but we feel very good about getting back in the range from an EBITDA standpoint.

There are no further questions at this time. I'll now turn the call back to Scott Thompson, CEO, for closing remarks.

Thank you, operator. To our over 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence and the company's leadership and its Board of Directors. This ends the call today, operator.

Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Somnigroup First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Lauren Avritt, Director of Investor Relations. Lauren, please go ahead.

Thank you, operator. Good morning, 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. Any forward-looking statements speak 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 this non-GAAP financial information can be found in the accompanying press release, which has been posted on the company's website at www.somnigroup.com and filed with the SEC. Our comments will supplement the detailed information provided in the release.

And with that, it's my pleasure to turn the call over to Scott.

Good morning. Thank you for joining us on our first quarter 2026 Earnings Call. I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail and discuss our reaffirmed 2026 earnings guidance. After that, we'll open up the call for Q&A.

In the first quarter of 2026, net sales increased a healthy 12% to $1.8 billion. Adjusted EBITDA increased 20% to $297 million, and adjusted EPS increased a robust 20% to $0.59 per share. We are pleased with these results, particularly against the backdrop of heightened geopolitical tensions and winter weather disruptions in the U.S., all of which weighed on the industry demand.

We believe global bedding demand declined mid-single digits in the first quarter, which was below our expectation that demand would be flat to slightly positive during the quarter. We believe our performance reflected the strength of our business model and its ability to perform across varying market conditions. This has allowed us to continue to extend our leadership position in the industry.

Turning to our first highlight. We expanded EBITDA margin by over 100 basis points and grew adjusted EPS by 20%. We accomplished this on 12% sales growth, demonstrating the operating leverage embedded in our business model. We also delivered record first quarter operating cash flow, which we deployed towards debt reduction. We ended the first quarter at 3.1x leverage, and are on track to return to our targeted range of 2 to 3x adjusted EBITDA in the next few months.

Our second highlight. Our North American Tempur Sealy business outperformed the broader market. Tempur Sealy North America delivered mid-single-digit wholesale sales growth year-over-year on a like-for-like basis, driven by investments in high-quality advertising, continued momentum in Sealy Posturepedic line and increased balance of share at Mattress Firm. Looking to the back half of the year, we expect the launch of our new Stearns & Foster lineup to optimize price architecture within the broader portfolio, support higher average selling price for our retail partners, strengthen our position at higher pricing points.

We expanded our offering with additional SKUs at the top of the price range, targeting the customer who has demonstrated continued resilience through this cycle, and represents a significant growth opportunity. We'll support the launch with new national campaign advertising focused on differentiated luxury product and on broader health and wellness benefits with sleep.

Our third highlight, our international business continued to capitalize on long-term growth opportunities, delivered double-digit growth on a reported basis and mid-single-digit growth on a constant currency basis. Tempur International outperformed the broader industry in the quarter, extending a multiyear track record of solid growth across our key markets. This performance reflects continued disciplined investment in distribution and marketing, a resilient supply chain, strong local execution and the strength of our Tempur brand. We're pleased with our results in a challenging environment, and our international business remains well positioned for continued growth over the long term.

Our U.K.-based bedding retailer, Dreams, once again outperformed the market this quarter, reinforcing its position as a category leader. Strong brand awareness and share of voice, combined with effective execution drove solid customer engagement and healthy order volume. Our ongoing operational discipline and a continued focus on product quality and customer experience supports further growth in this very competitive U.K. market.

Our fourth highlight, Mattress Firm outperformed the broader U.S. market, supported by its scale, depth of category expertise, and a well-curated merchandising assortment. Merchandising actions taken over the past year have better positioned Mattress Firm business to meet customer needs across price points while maintaining a strong focus on quality and innovation. During the quarter, we further deepened relationships with suppliers aligned with our quality standards and marketing commitment.

Our proprietary sleep expert model continues to differentiate the in-store experience, supported by one of the industry's largest and most highly trained sales force, which has been augmented by ongoing technology investments. We remain on track with our previously announced $150 million store refresh program targeting completion in 2027. To date, we have spent approximately $40 million on the store refresh program, all funded operating cash flow. Additionally, the rollout of Tempur brand walls is progressing well with national completion expected by year-end.

With that, I'll turn the call over to Bhaskar.

Thank you, Scott. In the first quarter of 2026, consolidated sales were solid $1.8 billion, and adjusted earnings per share was $0.59, up 20% over the prior year. There are approximately $26 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in early February 2025, and the related divestiture of Sleep Outfitters, and certain Mattress Firm retail locations in the second quarter of 2025. I will be highlighting like-for-like comparisons defined as reported numbers adjusted for the acquisition and divestiture impacts normalized for these items in our commentary.

Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $886 million in the first quarter. Same-store sales were flat, outperforming a market we believe was down mid-single digits in the quarter. Mattress Firm adjusted gross margins decreased 360 basis points to 31.5%, including a 40 basis point headwind from the stub period. The remaining decline was primarily driven by promotional expense and product mix combined with some fixed cost deleverage.

The impact of product mix on gross margin was primarily driven by increased balance of share of Tempur Sealy products as Tempur Sealy's supply contract is structured and to provide a portion of Mattress Firm's economics in the form of cooperative advertising credits, which reduces Mattress Firm's operating expenses. When looked at on a conforming basis, there is no material impact on EBITDA margin from the product mix change.

Mattress Firm adjusted operating margin declined approximately 230 basis points to 4.9%, including a 150 basis point headwind from the stub period. The remaining decline was primarily driven by the decline in gross margin, partially offset by the favorable cooperative advertising dollars I mentioned a moment ago.

Turning to Tempur Sealy North America. North America sales grew 5% on a like-for-like basis. With like-for-like net sales through the wholesale channel increasing approximately 8% in the first quarter, our sales with third-party retailers declined 4% after normalizing for floor models. Like-for-like sales through the direct channel declined 12% in the first quarter, driven by reduced customer traffic at retail stores and e-commerce site, as we reduced our e-commerce advertising in the quarter. However, we have seen a marked improvement in recent trends.

North America adjusted gross margins increased a robust 1,300 basis points to 58.3%, including a 600 basis point benefit from the stub period. The remaining increase was primarily driven by realized synergies and operational efficiencies with lower product launch costs as well. North America adjusted operating margin improved 710 basis points to 24.3% in the quarter, including a 230 basis point benefit from the stub period. The remaining increase was primarily driven by the improved gross margin, partially offset by investments in cooperative advertising as noted a moment ago.

Now turning to Tempur Sealy International results. International net sales grew a robust 16% on a reported basis and 7% on a constant currency basis. Our International gross margins increased 140 basis points to 50.4%, primarily driven by favorable mix and operational efficiencies. Our International operating margin increased 160 basis points to 18.4%, driven by the improvement in gross margin and fixed cost leverage.

I'd like to spend a moment discussing commodity inflation and our related pricing actions. It's historical industry practice to adjust pricing as input costs rise. Like others in the industry, we have recently announced modest pricing actions designed to offset inflationary pressures tied to oil-derived inputs, including key chemicals as well as gasoline, diesel. Importantly, the structure of our supplier contracts provide us with early visibility into inflationary cost pressures before they flow through our P&L. This visibility allows us to thoughtfully implement pricing actions to offset inflation while minimizing any material interim exposure. This is a structural competitive advantage.

We expect commodity inflation will not impact Tempur Sealy's full year '26 earnings, but will modestly modify our normal seasonality as the timing of cost increases hit slightly before our pricing actions are fully implemented. This is by design to give our retailers time to adjust their merchandising and advertising plans.

As a result, the second quarter will have an approximate $10 million headwind to Tempur Sealy profits. We expect that this will fully offset in the third and fourth quarter with our announced pricing action taking effect following the July 4 promotional period. On a full year basis, we expect the pricing action to be dollar neutral to Tempur Sealy earnings, effectively offsetting the inflationary impact. We anticipate this will result in a $50 million pricing lift to the back half of 2026 global Tempur Sealy sales on a like-for-like basis with an expected annualized lift of approximately $100 million.

Now turning to sales and cost synergy targets. In the first quarter, we achieved $50 million net benefit in adjusted EBITDA from sales synergies, and another $50 million benefit from cost synergies. In order to support the summer selling season and leveling out of manufacturing for seasonal fluctuation, Mattress Firm built their inventory of Tempur Sealy products in the quarter. The planned inventory build is reflected in intercompany sales for the first quarter. However, we never realized any sales benefit to Somnigroup's EBITDA until Tempur Sealy products sold to Mattress Firm is sold through to the end consumer.

Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the first quarter, consolidated debt less cash was $4.5 billion, and our leverage ratio under our credit facility was 3.1x, demonstrating our strong cash generation and disciplined capital allocation approach.

Turning to cash flow performance. In a muted market, we delivered record first quarter operating cash flow of $247 million and record first quarter free cash flow of $186 million. We have reduced our net debt by nearly $500 million over the trailing 12 months, while fully supporting growth initiatives and returning over $250 million to shareholders in dividends and buybacks. We expect to return to our target leverage ratio of 2 to 3x over the next few months.

Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to present approximately 23% of global Tempur Sealy 2026 sales. Intercompany eliminations in accordance with GAAP, will reduce Tempur Sealy sales, but be margin accretive and neutral to dollars of operating profit. Please note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year '26 reported results will reflect the impact a of little over 1 additional month of Mattress Firm financial results.

We expect adjusted earnings per share to be between $3 and $3.40 for the full year. This guidance range contemplates a sales midpoint of approximately $7.8 billion after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will be flat to slightly down year-over-year. The announced pricing actions across our global markets, Tempur Sealy North America like-for-like sales growing mid-single digits, International business growing mid-single digits and like-for-like Mattress Firm sales growing low single digits. We also expect reported gross margin slightly above 45% and nearly 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage, partially offset by the impact of Tempur Sealy pricing actions, which are intended to neutralize commodity inflation dollars, which will be margin dilutive.

Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private label to be in the low 60% of Mattress Firm total sales. This represents about an incremental $40 million of EBITDA benefit for 2026 compared to '25, and approximately $700 million of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1.45 billion at the midpoint.

Regarding capital expenditures. We expect 2026 CapEx of approximately $225 million, which includes $75 million of investments in Mattress Firm store refreshes and brand wall installation. We expect our CapEx to normalize to $200 million in the future years. And for at least 50% of our free cash flow in '26 to go toward quarterly dividends and share repurchases.

Now I would like to flag a few modeling items. For the whole year 2026, we expect D&A of approximately $315 million, interest expense of approximately $230 million, a tax rate of 25% with a diluted share count of 213 million shares. Note that our guidance does not include any impact for the closing of the proposed combination with Leggett & Platt as the timing is dependent upon regulatory review and approval by Leggett & Platt shareholders. We expect the transaction would be accretive to adjusted earnings per share within the first year of operations before any synergies.

Finally, a bit of color on guidance. The midpoint of our guidance assumes that consumer confidence, which has been pressured by geopolitical conflict will normalize as we progress through the year. If these pressures were to continue through the year-end, we would be tracking closer to the low end of our guidance.

With that, I'll turn the call back over to Scott.

Thank you, Bhaskar. Well done. Before opening the call up for Q&A, I want to quickly address our recent announced agreement to combine Leggett & Platt. As we announced last month, we signed a definitive agreement to combine with Leggett, an all-stock transaction valued at approximately $2.5 billion, including the assumption of debt. We expect this transaction to close by year-end, subject to satisfactory customary closing conditions.

Following the close of the transaction, Leggett is expected to operate as a separate business unit within Somnigroup, similar to Tempur Sealy, Mattress Firm and Dreams. And to maintain its offices, including its primary location in Carthage, Missouri. We're proud to have Leggett & Platt join us and believe the combination is beneficial to all stakeholders of both companies. We expect the combination to leverage the individual strengths of Somnigroup and Leggett & Platt to realize 5 strategic benefits.

First, this combination continues our vertical integration strategy and enables us to closer collaborate between component engineering, manufacturing design, and customer trends, supporting accelerated innovation cycle and more cost-effective consumer-centric product construction. Second, this combination provides access to incremental addressable markets beyond bedding, expanding Somnigroup's long-term growth opportunities and cash flow generation. Third, the combination is expected to lower Somnigroup's net financial leverage and increase its flexibility. Fourth, the combination is expected to be accretive to adjusted earnings per share before synergies and in the first year post closing, and significantly increased SGI's peak earnings in a normalized bedding market. And fifth, the combination presents cost synergy opportunities. In total, we expect synergies to result in at least $50 million of EBITDA on a fully implemented annual run rate basis.

With that, operator, we're done with our prepared remarks, please open the call up for questions.

[Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs.

I want to focus on demand, Scott, especially with the comments around pricing and consumer confidence. Can you talk about price elasticity across the business and how you're thinking of your ability to continue to drive industry relative outperformance despite all the headwinds that we are seeing on the consumer?

Sure. And thank you for your question, Susan. I think when you look at elasticity, I guess the best thing to look at is really the closing rate. And if we look at closing rate, either whether it be in our own Tempur stores or you look at Mattress Firm, it continues to improve. So what that tells me is, when customers show up at the store, they're looking for products. They then get full discovery of price, and we're -- the closing rates going up. So it doesn't appear the elasticity is very high. I think that's probably the best evidence in looking at that particular issue.

As far as outperforming the industry, as we've talked about numerous times, over the years, we continue to improve our competitiveness in the marketplace. And where I look, whether it be in our recent price increase, which I think will be among the lowest by any of the manufacturers, and that has to do with the way we handle the inflation is certainly a competitive advantage.

When I look at our advertising share of voice in the marketplace, this would be around the world. It continues to be, call it, top of class. What information I get informally on other manufacturers, they would appear to be not dealing with the current market conditions as well and maybe being a little challenged from a capital standpoint. So certainly, our cash flows and balance sheet are a competitive advantage. So I think we'll continue to outperform the industry, and I think the industry will normalize once you get through some of the geopolitical issues that we all know about.

Your next question comes from the line of Bobby Griffin with Raymond James.

Scott, I wanted to first -- I want to ask on the Stearns & Foster launch in 2H. We've been around the business a lot. We've seen a few different launches from Stearns, some starts and go kind of in the product. But the structure of SGI is much different today with all the advantages you've highlighted. So can you maybe unpack how that launch is set up to play out and how this launch might be a little different and where that opportunity is for that product?

Sure. Great question, Bobby. First of all, we talked about Stearns, you have to realize that we have cannibalized some of Stearns as we moved Sealy Posturepedic up from a price standpoint. So we self did that. And so this is the last piece of getting our pricing architecture right between all 3 brands. Tempur, Sealy and Stearns. And so that opens up some more addressable market, and we also moved the price bracket up at Stearns & Foster. Primarily, you might find interesting, we're being pushed by our retailers who wanted a higher-price Stearns & Foster. So that is new. We also leaned into hybrids in that area, and hybrids have been good in the bedding market in the U.S., as I know you know. And quite frankly, the last Stearns & Foster hybrid, we didn't hit the mark perfectly. So that's a major upgrade.

I think the other thing I would point to is with Mattress Firm as part of the family, we have very strong support from Mattress Firm, from an advertising, slot commitment, training and probably a higher degree of support than we would have had without having them in the family. I think those factors probably combined with some national advertising gives us more momentum on this launch than we've probably had in any launch in Stearns & Foster's history.

Your next question comes from the line of Rafe Jadrosich with Bank of America.

I wanted to just follow up on some of the comments on pricing and the input cost inflation. Just first, can you just talk about the input cost inflation you've seen sort of year-to-date from Iran, the exposure on the chemical side, and then what you're expecting in the back half of the year? And then like that pricing that you're talking about, the $100 million annualized, is that the way to sort of think about the magnitude of the cost inflation you're facing and covering that on a dollar-for-dollar basis?

Sure. I'll let Bhaskar give you some of the details. But as you probably know, the industry has a history of passing on inflation costs through the system. Others actually have passed their costs through earlier than we did, and we were one of the last to pass through. And my perspective is that that's passed through very effectively as it has historically.

Bhaskar, you want to give kind of the details?

So just from a pricing standpoint or an inflation standpoint, what we've discussed in the past is the nature of our relationships and strategic partnerships that we have is that we do have some time to react and assess and evaluate before we put price in. So from a commodity inflation standpoint, on an annualized basis, Think about it as about $100 million. And as you think about the rest of the year, think about that as about $50 million. So $50 million of inflation.

So what we're doing to offset that is in the second quarter, we will have some transitory impact, call it, $10-or-so million that will be made up in the back half of the year. From a pricing standpoint is that we've neutralized that impact, as you pointed out, is that the annualized impact of our price increase is $100 million, which for dollar for dollar, will offset the inflation that we are anticipating. However, all that said is that we do have a bit of transitory items in the second quarter.

Where that is coming from, as you can imagine, given what's happening from a geopolitical standpoint, the vast majority is coming from oil-derived items. So whether it be the chemicals, diesel, purchased foam, et cetera, that's the vast majority of where we're seeing the inflation.

So I think the other thing I'd point out when you talk about the inflation is when you look at the price increase that we took, it's probably overall about a 4% increase, and a 4% increase in this business is not disruptive to customers. Because quite frankly, customers don't shop for the product but once every 8 years. So it's not nearly as sensitive as something like gas prices.

That's right. I guess where I would close with that, as I mentioned, in the second quarter, we do have a bit of exposure. So what we're really pleased about is our EPS growth that we saw in the first quarter, call that about 20%. And in a market that was a little bit different than what we had anticipated, we call the industry expectations down a little bit. The quarter has started off well. There are some transitory items related to the commodities that I spoke to. So as you think about the second quarter from an EPS growth standpoint, is in a very challenged market is that we would still expect EPS growth of somewhere between 5% and 10%.

And you're going to pick up the headwind you've got on commodities in the second quarter, you're going to pick that up in the third and fourth quarter of this year. So the annual number doesn't change due to commodities, right?

That's right.

Your next question comes from the line of Peter Keith with Piper Sandler.

Nice job navigating a very fluid environment. Maybe just on the full year revenue outlook. I was just wondering if you could just kind of give us the puts and takes and how you adjusted the numbers slightly from a couple of months ago. It seems like you did come down maybe by $100 million, lower industry backdrop, but I'm guessing you're seeing better share gains and maybe you had factored in and then the price increase if that flows through in the revenue for the back half as well?

Great question, Peter. You've got it. It's relatively straightforward. Industry expectations, call it, where we were before is kind of flat up to slightly up, where we're at the midpoint is, call it, flat to slightly down. So that's a drag or a headwind versus where we were. You also have to correct is that the price increases that we put in place for the back half of the year, that is an uplift. That's inclusive of the share gains. So net-net, we're a bit off the midpoint, call it, $7.9 billion previously at the midpoint, $7.8 billion. So just a few moving pieces.

Your next question comes from the line of Daniel Silverstein with UBS.

Could we please double-click on Mattress Firm's performance year-to-date? How has store traffic and ticket evolved over the last few months? And then on margins, what are some of the promotional investments you are making? And how are you balancing the flow-through of margins against driving additional share gains?

Sure, let's see. Going to Mattress Firm. Same-store sales for the quarter were flat, I guess, I'd need to be from that standpoint. Post closing of the quarter, same-store sales have been slightly up in April?

Correct.

He asked about promotional, I think, with the relative performance, I think that's outperforming our perception of the industry for sure. Promotional have been -- obviously advertising, although advertising is slightly down and then finance for customers. You asked about what's driving sales. Clearly, ASP has been a big winner. And I don't think that's just for Mattress Firm. I think that I would say, from what we see in our mix of product sales, ASP has been very strong for the industry as higher-end customers have clearly shown up.

Traffic, traffic is down. Traffic is down, I'm going to say, single digits. And I think that's consistent with our perception of the industry. Anything else, may I have missed in that question. I think I got it.

I mean what I would say, if I were to pan back a little bit, is we feel thrilled about our performance in all the geos that we operate in, we continue to take market share, gain versus the competitive set through execution, advertising, great product. Just focusing on the U.S. or North America a bit is that all in, our Tempur Sealy business captured a fair amount of share. The other performed well in a challenging environment as well. So we feel good about our relative performance in a, let's call it, an interesting environment.

Yes, I think the other thing we should call out, because you can't see that clearly is that Canada and Mexico had a tough quarter. And I don't think that was company specific. I think that was market and they were specifically weaker than the U.S. On a consolidated basis, certainly, a strong performance.

Your next question comes from the line of Jonathan Matuszewski with Jefferies.

A recent theme that's emerged following the Analyst Day was kind of the evolution of upper funnel versus bottom funnel marketing for the industry. Curious what you're seeing -- what you saw materialize in 1Q, maybe relative to the back of '25? And are you seeing retailers outside of Mattress Firm continuing to prioritize bottom funnel in terms of conversion? Or do you see progress in messaging in terms of overall replacement and the like?

Sure. If you look at Mattress Firm, we continue to move up the funnel some, carefully monitoring that activity, but clearly leaning a little bit higher up in the funnel. Some of the other large advertisers, I think, are similarly rebalancing. And then I'd just tell you, look, it was a tough quarter for the retailers. And so in that period, quite a bit of advertising got pulled down in the industry, making our share of voice even stronger and our message even stronger. So I'd say we've made some slight progress, but at the same time, a pretty tough market for the advertisers to advertising it.

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

I wanted to ask, Scott, about the performance at the non-Mattress Firm third-party channels that you sell into in North America. I believe you said that, that was down 4% in the quarter. So it looks like maybe in line to slightly better than how the market performed. But can you just give us a sense of what you're hearing from those partners? And any specific strategies, or goals as you think about partner growth, door growth, slot growth, et cetera?

Sure. We call those the other, other. And to be clear, that would be U.S. retailers, non-Mattress firm, doesn't include Canada and Mexico. That number was up 4%, I guess? Yes, up 4% -- excuse me, down 4%. And so I think you said it right, with a market that was probably down 5% plus a little is probably a slight outperformance in the other, other category.

I think those retailers are focused -- what they've always been focused on the success of their business, which is giving them a popular product, help drive customers into their showroom, deliver on time and all those things. I think they're excited to see Stearns & Foster come. I think they know there's some upside there. The Sealy Posturepedic line continues to do very well. Constant frustration with the other, other retailers just on traffic, and I think that's universal. And they certainly appreciate the strength of our advertising.

As far as additional slots, we will get some incremental slots in the new Stearns launch, but they aren't going to be material to the total revenues of North America. But those would be -- we'll get some incremental slots there. Haven't seen any deterioration in our positions at any of the other, other retailers. And I think on the go forward, it's really about velocity. And that goes to having a great sales force, with quality and quantity of our advertising. And quite frankly, what our competitors do and how they perform.

Your next question comes from the line of Keith Hughes with Truist.

I just want to turn back to the margins, particularly gross margins on Mattress Firm. I know there was some adjustments to be made on the comparison differences. But if you could talk a little bit more about what caused the compression in gross margin year-over-year?

Absolutely. So when you look at gross margin is that one has to think about the entire P&L. So let me bifurcate out what that means. So call it a few hundred basis points of a decline year-over-year. The vast majority of that is a result of the Mattress Firm entity increasing its share of the Tempur Sealy family. The way that relationship works is that there are some volume rebates, which impact gross margin. However, there are credits associated with cooperative advertising that you don't see in gross margin. It is -- you see it in the operating expense line as a reduction. When you put both of those items together, what you'll see is at a -- call it, 80 bps of a decline year-over-year, and that's principally related to just leverage going through that entity.

Yes. And I'd kind of give you a watch out on some of that. We run -- we think about the business in total. If Mattress Firm were an independent company, okay, they would have come to the Tempur Sealy side of the house. and probably negotiated some volume, some volume incentives and their P&L may look different. We don't spend a lot of time in the group, slotting as to where synergies go or renegotiating incentive bonuses or anything in Mattress Firm.

So there's no question some of -- quite a bit of a benefit of Mattress Firm is showing up in the Tempur Sealy, silo as you look through as opposed to Mattress Firm. So I wouldn't disaggregate the business and think about it separately because we don't run it that way. We run it as part of the family. Because I'm sure the Mattress Firm people of independent would have come over and pushed us hard on their supply contract. And we're not changing supply contracts, or benefiting Mattress Firm for some of that performance.

Your next question comes from the line of Jeff Lick with Stephens.

Scott, at the Analyst Day, you and the team were very deliberate about talking about prior to Somni's ownership of Mattress Firm, how Mattress Firm sometimes got a little aggressive with discounted pricing and playing vendors off one another. And in the prepared remarks, you guys -- you talked about pricing architecture.

Now that you guys are up to the 62% share, you're going to be running through that in the back half. I'm curious if you could just talk about how that dynamic will kind of work and manifest itself into results. Now that there seems to be you guys are playing the role of the kind of price governor and not being deteriorating price, or just hurting price structure.

Yes, clearly, and you're mainly talking about UPP and the pricing framework in the marketplace and making sure that all retailers honor the UPP structure. And certainly, Mattress Firm is honoring the UPP structure. And quite frankly, when they do, it's beneficial to them as they found out, not just since we bought them, but over time. And we continue to work with other retailers if they don't follow that process. So look, I think that's healthy for Mattress Firm. I think it's healthy for the industry. And I think it's been a net positive, and they've done a great job on pricing discipline.

Your next question comes from the line of Peter Keith with Piper Sandler.

I wanted to circle back on the chemical shortage. We've been getting a lot of questions on it. So it was only a $10 million impact for Q2, which I think is a positive. But could you address two things. Number one, how much inventory of chemicals in terms of months of supply, are you keeping on hand now? And then secondarily, with this polyol shortage, could that play out into the back half of the year, perhaps with some shipment delays or product outages. I know in the past, you lean more towards high-end product like back in 2021. So if you could just address the kind of the puts and takes around this polyol shortage. I'd appreciate it.

Yes. I'm going to take a crack at it. I think when it first showed its ugly head, there was a worst-case scenario that was worked through and mitigated and the word shortage was probably an appropriate possibility. I think with what we know today, I don't think the industry is going to have shortages as far as outages from a supply standpoint. There is pricing impact, okay? And that's been rolled through the industry. But I'm not nearly as concerned about shortages, and I'm not hearing comments about shortages. And that's an industry comment.

When you then go to Tempur Sealy specifically, obviously, we have an advantaged situation because of our volumes. And then obviously, we have a large amount of safety stock safety stock is in place for one, these kind of events, which you've referenced, but also possible hurricane issues and stuff, what do you want to say? 3, 4 months?

That's fair, yes.

Yes. It varies a little bit, but for talking terms, I think, 3 or 4 months. Also you can bend in your volumes to products that don't use as much foam at times. But I think from where it was, what would that happened about 1.5 months ago?

A couple of months ago.

A couple of months ago. That situation continues to get better and better. in my outlook on that right now is that it's a pricing event, and the pricing event has generally run through the industry.

There are no further questions at this time. I will now turn the call back to Scott Thompson, CEO, for closing remarks.

Thank you, operator. To our over 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends our call today, operator. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to Somnigroup's 2026 Investor Day. Thank you so much for joining us today. I'm Lauren Avritt, Director of Investor Relations. It's our pleasure to host you both in person and virtually.

Before we get started, I would like to note that this presentation includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ 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. 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 appendix of the presentation which will be posted to the company's website at www.somnigroup.com.

We'll begin this morning with remarks from our Chairman and CEO, Scott Thompson. But first, we'd like to share a brief video.

[Presentation]

And with that, please welcome Chairman and Chief Executive Officer, Scott Thompson.

Well, good morning, everyone, and thank you for joining us today, whether you're here in New York or joining us remotely. My name is Scott Thompson. I'm Chairman, President and CEO of Somnigroup International, SGI on the New York Stock Exchange. Hopefully, you're in the right room.

For those of you who do not know me, I've been with the company as CEO for over 10 years and have had the privilege of leading the organization through industry cycles, business expansion, innovative product launches and significant acquisitions, including the most recent one. Our transformational combination with Mattress Firm and reorganization is Somnigroup International, which today is the largest, most profitable bedding company in the world. Let me quickly walk you through what we have planned for you today. First, I will share a strategic overview of Somnigroup's vision, performance and our priorities for the coming years.

Next, Cliff Buster, CEO of Tempur Sealy International will provide insights into Tempur Sealy's leading brands, products, portfolio, operational excellence and diverse omnichannel strategy. Hansbart Wijnand, Executive Vice President International, Tempur Sealy, will discuss our unique global platform and international growth strategy. Steve Rusing, CEO of Mattress Firm, our U.S.-based retailer, will provide an update on Mattress Firm's integration, retail strategy and customer experience initiatives. We'll then take a short break. After the break, Tom Murray, our Chief Marketing Officer, will present our approach to brand building, our new powerful marketing strategy for Mattress Firm and Somnigroup. Jonathan Hertz, CEO of Dreams will then join us via video to provide an overview of our market-leading retailer in the U.K. market. Finally, Bhaskar Rao, our Chief Financial Officer, will review our recent financial performance, capital allocation priorities and long-term targets. We'll then conclude with a Q&A session.

With that, let's begin. Why invest in Somnigroup? What makes the company different? And why now? First, global scale and vertical integration. We're the world's largest bedding company. We have leading end-to-end capabilities across the globe from design and manufacturing all the way through to retail. That vertical integration is unique in this industry, and it creates advantages that are extremely hard to replicate. It allows us to move faster, operate more efficiently and capture more of the value chain than anyone else. Our integrated model also gives us the agility to adapt quickly to change in demand, input cost or consumer trends. Second, omnichannel reach and iconic brands. We have a portfolio of the most trusted brands in bedding, Tempur-Pedic, Sealy, Stearns & Foster, Mattress Firm, Dreams and others. And we've built a unique platform that allows us to reach customers wherever they choose to shop online or in over 2,800 company-owned stores globally or through a robust network of wholesale partners. That omnichannel distribution is a powerful engine for growth and provides resilience.

Third, relentless innovation driven by consumer insights. We invest more in R&D and marketing than any other player in the industry. That fuels a pipeline of differentiated products and services supported by high-impact advertising that drives widespread awareness and adoption. And because we now own and operate extensive retail platforms, we have access to real-time consumer insights that uniquely positions us to anticipate and shape demand. Consumers are increasingly focused on sleep as central to health and wellness, which supports higher ASP. Somnigroup is at the forefront of that trend. Fourth, operational excellence and operating leverage. Our scale unlocks industry-leading efficiencies in sourcing, logistics and supply chain. Additionally, we have significant structural advantages as the industry recovers. This translates to incremental sales into oversized profits and cash flow growth. That is a powerful operating leverage in a business like ours that has low capital requirements as sales grow.

Fifth, resilient cash generation and disciplined capital allocation. Even though industry troughs -- and we've been in one for the last few years. Somnigroup is very profitable and is generating robust cash flow. That cash flow supports reinvestment and growth and a clear commitment to return capital to shareholders. We have strong balance sheet and significant financial flexibility, with our industry is a significant competitive advantage. Sixth, connected, proven leadership. This is actually my favorite point. We have a seasoned management team with a track record of execution and growth across all of our business units. This is a team that knows how to win. We operate with strong alignment, constructively challenging one another, while maintaining a disciplined collaborative approach that drives consistent performance. Every member of our senior team has a material amount of their net worth in SGI stock. We and the Board are aligned with your success.

And seventh, we are poised to experience an industry recovery. The global betting market is $120 billion industry. It's structurally sound and is poised to rebound. We are uniquely positioned not only to benefit from that recovery but to drive it, to capture share, to deliver success for our customers, our partners and our shareholders. Let me be clear. The actions we have taken over the past several years culminated in the transformational Mattress Firm acquisition just over a year ago, have set the stage for Somnigroup to continue to capture market share, drive growth and deliver success. The best is yet to come.

A little background. With the acquisition of Mattress Firm, we renamed the company from Tempur Sealy International to Somnigroup International to better reflect our position as a global provider of sleep solution with an integrated omnichannel strategy. We also refined our corporate structure to ensure that we can operate with optimal efficiency and effectiveness with Somnigroup as the parent company in Tempur Sealy, Mattress Firm and Dreams as our operating business units. At the Somnigroup level, we focus on high-level strategic direction, corporate governance and capital allocation. That's where I spend most of my time along with Bhaskar and other corporate timber members.

Our 3 business units operate in a decentralized manner. Each is led by a dedicated CEO who is responsible for technical go-to-market decisions, operational excellence and delivering the best outcome for our customers. This structure allows us to move quickly, stay close to the customer and leverage the unique strengths of each business unit while capturing the benefits of our combined scale and vertical integration at the parent company level.

Let me put some numbers around the business. Tempur Sealy is the leading global bedding manufacturer. It's present in 100 markets. It has over 70 production facility and over 425 retail stores. We offer complement portfolio of iconic brands, Tempur-Pedic, Sealy, Stearns & Foster, private label and OEM products. that span the full range of customer price points and preferences. Mattress Firm is the leading mattress specialty retailer in the United States. It operates 2,100 stores across 45 U.S. states supported by over 5,400 highly trained sleep experts. Mattress Firm retails all of the leading betting brands in the industry, including Tempur-Pedic, Sealy, Stearns & Foster, Kings Down, Sleepy's, Beauty Rest, Serta, Simmons, Purple, Nektar and more. It is truly a multibranded strategy. And Dreams is the leading multi-branded bedding retailer in the U.K. with over 225 brick-and-mortar stores, a robust e-commerce platform and a vertically integrated private label manufacturing operation.

In 2025, Somnigroup totally generated $7.7 billion in sales and $1.3 billion in adjusted EBITDA. We operated over 2,800 store locations and have approximately 20,000 talented associates around the world. When you look at our sales mix, you can see the balanced contribution across Tempur Sealy North America, Tempur Sealy International, which includes Dreams and Mattress Firm. This is a global, diversified, scaled platform, and that platform is what enables us to execute on the investment thesis I just laid out. As part of forming Somnigroup, we ensure that we have the right management team to lead the company in each of the business units. I'm enormously proud of the deep depth and quality of our leadership team at Somnigroup level as well as at Tempur Sealy, Dreams and Mattress Firm.

What you see on this slide is an industry-leading management team with decades of combined experience across manufacturing, retail, operations, marketing, technology and finance. We have leaders who have built businesses turned around businesses, integrated acquisitions and delivered results through multiple business cycles. You'll hear from some of the management team members later today. The depth of our team's expertise is a significant competitive advantage in a dynamic industry.

Let me take a moment and talk about why we do what we do. Following our transformational acquisition of Mattress Firm, we broadened our mission and vision to encapsulate the full scope of our operations and our opportunity ahead. We're not just to manufacture anymore. We're a fully integrated sleep solution company. Our mission is to transform how the world sleeps. That's a big statement. But what gets us up at night more. Sleep is fundamental to health and wellness and quality of life. And we believe we have the responsibility to make better sleep accessible to more people across all price points, lifestyles and markets. Over the last decade, we have sold over 300 million sleep products to help improve health and well-being of people worldwide. That's a real impact. And it is a testament to the quality of our products, the strength of our brands and the dedication of our teams. Our vision is to be every customer's choice for better sleep. And we'll work to earn that position through relentless innovation, exceptional service and deep expertise.

Now let me show you a couple of data points that illustrate where we are today and why we believe we are in a unique inflection point for Somnigroup and our shareholders. I'm not sugar coated, as you can see from the graph on the left, the U.S. bedding industry has been in a prolonged downturn since 2021. U.S. produced mattress units declined about 30% from the peak in 2021 to where they are today. Volumes currently sit below 20-year trough levels. The care is what's important. This is a structurally intact $120 billion global industry with a long track record of stable growth. When I look at that data, a few things stand out to me. The 10-year average for U.S. produced units is well above current production levels. In fact, U.S. produced units per capita have declined significantly, suggesting consumers have been underserved for several years and recovery is overdue. When I think about the industry recovery, advertising is a key driver. And we are going to be a player to play a significant role.

Part of the thinking behind our Mattress Firm acquisition was to change and align our advertising messaging to drive the category, awareness and demand, put more customers into the purchase funnel and engage consumers throughout the buying journey. We are investing in advertising at record levels. and we are encouraging our suppliers and retail partners to do the same. In the graph on the right, you can see how industry players have shifted their advertising spend over the last few several years. They've been heavily shifted towards low funnel, conversion-driven digital advertising and away from upper funnel brand and awareness advertising that compounds the awareness issue when overall spending is also down. This is one of the things we are addressing head on with our new powerful marketing strategy. Tom Murray will talk about that later.

But the short version of it is, we're investing in upper funnel brand-building advertising to drive category interest and traffic, not just for us but for the industry. Even in a challenging environment, we have managed to generate significant cash flow. This means that when the industry rebounds, we will be in an even stronger financial position, able to invest in more growth, capture more market share, accelerate success for our stakeholders. Our resilience through the downturn positions us to capitalize fully on the upswing.

To build on that last point, let's talk about how a rebound in the bedding industry provides Somnigroup with significant opportunities. I know that's top of mind for many of you. In this graph, you can see the 2025 consumption volume was about 11.4 million units below long-term trend line. That is a big gap and it represents both a near-term challenge and a multiyear long-term opportunity. We are operating in a depressed market. The opportunity is that when the market normalizes, there is a lot of upside. As I mentioned a minute ago, we are confident that the current volume levels are cyclical, not structural. And we believe that the market is poised to normalize and at a minimum, return to its historical growth trends in the near term. This industry confidence is supported by aging population, health and wellness trends, increased upper funnel advertising consumer confidence, pent-up demand, future growth and housing formation.

So the question is not if the industry will recover, but who will be positioned to succeed when it does. We believe the answer is Somnigroup. While the market is depressed, we are not retrenching. We're investing. We're building brand equity. We're strengthening our infrastructure. We're positioning ourselves for success when the recovery comes. I should also note that on a relative basis during this cycle, we've seen the premier customer demonstrate more resilience compared to the value customer. This is a continuation of a long-term premiumization trend that we've observed in the industry over the last 2 decades. The vast majority of industry profits are associated with these premium customers. We believe this long-term trend will continue, and we are uniquely positioned to continue to capitalize on it.

As I just mentioned, we are confident that Somnigroup is uniquely positioned to continue to lead the bank industry, both in North America and globally. And why do we believe that? To start, we're the only company in the industry with global leadership across the entire value chain with key advantages across product, brand, channel, ensuring that we are the customers where customers want to shop, with differentiated product they want. Starting with product. We have the best technology in the industry. We invest significantly in R&D and have a regular cadence of new product launches, driven by consumer insights. Next, we have iconic brands across product and retail brands in all key markets. Think about Tempur-Pedic, Mattress Firm, they're clear, clearly, category leaders and have deep brand awareness, which is difficult to replicate. And on top of that, we have the leading share of U.S. industry marketing spend. ensuring continued awareness of brand and store concepts. And our robust owned channels. We have national retail coverage through Mattress Firm in the U.S., Dream in the U.K. as well as Tempur Sealy owned stores around the world. We have leading omnichannel presence online, offline, providing seamless integration across the customer journey.

Key piece of Somnigroup's story. It's how it all fits together under our vertical integration strategy. From design to retail, we leverage each stage to create customer value, drive operating efficiency, improve product performance and enhance returns. Stage 1 is innovation. We have industry-leading lab sites and more than 110,000 square feet of dedicated R&D space. This is where we develop next-generation sleep technology things like cooling, pressure relief and smart bases. Stage 2 is production. We have over 70 strategically located plants globally, supported by a resilient supply chain for instance, we manufacture the vast majority of our products we sell in the U.S. right here in the United States. That gives us control, quality, speed and insulates us from some of the tariff headwinds others are facing. Marketing, Stage 3, we have the largest marketing budget in U.S. Bedding, over $700 million in average in advertising spend in 2025. And continue to increase our global marketing spend to support strategic international launches. That is a competitive weapon. It gives us the ability to drive awareness, traffic and conversion in a way that no one else can.

Stage 4, wholesale distribution. We serve over 20,000 retail partners globally. They are valuable, they're long-term relationships, and they remain a core part of our go-to-market strategy. Finally, Stage 5, DTC, retail and e-commerce. We operate more than 2,800 retail stores globally and 40 e-commerce platforms. That gives us leading omnichannel presence. This is where we control the final mile customer experience and where we capture the real-time consumer insights that inform everything upstream. Mattress Firm acquisition solidified our position at this stage of the value chain, making us an even stronger end-to-end player in the industry. This end-to-end integration is unique in the industry. and it is a sustainable competitive advantage. The strengths I've just discussed create a powerful flywheel that benefits everyone, our shareholders, consumers and partners. At our core, for over 1.5 century, our leading products and iconic brands, differentiated innovation that consumers trust. Now we have optimized our omnichannel distribution, ensuring we are everywhere the customer wants to shop. That distribution is powered by the strongest share of voice in the industry, which drives traffic and conversion.

As we grow, we increase our scale across the value chain that scale drives operational leverage, which improves margins and cash flow. And that cash flow allows us to reinvest in our operations, better products, better stores, better marketing. We're also committed to returning cash to shareholders and maintaining our financial flexibility and strategic optionality for value creating M&A. And the flywheel keeps spinning. Growth drive scale, scale drives efficiency, efficiency drives cash flow, cash flow supports reinvestment and returns. And it's an endless cycle that benefits everyone in our ecosystem.

Now let me talk about our financial ambitions. As we mentioned on our most recent earnings call on February 17, and Bhaskar will talk about it a little bit later today. We've updated and increased our financial targets through 2028, reflecting both the strength of our platform and the accelerated momentum we are seeing across the business. For 2028, we are now targeting EPS of $5.15, representing a 24% compound annual growth rate from 2025 mid-single-digit annual sales growth and mid-teen annual adjusted EBITDA growth. These targets are driven by a few key assumptions, industry normalization return to growth, utilization of our synergies from the Mattress Firm acquisition. We're looking forward to providing additional color on our 3-year target this morning. including segment level color from our business unit leaders.

To provide additional color on our global Tempur Sealy business, I will turn it over to Cliff Buster, CEO of Tempur Sealy International, who will provide insights into Tempur Sealy's leading portfolio of innovative products and brands, operational excellence and diversified omnichannel strategy.

Thank you, Scott. Good morning, everyone. I'm Cliff Buster, Chief Executive Officer of Tempur Sealy International. I joined the company over 8 years ago and most recently served as the Chief Executive Officer of North America before assuming the role for global Tempur Sealy International in 2025. Prior to Tempur Sealy, I held executive positions at Dollar Thrifty Automotive Group and Group 1 Automotive. My experience working at consumer discretionary companies has shaped my leadership approach at Tempur Sealy, which is laser focused on anticipating and meeting evolving consumer preferences, driving operational excellence and expanding into incremental addressable markets, both domestically and globally.

Today, I'm excited to talk about how we are building on Tempur Sealy's competitive advantages to further strengthen our position as the world's largest bedding manufacturer and to advance Somnigroup's strategy to drive profitable growth, margin expansion and success for shareholders. Hansbart Wijnand, our EVP of International, will walk you through our Tempur International business. and growth opportunities later this morning. So my presentation will mostly focus on our North American business.

Before we dive in, let me provide a quick overview of Tempur Sealy International. As most of you know, we're a global bedding manufacturer and manage a portfolio of iconic brands, including Tempur-Pedic, Sealy, Stearns & Foster and private label and OEM products that span the full range of consumer price points and preferences. We maintain a broad distribution and manufacturing footprint across both North America and our international markets, supported by wholesale and direct-to-consumer channels and a wide range of product families. Our products are sold in over 100 market global location and representation through 20,000 third-party retail doors. With over 70 production and distribution facilities around the world, we have global scale that is unrivaled by our competition.

In our international markets, we operate a wholly-owned Tempur business as well as a 50-50 joint venture for our Sealy operations, which is not consolidated into our reported financial results. Our broad geographic footprint, omnichannel approach and diversified product strategy, create resilient sales streams that enable us to consistently deliver strong results even in challenging macroeconomic environments. As an example, in 2025, Tempur Sealy's reporting segments, which include Dreams, achieved global sales of $4.9 billion on a stand-alone basis and approximately $1 billion of adjusted EBITDA.

Now I want to turn to our competitive advantages for a moment. Our competitive position is built on 4 structural advantages. First of those is consumer-centric innovation. Our proprietary materials and real-world sleep solutions informed by consumer insights, create competitive advantages, elevating industry innovation, driving share gains and supporting premium pricing and margin. Second, our comprehensive brand and product portfolio. Our brands span super premium to value tiers with differentiated features for every consumer segment. Additionally, our industry-leading brand portfolio delivers pricing power, retail preference and outsized consumer consideration that Tom will discuss further in his presentation. Third, advanced manufacturing capabilities, our global vertically integrated manufacturing platform delivers quality, flexibility and cost efficiencies, the latter of which supports our ability to reinvest in our capabilities and our products. And fourth, our omnichannel strategy and diverse sales streams. We reach consumers wherever they want to shop across 100 markets worldwide and multiple channels. This not only broadens our addressable market, but also reduces earnings volatility and supports consistent growth.

Over the next few slides, I will walk you through our competitive advantages in greater detail to give you a clear view of why Tempur Sealy is the leading bedding manufacturer in North America and a leader globally. It starts with the consumer. We are a consumer-centric company which means that anticipating and addressing our customers' specific sleep needs is at the core of everything that we do. Our product development is rooted in deep consumer insights using qualitative research to identify what drives consumer purchase decisions. What is important to the consumer and what will help them achieve their best night sleep is at the heart of this research and guides our development priorities. This allows us to deliver targeted solutions, whether it's pain relief, sleep climate or sleep coaching. These value-added features address real consumer sleep needs differentiate our brands and products from the competition and support our premium pricing.

As a result, our Sealy and Tempur-Pedic brands are the #1 and #2 selling brands in the United States based on their ability to deliver features and benefits that meet a wide array of consumer sleep needs while simultaneously delivering higher ASP for our retailers. In terms of our research, we further utilize our consumer research to strengthen our retailer relationships by educating retailers on consumer sleep needs as well as the customer purchase journey, we can help them optimize their merchandising, advertising and the in-store experience to drive top line sales. So let's talk about innovation for a minute. We are the industry leader in innovative sleep solutions, investing over $30 million annually in research and development, led by a dedicated team of 75 employees across 4 R&D facilities worldwide. Through these efforts, we deliver what we call purpose-driven products, products that are designed to directly address consumer sleep needs, things like TEMPUR-Breeze and active Breeze for climate. IntelliCoil and precision fit coils in our Stearns & Sealy products to deliver superior personalized comfort and our Pro Smart basis to enhance rest and relaxation.

These advanced features and products create a discernible difference for the retailer and for the consumer, fueling a favorable product mix and a higher ASP at retail. While the industry has had a challenging last 4 years, our focus on premium products and features has driven continued growth in share as well as stability in sales as consumers focus on improved health and wellness through quality sleep. Our innovation efforts and products have been widely recognized. As an example, we were recently honored to receive the 2025 Product Development and Management Association's Corporate Innovator Award, which was a true testament to the innovative efforts that go into our products to deliver long-term value to the consumer. On the product side, we've received numerous awards, including the J.D. Power Award for Tempur-Pedic for 5 out of 6 years from 2019 to 2024 as well as the best mattress in the online category for 4 consecutive years from 2021 through 2024.

On the Sealy side, Sealy has been recognized by BrandSpark as the most trusted brand by American shoppers in the mattress category and also recently received the good housekeeping seal of approval for our Sealy Posturepedic line. Finally, Tempur Sealy was named one of Newsweek's most trustworthy companies in the consumer products category. This recognition speaks to the quality, innovation and value of our brands and provides an added benefit in the form of additional brand impressions and customer awareness.

Now one last point I'd like to make on innovation. In 2025, we made an investment in and entered into a long-term licensing agreement with full power AI, a technology company, we have partnered with and invested in for over 8 years previously. Our joint focus is on expanding our proprietary sleep technology platform that integrates with our smart adjustable basis. This platform provides advanced sleep tracking capabilities and industry first in automated storing response, acoustic massage and relaxation features, all of which enhance the customer experience and improve sleep quality.

So in summary, our scale and integration within Somnigroup allows us to sustain industry-leading R&D investment, fueling a pipeline of differentiated products and supporting our long-term growth and how we use that to identify what products we bring to market and which brands. Through our research, we've identified 6 key need states that influence mattress purchases, performance, wellness, luxury, indulgence, reliability and value. To the left, you can see examples of what the consumer references on these specific points. And as shown on the graphic on the right, our diversified brand and product portfolio spans all need states at all price points from our value-oriented Sherwood private label brand to our performance and wellness-focused Tempur-Pedic brand. So irrespective of the purchase decision driver, our differentiated, innovative and aesthetically appealing products have been designed to meet the needs of virtually every consumer, which increases our opportunities to win on the retail sales floor.

One additional point I'd like to make on this slide is that our research found that only 50% of respondents selected price when asked what broad product attributes are important to you when thinking about buying a mattress. We believe this underscores the importance of innovation and delivering features and benefits that address specific consumer sleep needs as the consumer continues to understand the connection between a good night sleep and overall health and wellness. So in addition to the consumer need states, our research also allows us to identify the target customer for each brand based on what is important to them, not only from a functional standpoint but also an emotional need standpoint. This customer segmentation allows us to tailor product features to maximize appeal and conversion supporting both higher balance of share and increased selling prices at retail. Additionally, it allows us to develop targeted advertising relevant to the primary consumer, facilitating a more effective and efficient marketing investment. The segmentation also provides valuable insights for our retailers that they can consider in merchandising their retail floors and in their own advertising plans.

So now to give you all a clear view of how research, innovation, product development and customer focus come together at Tempur Sealy, I'd like to walk through a case study, the 2025 launch of our Sealy Posturepedic line. This launch was the largest launch in our company history and was intended to reposition the brand to capture share and grow our addressable market. It included new differentiated innerspring technology and a completely revamped product portfolio of 4 specific brand families from Posturepedic to Posturepedic Elite, supported by a new national advertising campaign targeting a specific customer segment, launch was a success, clearly demonstrating the features and benefits of the products. To put that in perspective, we shipped over 65,000 floor models and realized year-over-year growth in volume, combined with an increase in average selling prices from a higher merchandising mix at retail. In addition to the ad campaign that we launched, our retailers leaned into that ad campaign, resulting in an almost 50% increase in Sealy's share of voice in 2025, which heightened our overall brand awareness in the marketplace.

So I'm going to shift gears a minute now. We're going to talk about manufacturing. Because our focus on our products and our innovation would not be successful without the backbone of our business, our vertically integrated, global manufacturing and logistics operations. With more than 70 manufacturing facilities around the world, whether they're wholly owned, joint venture or license, we manage every critical step from raw material sourcing to component production to final assembly, warehousing and delivery. This structure supports flexibility and efficient scalability. It drives margin improvement and it ensures that we can deliver quality products to our consumers on time and in full. All of these things are critical to driving sustainable growth with our retailers.

Now I want to expand on our manufacturing capabilities a little bit for a moment. So first, we operate 4 global Tempur-Pedic foam pouring and mattress manufacturing facilities, giving us extensive capacity and the ability to produce everything from commodity-based foam to our proprietary, highly specialized Tempur material. Additionally, we have a stand-alone latex pouring facility that produces material not only for our own news but as well as for third parties, we also have a specialty foam pouring facility dedicated to pillar manufacturing and compressed product assembly. On the traditional innerspring mattress side of the business, we maintain a network of 20 Sealy assembly factories in North America in addition to 2 fabrication facilities for compressed product assembly. Within our Sherwood subsidiary, Sealy, Mexico and our Sealy Asia joint venture, we manufacture the springs that go into our mattresses. This has proven to deliver meaningful cost productivity and inventory efficiencies. And within the operations as well as provide a platform for future expansion. These diverse capabilities and expertise allow us to expand into adjacencies, such as OEM products. meaning we produce products for other brands such as Purple.

This gives us visibility to categories where we may not otherwise choose to participate, while driving our fixed cost leverage in our manufacturing facilities as well as top line sales. These operations are supported by our global sourcing team, which is focused on ensuring continuity and diversity across a complex and often evolving supply chain while also leveraging our substantial purchasing scale to drive cost efficiencies globally. Finally, our logistics and delivery capabilities leverage both in-house and external resources to optimize service and efficiencies to retailers as well as end consumers. In short, our manufacturing platform is not only unmatched in scale, but also in flexibility and our expertise. This operational backbone supports our ability to innovate, to adapt and grow while delivering strong margin performance and cash flow. So turning from manufacturing to distribution.

Let's talk about our omnichannel. How we reach the consumer is critically important, and that purchasing landscape changed dramatically over the last decade with an expanding number and type of retail channels. So as the consumer evolves, we have as well, investing in our own stores, e-commerce channels, expanding into nontraditional retail channels like big box retailers and online marketplaces. -- and continuing to grow in more traditional specialty bedding, furniture and department store retailers globally. Today, Tempur Sealy has the leading omnichannel distribution model in the industry. ensuring we reach consumers with the product they need, wherever they shop, whenever they shop. So I want to spend a few minutes on our traditional brick-and-mortar wholesale channel, which is our largest distribution channel in North America. We serve a vast network of third-party retail partners, ranging from national chains to regional independents with 20,000 retail doors on a global basis.

But what truly sets us apart with retailers is our partnership approach. That obviously starts with our comprehensive product lineup, which makes us a one-stop solution for retailers aiming to meet diverse consumer needs. Our scalable manufacturing capabilities, combined with the nationwide logistics and distribution footprint, ensure reliable on-time delivery and service, which is critical for retailer satisfaction and long-term retailer loyalty. But beyond that, we deploy a partnership model. and we provide value-added services that differentiate us from our competition, creating mutually beneficial cohesive relationships with our retailers. It starts with our sales team, our ground game, as we call it, who focus on building brand advocacy by educating the retailers on our differentiated products, features and benefits and consulting on merchandising mix. Further, the sales team supports the retailer with training, not just on products, but also on the customer purchase journey with a focus on driving conversion and sales growth.

Our collaborative marketing programs and dedicated customer marketing teams provide consumer research, marketing insights, best practices as well as marketing tools and co-branded assets designed to help our retail partners drive traffic and sales, boosting their business as well as ours. Our ground game also includes sales analytics support, with tools and capabilities designed to provide value-added insights about the demographics, the opportunities and the competitive landscape in the retailer-specific market. These tools can also add the retailer in identifying opportunities to optimize performance to improve product mix, increase average ticket and drive incremental sales. Our ability to support retailers at scale is a distinct competitive advantage, delivering value-added offerings, unmatched by our competition. We believe this unique asset strengthens relationship, expand distribution, drive shared profitability.

Now speaking of brick-and-mortar retailers. I'd like to highlight the benefits of our relationship with our largest retailer and our sister company, Mattress Firm. The acquisition of Mattress Firm has already unlocked significant value for Tempur Sealy. We've expanded our balance of share at Mattress Firm, which has fueled sales growth and profitability even in a challenging market. This increased sales volume in turn drives increased manufacturing throughput, which improves our fixed cost leverage. In addition, we're able to better coordinate efforts on inventory levels and order timing, enhancing our operational productivity and efficiency and allowing us to level load production during peak periods, improving our overall service level and also as a byproduct at a huge benefit, allowing us to reduce turnover.

From a product perspective, Mattress Firm's retail expertise and firsthand consumer insights will help inform future product development activities. While secured distribution at the largest retailer in the country will enhance our ability to bring products to market, whether on a test basis or for broader rollout. On the operations front, our teams have worked together to identify and realize synergies in numerous areas, including sourcing, warehousing, logistics and home delivery, just to name a few. To use home delivery as an example, Tempur Sealy will leverage Mattress Firm's home delivery network rather than relying on external third parties for our home deliveries for our DTC and TRS stores. As a result, we'll realize substantial cost savings while also improving the customer experience during the final mile of the delivery. The reason for that Mattress Firm's dedicated team of home delivery specialists, whose expertise is the delivery and setup of mattresses and adjustable bases. They've already driven significant improvement in our Net Promoter Score in a very short period of time.

And then lastly, with the oversight of Somnigroup's Chief Marketing Officer, Tom Murray, we're able to better coordinate our advertising with Mattress Firm, focusing on quality, upper funnel activity that will drive retail activity across the industry. You'll hear more from that -- you'll hear more on that from Tom in just a bit. Now complementing our wholesale business, our direct channels and our alternative channels. These are powerful contributors to Sealy's growth and profitability. The direct side of the business, consisting of the owned stores and e-commerce sites is highly profitable. It captures both the retail and the wholesale profit components of each sale. These channels allow us to directly engage with consumers that prefer to buy directly from the manufacturer, while allowing us to deliver a controlled, informative and quality purchasing experience.

Our Tempur retail stores are strategically positioned in nontraditional locations that allow us to leverage favorable customer demographics while taking advantage of our national advertising as well as traffic from complementary retailers, thus requiring no incremental advertising to drive traffic to the stores. These stores showcase our products exclusively in a luxury store environment focused on outstanding service, and product education in a low-pressure sales environment. Our e-commerce platforms provide best-in-class product education and a seamless transaction. Unlike multi-brand retailers, our sites are tailored exclusively to our products, providing a depth of information and product assortment that others just can't. Further, our scale as the largest manufacturer advertiser in the category drives more efficient customer acquisition costs than pure-play DTC competitors.

Finally, turning to our alternative channel, which is part of our wholesale business. We view club stores and online marketplaces as incremental opportunities to capture new customers while also increasing brand impression share. Club stores provide access to captive memberships who purchased both in-store and online. Additionally, as research has shown a substantial number of consumers begin their product research online, and marketplaces like Amazon drive significant impression share and capture customers who prefer to transact online or who are looking for value-added offerings. So what's next for Tempur Sealy? Our top priority is capitalizing on the growth levers that I discussed at the beginning of the presentation. We'll continue to collaborate with the Mattress Firm team to execute on synergy opportunities. We'll continue to innovate and diversify products across the portfolio to drive balanced contributions across all of our brands. We'll pursue market share growth and channel expansion to reach more consumers and grow our top line revenues.

And lastly, we will maintain a relentless focus on cost efficiency to drive productivity, and expand margins, allowing us to continue to fund investment in product innovation and capabilities. So in summary, Tempur Sealy is in an outstanding position in the industry and central to Somnigroup long-term value creation. We are the global leader in bedding with a strategic and operational focus that differentiates us from the competition and fuels our long-term growth. We have iconic brands and industry-leading products supported by the leading industry share of voice in the industry. With our global reach and operational capabilities, we're well positioned to capitalize on our own growth initiatives as well as an overall industry recovery. The benefits of the Mattress Firm acquisition only further strengthen our position.

So with that, thank you for your time. I will now turn it over to Hansbart Wijnand, Tempur Sealy's EVP of our International business, who will share deeper insights into our Tempur International operations and explain why we are all energized by the significant long-term global growth opportunities ahead.

Okay. Thank you, Cliff, and hello, everybody. I'm Hansbart Wijnand, and I serve as Executive Vice President, International at Tempur Sealy. I joined the company in 2001, and have held various leadership roles across our International division, including as Vice President, Finance and Operations, International and the President of Europe, Middle East and Africa before assuming my current role in 2022.

Over more than 2 decades here, I've helped to drive our international growth strategy and our expansion into new markets. And today, I'd like to give you an overview of the competitive advantages and outlook for our international business and specifically, our Tempur business. Our international business is strong and is positioned for continued global growth. The global betting industry is attractive. And here, a Tempur is present across all continents. And we are the only true global player in the industry, giving us a unique edge versus our local competitors. That edge is amplified by the fact that we see similar consumer and industry dynamics across all regions, allowing us to capture the key benefits of scale and representing significant competitive advantages and a long-term growth opportunity.

We have a clear growth strategy in the international markets, focused on targeting consumers at a wide range of price points and with a broad product selection to expand our total addressable market and increase our overall market share, which is currently below what we enjoy here in the U.S. Okay, a quick overview of the international business before going into our competitive advantages and our strategy in more detail. As Cliff mentioned, Tempur Sealy is the leading global manufacturer in North America, but we're also the only true global player in the industry. And our global scale, omnichannel reach and strong continued innovation will position us for continued industry leadership in the international markets, which we estimate make up roughly 60% of the global bedding industry. Since we introduced the world's first ever viscoelastic mattress in Sweden in 1991, we've continued to expand and evolve globally. And today, we're present with Tempur in more than 90 markets and we have at least 30 years' experience in all of them.

In 22 of those markets, we sell through our wholly owned subsidiaries, signified with the lighter color on the map. And the rest of the markets are served by a long-standing partnerships with third-party distributors, which is the darker color. In our own markets and in most of the distributor markets, we're present in all sales channels, just like here, ensuring that we can meet consumers wherever they shop. So we sell wholesale via furniture and bedding retailers and online platforms, and we sell direct via our own Tempur stores and our e-commerce sites. A key factor in our global market success remains our unmatched scale with our products available all over the world and with our key markets being the United Kingdom, Germany and France and Europe, in South Korea, Japan, China and Australia and Asia Pacific. And notably, our competitive position in the United Kingdom has been enhanced in recent years following our acquisition of Dreams, the U.K. #1 bedding retailer in 2021.

We work closely together in the United Kingdom to drive mutual success and support improved consumer outcomes. You'll hear more about the Dreams business a little bit later from Jonathan, the CEO. Okay. There are 3 key competitive advantages that set us apart from our international competition. First, our iconic Temp brand and materials. They have made us the global leader in super premium bedding a position we drive forward through continuous innovation. Second, our scale and financial strength that allow for a focused strategy and consistent execution and at times, valuable patients. As the industry has faced a challenging landscape over the last few years, we have maintained a steady leadership presence. We've grown our distribution and our sales across all our regions and we are uniquely positioned as the industry recovers to expand our sales and market share. And third, our robust supply chain and omnichannel capabilities, which enable us to be a trusted partner for our retailers and give exceptional support throughout the customer journey.

Now let me talk about those first 2 key advantages and walk through how the similarities in global demand, combined with our scale, directly support the consistency and the strategy and execution. So first, when we look at international markets, the fundamentals are very consistent. So in all our regions, we see consistent consumer demand for the same value proposition and technologies, such as spring, foam and hybrid in luxury, premium and mainstream segments. Now this puts Tempur in a unique position to capture demand, leveraging our Tempur brand recognition and differentiated materials. We are the leader in the super premium market segment in the vast majority of the markets that we serve with a significant runway for further market expansion. And in addition, although every market has some unique characteristics, we find that the margin structures and the requirements of the various players are similar across markets as well.

Now this alignment allows us to run an integrated, efficient operating model, meaning we don't need to completely come up with a new playbook for each individual geography and we can focus our energy on doing the core things well across all of our markets. And second, our footprint is broad enough that we're not dependent on the cycle on any individual market. Some regions may slow at times and others will accelerate. But our diversification provides balance, which gives us the ability to make decisions with a long-term view. Time and time again, we see local market cycles and dislocations having an impact on local only players. And in these situations, say, often without financial reserves, they resort to ad hoc actions like lowering prices or rushed product introductions. We are not forced into reactive moves based on what's happening in any given market in any given quarter. We are the only betting company with true global scale and financial strength. And that combination is rare in our industry, and it puts us in a fundamentally different position than the local operators. It allows us to invest ahead of the industry and maintain resilience through cycles, all while consistently executing on our strategy regardless of the local market conditions.

The bottom line is consumers across the world want to buy Tempur and retailers love selling it, just like they do here in the U.S. and that gives us a global advantage. And when we say our scale and strength, enable focus and consistency then this is what we mean, an integrated model, a balanced global presence and an unmatched resilience and competitive position.

Turning to our third key competitive advantage. Our supply chain and omnichannel distribution capabilities. We have our central temper manufacturing in Denmark. And this facility serves as the principal product development, production and distribution hub for the total international business. Its central location gives us efficient access to the majority of our key markets, enabling a streamlined and cost-effective supply chain as we ship finished goods to our own subsidiaries and our third-party partners worldwide. Now for select markets and products where it enhances the efficiency, we have now supplemented this model with local assembly, allowing us to meet the demand more effectively while maintaining the quality and the consistency of our products worldwide.

We work with double and often triple sourced raw materials through long-standing industry relationships. And this is a true competitive advantage, especially as global supply chains and the disruptions become more common. For example, during COVID, and other more recent global disruptions, we were one of the only manufacturers worldwide that kept our production running and dissolution throughout. And this enabled us at the time to gain incremental market share and deep customer loyalty across the world.

Our Denmark-based compliance team has 30 years' experience across 90 markets, which is key in helping us navigating the increasing demands from regional and local regulatory bodies as well as retailers and consumers all over the world. And because we invested significantly in wholesale and direct online platforms over several years, we were ahead of the curve when it came to developing our omnichannel distribution capabilities in our industry. We offer both off-line and online purchase options in the vast majorities of those 90 markets that we operate in, which allows us to get ahead of major shifts in global consumer shopping behavior. Now -- so building on those key advantages in 2023, we shifted our international strategy to expand our total addressable market and further drive our global market shares. Historically, we employed what you could call a super premium strategy. And with success over the last 3 decades, we've consistently grown our sales and profits to lead the super premium price points like I said, in the vast majority of the markets that we operate in, but with a relatively low share when compared to our business here in the U.S.

Now with our strategic shift, we set ourselves the goal to continue to grow the business at a super premium price points, but while expanding our focus to target an incremental consumer to premium and top mainstream price points. So we introduced several and different consumer-facing innovations, which we leveraged to create product options for channel and customer differentiation at a variety of price points. But crucially, we did this while decreasing the complexity at the plant and simplifying our manufacturing process. Now these additional price points and product options created an opportunity to increase our distribution both off and online. And all these elements combined allow us to increase our advertising spend, which heighten the brand awareness drives more traffic into stores, increased conversion ultimately drive sales and ultimately growing our market share closer and closer to what we enjoy here in the U.S. I'll provide a little bit more color on each of those elements.

So expanding our assortment to cover a wider range of price points and capture additional market share was our primary objective. So whilst we introduced a new product called Pro at our historical super premium price points, we introduced 2 new product lines: form and ease in the 2,000 to 3,000 segment. Now with those new ranges, we now cover the same price points as we do here with Tempur-Pedic in the United States. With the expansion of our price point offerings, our assortment has increased is relevance for our retailers. In most of our international markets, the majority of retailers focus their merchandising on the larger premium and mainstream segments. And with our new ranges, we now have products that fit directly into those strategies. And as a result, we're seeing a strong increase in our third-party distribution.

Since rolling out 2023, we've expanded our distribution with 19%, and that's driven by additional slots at existing partners, but also and significantly the increase with new retail partners across the world. It's a clear validation that our boat assortment, meets the retailer needs and resonates with consumers worldwide. And listen, while we're pleased with the progress, there's still a meaningful opportunity ahead. Our broadened price points and enhanced product offering gives us a significant runway to further increase our retail penetration in years to come, supporting our long-term growth ambitions.

Okay. Quickly on that product build that we introduced in our plant in Denmark. Historically, so each of our metros had its own specific core. But when designing our new assortment, we took inspiration from the common component platforms you see, for example, in the car manufacturers. So in our new ranges, our mattress score are to a high degree, the same across the types with the differentiation achieved by the cover that are interchangeable, offering the consumer preferred innovations that you've heard about already, like quilting or cooling. In the end, so this allowed us to build a broader assortment of mattresses at different price levels and internal and customer-specific variants, while maintaining the manufacturing efficiency and our sales margins.

Turning to the distribution. As I mentioned before, high-level industry characteristics are generally consistent. Across the world, we see betting products sold in wholesale, indirect offline and online channels and the margin structures and requirements, like I said, are similar. But on the ground level, there are differences and nuances for every market. For example, the primary sales channel varies in Europe, just like here, the dominant channel is wholesale. But in Asia, the dominant channels are often direct or direct mono brand distributors. Other differences are the presence or the absence of strong multi-brand furniture and bedding chains. And if the incumbent players are, for example, predominantly like premium or mainstream and that then determines the average price level historically in any given market that we're in.

And finally, and importantly, the competition rules and regulations vary across the world, and that results then in different competitive dynamics. Now navigating these ground level distribution specifics is the key task of our experienced local teams. And here, our global scale and strength as Somnigroup allow us to hire and retain strong talent across our markets. Most of our people are long-standing employees with deep expertise of their respective markets. It's a core competitive advantage. It allows us to navigate the individual market nuances while operating around the world. So as mentioned, besides product price points, variants and simplified manufacturing, increased distribution. We also set out to heighten our brand awareness. So the teams created a fully integrated marketing strategy and an impactful launch campaign. For our Asia markets, specifically, we leveraged a popular figure and respect the cultural figure in that region as David Beckham.

Now overall, since our 2023 pivot, we have increased our marketing spend and efficiency through a highly disciplined media strategy. And this increased spend and efficiency will be a key driver of growth far into the future. In conclusion, the bedding industry is attractive across all the regions that we operate in. We have long-term key competitive advantages and our track record shows that we know how to develop and retain our leading market presence and execute on our new strategy. And leveraging Somnigroup's strength combined with our evolved international strategy that has significantly expanded our addressable market. We expect the international business to remain a long-term growth driver.

And with that, I would like to turn it over to Steve Rusing, the CEO of Mattress Firm. Thank you.

Good morning. I'm Steve Rusing, President and CEO of Mattress Firm. I've spent more than 30 years in the bedding industry leading teams across sales, product development, merchandising and retail advertising. I began my career in 1992 at Sealy and spent over 2 decades advancing through roles in district and regional sales and national accounts. Most recently, I served as President of U.S. Sales for Tempur Sealy from 2020 through early 2025. Across those 3 decades, I've worked directly with retailers through many evolutions within this category. That experience has shaped how I lead Mattress Firm today, the deep understanding of the customer, a clear view of where the industry is headed and a commitment to building a stronger, more innovative business under Somnigroup. And that's what we're here to talk about.

Today, you're going to hear a clear and consistent message. Mattress Firm is the #1 U.S. mattress retailer advantage by scale, assortment, expertise and data. These strengths position us to continue to lead the category and deliver long-term value for both our customers and Somnigroup shareholders. Throughout this presentation, I will discuss our competitive advantages in detail. And let's start with Foundation, our scale. Mattress Firm operates from a position that no one else in the industry can match. We are the largest omnichannel mattress retailer in the United States, providing customers with a personalized high-touch experience, whether they choose to shop in store or online. Today, we operate more than 2,100 stores nationwide, giving us a category-leading physical footprint and the convenience customers expense expect. At a time when retail presence is decreasing nationwide, we have found that most consumers still prefer to see, touch and compare mattresses in store. And our scale provides us with a unique advantage to continue providing the best experience for our customers.

Approximately 82% of Americans live within 30 minutes of a Mattress Firm store, ensuring we remain top of mind for the majority of consumers in their own communities. Our border-to-border, coast-to-coast presence gives us the greatest reach and is essential to our leading national name recognition, combined with our digital platform, -- this positions us as the most accessible sleep retailer in the country. In 2025, our broad scale helped us achieve nearly $3.9 billion in sales, a testament to the strength of our reach, our brand and our customer value proposition. Behind our stores is an equally powerful logistics engine. Our more than 60 distribution centers create a nationwide network that enables speed, convenience and reliability, delivering the experience that earns us best-in-class Net Promoter Scores and builds long-term customer loyalty. We drive traffic to our stores and website with significant and sustained demand generation.

Over $300 million annual media investment gives Mattress Firm an unmatched share of voice in our category, ensuring that we're top of mind throughout the customer's shopping journey, but generating strong sales and achieving widespread consumer recognition isn't just stores and advertising. It's also people. Every day, more than 5,400 highly trained sleep experts serve our communities. They are trusted guides uniquely trained to help customers make confident decisions about something deeply personal, their sleep. Today, we estimate that we hold over 20% market share, the largest in the category. And with the significant transformations underway, we are positioning the business to expand that share. Over the past year, we have taken deliberate steps to strengthen our merchandising platform and better position the business for long-term performance. We have aligned Tempur Sealy's balance of share to consumer demand, resulting in a significant step up in sales of the TSI portfolio of products. We have formed new or deeper partnerships with consumer-preferred brands that invest in national advertising, helping increase awareness and bringing more qualified customers into our ecosystem.

At the same time, our merchandising team is leveraging its product development expertise to create differentiated branded exclusive collections. In categories with significant saturation such as adjustable bases, we are streamlining SKUs to simplify the assortment and improve overall productivity. We increased inventory levels to improve in-store and ready for next-day delivery availability to ensure that when customers are ready to buy, we can fulfill quickly and consistently. In addition, we are implementing a fully integrated system that unifies demand forecasting, replenishment, inventory optimization, in merchandise planning. This transition replaces manual siloed processes and enhances speed and accuracy across our supply chain. Together, these initiatives create a more strategic and technology-enabled merchandising platform designed to improve traffic generation, strengthen conversion and drive consistent, healthy growth. Our diversified product portfolio strengthens our ability to appeal to every customer.

Our goal is simple. Provide customers with the brands and technologies they prefer across all comfort levels, styles and budgets while optimizing profitability and driving loyalty. We do this by leveraging a balanced, multi-tiered portfolio that includes leading national brands, exclusive brand partnerships and our own private label offerings. Each tier plays a unique and strategic role in our assortment. First, our national brands. These brands are household names that drive engagement and trust early in the shopping journey across all consumer segments. They generate organic traffic increase in conversion and average order value while positioning Mattress Firm as the premier sleep solutions destination. And this is where our leadership position is incredibly powerful. Customers expect to find the leading brands with us and they do.

Next, we have our exclusive brand partnerships, which are major differentiators available only at Mattress Firm. They serve premium and luxury segments, drive higher margins through exclusivity and create unique marketing storylines, competitors cannot replicate. This exclusive brand strategy differentiates the Mattress Firm experience and directly supports increased customer loyalty and sustainable revenue growth. Finally, our private label offerings, which provide compelling value alternatives that build loyalty among value-driven shoppers. They deliver strong margins and velocity while targeting high-volume segments seeking simplicity and immediate value by offering accessible solutions that meet a wide range of comfort and technology preferences we ensure consistent customer engagement and capture across diverse market segments. When you look across national brands, exclusive and private label, you see a highly intentional portfolio strategy that is engineered to capture market share while delivering strong profitability.

Another core advantage that truly separates Mattress Firm from every other retailer in the category is our proprietary sleep expert model. We have the largest in most highly trained sales force in the industry. Our sleep experts are the foundation of the customer experience and a defining part of the Mattress Firm brand. enabling us to build trust in listing relationship with consumers through a high-touch personal sales experience. Every sleep expert receives approximately 100 hours annually of training, covering sleep science, product knowledge, customer engagement and technology tools. This level of investment in frontline expertise is unmatched in the mattress category. And we are widely recognized and sought after by consumers for the strength of the shopping experience we provide. A major differentiator in our model is Mattress Matcher, our proprietary omnichannel recommendation engine used by our sleep experts nationwide as well as online. It guides customers through a short intuitive assessment and translates that data into clear confidence building recommendations.

In our experience, building trust materially changes buying behavior. Our Google reviews averaged 4.9 stars reflecting exceptional day-to-day customer satisfaction across the country. And our Net Promoter Score stands at 86, one of the highest in any retail category. These numbers are the outcome of a deeply trained sales force, disciplined performance accountability and proprietary technology that enhances the customer experience. We are making a $150 million investment to refresh select stores by 2027. These upgrades modernize the environment improved shopability and make the overall experience simpler, more comfortable and more engaging. A central part of our in-store transformation is the rollout of Tempur-Pedic brand walls. These displays highlight the technology, performance and benefits behind the products. making it easier for customers to understand what they're buying and why it matters. In test markets, we've already seen meaningful lifts in both conversion and temper balance of sale.

By the end of 2026, we will have these brand walls installed in all stores, creating a consistent premium visual experience and helping customers navigate the assortment more intuitively. When you look at our sleep expert model and our in-store transformation together, the story is clear. We are elevating the shopping experience, increasing customer confidence and strengthening our ability to win at every price point. Our scale and our sleep expert model, generate extensive customer insights that we're leveraging to optimize our in-store execution, develop stronger customer relationships and steer improved business outcomes. One of our most exciting advancements is Sleep Expert AI, a proprietary intelligence-driven platform that embeds AI directly into the Sleep Expert toolkit. Through a platform that supports our sleep experts and live customer interactions and in training, Sleep Expert AI is designed to enhance customer interactions accelerate training and continuously elevate the quality and consistency of service across the enterprise. Chat mode uses the latest Google, large language models to support our sleep experts during live customer interactions and empowers them to identify customer needs and support them in making confident decisions.

The second is a component that we call Practice Lab. And it's our AI-powered training and development engine. Practice Lab personalizes practice and learning for each associate by simulating realistic customer personas and scenarios and guiding sleep experts through an interactive AI-driven conversations. This capability allows us to deliver consistent, high-quality training at scale to ensure our sleep experts continue to reinforce our brand equity and drive sales. Together, these capabilities support our sleep experts and drive continuous improvement powered by AI. We also apply data and digital capabilities to one of the most important drivers of our long-term growth, our real estate strategy. By combining our historical performance data with advanced machine learning analytics, we can more accurately identify where to open new stores, which locations to relocate or close. This combined data ecosystem, our proprietary performance history, customer insights, competitive intelligence, and market-level demand signals allow us to understand how communities are evolving, where our core customers are concentrated, how discretionary spending patterns are shifting and help co-tenants and competitors influence traffic.

Our data-driven real estate platform enables faster, more disciplined site selection with higher confidence in long-term returns. By identifying high potential markets earlier in shedding underperforming locations, we deploy capital where it generates the greatest impact driving stronger store productivity from day 1 and aligning our footprint with actual customer behavior. Our real estate strategy continues to advance, driven by stronger data, improved AI-driven forecasting in deeper analytical rigor. These enhancements are directly translating into smarter site selection and stronger new store performance. The impact is clear in the results. Average year 2 sales for stores opened in 2022 and 2023 are over 15% higher than those opened in 2018 and 2019. This increase reflects the measurable value of our more sophisticated approach. This capability is a key competitive advantage, building a portfolio of high-performing assets that deliver consistent returns, maximizing capital efficiency and creating a strong foundation for scalable long-term growth.

By bringing these capabilities together, Mattress Firm is not just maintaining our leadership position, we are uniquely positioned to continue to gain market share. With an unmatched retail footprint in our industry, we meet customers wherever they are physically and digitally. No one else in the category comes close to our reach, our visibility or our accessibility. Our significant sustained investment in marketing gives us category leading share of voice, ensuring that when consumers begin their shopping journey they are more likely to start with us. This combination, scale plus demand generation continues to drive high-quality traffic to our stores and website. We are also differentiated in the industry in how we convert that traffic. Our proprietary sleep expert training and tools, including AI-powered solutions, enable our associates to deliver consistent, high-quality customer experiences that build trust and confidence, coupled with our significant investment in the in-store environment and merchandising strategy, we increased conversion and average order value, ensuring we capture the full potential of every customer interaction.

When you combine traffic leadership, strong conversion, higher average order value, advanced technology and a consumer-centric approach to merchandising, the outcome is clear. We are poised to extend our lead as the #1 U.S. matches retailer. As part of Somnigroup, we have a strong committed ownership model that empowers us to take a multiyear view of strategy and investment, enabling us to pursue the transformation initiatives we've outlined today with conviction and speed. This means we can invest in our people. We can modernize our stores. We can scale our technology platforms. we can optimize our marketing and merchandising strategies. We can innovate without being constrained by short-term decision cycles. And most importantly, we can focus on guiding customers to their ideal sleep solution.

As Tom will cover in detail shortly, we're also transforming how we show up to consumers. With our new Sleep Easy campaign, we're shifting our marketing to problem and solution-oriented advertising, helping customers understand better sleep can improve their lives and how Mattress Firm can help them achieve it. This will allow us to shift the perception of Mattress Firm from simply selling mattresses to solving real sleep problems for our customer. This approach strengthens our brand, drives consideration earlier in the purchase journey and increases the effectiveness of our media spend. Another major advantage of being part of Somnigroup is a closer collaboration and best practice sharing, which enables better decision-making. Finally, we're implementing annual equity grants for leadership to strengthen long-term alignment with Somnigroup's value creation strategy and enhanced retention of key talent.

As we look ahead, the path for Mattress Firm is clear and grounded in the strategic advantages we discussed today. Our transformation is well underway, and we are building meaningful momentum. Let's review the near-term priorities and growth drivers. Our first priority is optimizing our product placement strategy by leveraging Somnigroup owned brands while expanding and strengthening our relationships with third-party brands that invest in national advertising and drive category interest. Our second priority is to grow and build upon the positive impact of our Sleep Easy campaign to reinforce our position as the customers trusted guide to better sleep. The third priority is rolling out the latest in-store traffic visibility technology, giving us a clear understanding of customer behavior in helping us improve store and marketing performance to drive stronger results.

Mattress Firm is well positioned to continue extending our lead as the #1 U.S. mattress retailer. We have unparalleled reach and scale, amplified by a more strategic, more effective marketing engine. We have a differentiated sales process and merchandising strategy that elevates the customer experience and drives higher conversion. We are making data fuel decisions that enhance operational efficiency. And we are further strengthened by synergies unlocked through our acquisition and our position within Somnigroup. Together, these advantages create a powerful platform for sustained growth, improve profitability and long-term value creation Thank you. Lauren?

Thank you, Steve. We're going to take a brief break. We are going to resume our presentation at 9:56. Thank you.

[Break]

Hi, ladies and gentlemen, we're going to get started. We'll resume our presentation with remarks from our Chief Marketing Officer, Tom Murray.

Good morning, and welcome back, everybody. My name, as Lauren mentioned, is Tom Murray, and I'm the Chief Marketing Officer at Somnigroup and also serving that same capacity at Mattress Firm. I joined Tempur Sealy in 2018 and served as its Chief Marketing Officer from 2020 to last year's acquisition of Mattress Firm. When, as I'll discuss today, I took on the added focus of establishing a new marketing direction for that company and brand.

2026 marks my 33rd year in consumer goods marketing and my 20th year in executive marketing leadership positions. Over the course of my career, I've had the opportunity to both build and bolster industry-leading brands across a number of diverse companies and sectors, including Duracell, Gillette, and Procter & Gamble in consumer packaged goods. Tom Tom, [indiscernible] and ADT in consumer technology and of course, most recently, Tempur-Sealy within bedding. Having introduced myself, I'd like to now provide you all with a high-level overview of Somnigroup's marketing strategy, which, as I noted, has evolved quite a bit since our acquisition of Mattress Firm.

Somnigroup's overall marketing strategy is focused on driving consumer demand for our product brands, namely Tempur-Pedic, Sealy and Stearns & Foster and our retail brands, namely Mattress Firm and Dreams by clearly and compellingly distinguishing these brands from other alternatives available in the marketplace. We target each of our brands to distinct and complementary audiences and having defined its respective audience, tailor our product development our distribution, our advertising and our selling efforts accordingly. To maximize awareness, consideration and purchase intent for our brands, we invest in industry-leading levels of advertising across such media channels as national television, streaming and online video, radio, social media and search. We complement our own direct-to-consumer marketing activities with investments in marketing actively conducted for Tempur Sealy in cooperation with our manufacturing -- our retail partners and for Mattress Firm and Dreams in cooperation with our vendor partners.

This cooperative activity includes advertising, new product launches, and the deployment of in-store point-of-sale materials and training programs that are designed to further enhance the visibility of an advocacy for our brands with consumers and their combination gives us significant influence on the overall voice and messaging within the industry. As the world's largest betting company, Somnigroup benefits from several competitive advantages that enable us to effectively deploy these marketing strategies to the benefit of each of the company's businesses and brands. Perhaps most notable to our discussion today is the company's industry-leading investment in brand-building advertising. On an annualized basis, Somnigroup invests over $700 million globally in advertising. This advertising supports each of our product and retailer brands and to demonstrable effect. For example, in the U.K. our Dreams retail operation is the overall market share leader and enjoys the highest share of voice, advertising awareness, top of mind awareness, and consideration of all mattress specialty retailers in that important market.

In our largest market, the U.S., our marketing investments, combined with our brands long-standing presence, broad distribution and exceptional reputations and advocacy to support each brand's standing within the industry. Specifically, our newly acquired Mattress Firm brand enjoys the leading share of voice, awareness, consideration and purchase intent amongst national mattress retailers across the U.S. Our Tempur-Pedic brand enjoys the leading overall share of voice amongst mattress manufacturers and its consumers' #1 ranked brand for both consideration and purchase intent. Our Sealy brand is ranked second only to Tempur-Pedic for overall share of voice, consideration and purchase intent. And last, but certainly not least, our Stearns & Foster brand enjoys the highest share of voice amongst premium innerspring wholesale brands and has been the industry's largest premium innerspring brand since 2023.

In the next few slides, I'll discuss how we're working to optimize Mattress Arm's marketing to drive growth for the broader Somnigroup business and the industry at large. The potential to leverage Mattress Firm's marketing efforts in a way that amplifies its power while also promoting our other brands and the mattress industry as a whole, was one of the main reasons we combined with the company, and we are already seeing some very positive results. As Scott indicated earlier, the Mattress Firm acquisition occurred during a period of sustained post-pandemic declines in category demand and an array of macroeconomic challenges. The sustained reduction in demand substantially hindered most manufacturers' abilities to maintain their historic level of advertising.

On a related note, it also prompted many mattress retailers to both reduce their overall investment in advertising and to reallocate a substantial portion of the remaining spend to so-called lower funnel tactics, particularly search engine marketing and things that were focused on driving conversion instead of creating demand. This is appropriate as retailers were attempting to capture their fair share of a declining market. But nonetheless, had a profound impact on the overall demand level within the industry. Some retailers, including Mattress Firm, also began focusing their efforts on an unproductive attempt to brand their store name and shifted their advertising focus to doing so. in lieu of focusing on the mattress brands themselves, which have historically been key to driving demand and traffic into their stores. As the industry's largest investor in advertising, Somnigroup has both the opportunity and the need to support what is now a broader array of its constituents, including namely the mattress industry overall. The newly acquired Mattress Firm brand and business itself and now the Tempur Sealy portfolio of brands.

As we consider how best to support these various constituents, and the importance of Mattress Firm's advertising investment to the overall equation and ultimately, the somewhat nontraditional messaging that Mattress Firm had been putting into the marketplace over the last several years, we determined that a new direction was required in order to help both Mattress Firm to help Tempur Sealy and to help the industry. To inform this new direction, we first revisited Mattress Firm's brand positioning and refocused that positioning upon what we deem to be the brand's primary sources of competitive advantage. This new brand positioning is perhaps best captured and conveyed within the following video.

[Presentation]

[indiscernible] new brand positioning, and our brand promise of making better sleep easy, we then embarked upon the process of developing a net new advertising campaign to bring Mattress Firm story to life. As I suggested earlier, this new campaign has been specifically designed to support Somnigroup's multiple constituents. For the industry at large, the campaign educates consumers about the role a mattress can play in overcoming the most common and most troublesome sleep disruptors that often get in the way of their ability to get a great night sleep.

For Mattress Firm, the campaign showcases how its sleep experts leverage their industry-leading training, expertise and tools to successfully guide mattress shoppers to the perfect solution for their particular sleep disruptors. And for Tempur Sealy's brands, the campaign far more productively utilizes the over $100 million in annual co-op spending that Tempur Sealy has historically invested through Mattress Firm by meaningfully integrating brand visuals and benefit messaging linked to how the products showcased in a given ad address the sleep disruptor depicted within that ad. Notably, in addition to integrating Tempur Sealy's brands, we also feature non-Tempur Sealy brands in their own dedicated executions within the campaign.

The campaign, which we call Sleep Easy was developed and market researched in the months immediately following the acquisition, and it launched in late July of last year. To familiarize you with the campaign and how it is bringing Mattress Firm's brand positioning and brand promise to life, I'm pleased to share 3 representative TV executions. Two of these executions highlight actual sleep disruptors. While the third highlights the reality that for far too many consumers, even the prospect of shopping for a mattress can keep them up at night. As you view the ads, you will note that each takes a very straightforward and modular approach to dramatizing a specific and commonly experienced sleep disruptor as the creative hook, that drives relevance and our audience's attention throughout the remainder of the ad to overtly and meaningfully showcasing specific mattress brands or products as examples of the solutions that Mattress Firm offers that can help with that particular sleep disruptor.

And finally, to emphasizing the importance of the Mattress Firm Sleep Expert as the helpful guide who has the knowledge, experience and tools to match you with the perfect solution to your specific sleep problem.

[Presentation]

The modular approach we utilized in developing the Sleep Easy campaign affords us the opportunity to easily extend it by showcasing, for example, updated dramatization of our original sleep disruptors additional sleep disruptors that we have not yet depicted in the campaign and, of course, different mattress brands, products and promotional offers. This modular approach will enable the campaign to remain essentially future-proof and is substantially more cost efficient than the previous manners in which Mattress Firm structured its campaigns.

But even more notable than its modularity is the fact that the Sleep Easy campaign has consistently and significantly outperformed Mattress Firm's prior advertising campaigns in all of the market research we have conducted. This research primarily conducted via ACE metrics, who is an industry leader in advertising creative testing suggests, first of all, that the Sleep Easy campaign is delivering on its objective of helping the mattress industry at large. More specifically, the research indicates that over 90% of respondents felt the ads were helpful to their understanding that a particular mattress can actually help them to achieve a better night sleep with over half of the respondents indicating that the ads were very helpful to that understanding. Importantly, the ACE metric research also indicates that the campaign is working particularly well relative to its objective of further elevating the Mattress Firm brand itself.

More specifically, the research indicates that's sleep easy, which is depicted here in dark blue, is significantly outperforming all Mattress Firm prior campaigns individually and collectively over the 8 years for which we have ACE metrics benchmark data. The superior performance is also true, as you can see here, across the entire suite of ACE metrics KPIs that their methodology associates with strong performance in the actual marketplace itself, including their overall A score and the underlying KPIs of attention, persuasion, relevance, information and even some not shown here, including like ability. Beyond these encouraging ACE metrics results, additional research that we conducted using another industry-leading research tool called Lucid Impact Measurement, indicates that the campaign is also having demonstrable impact upon consumers' perception of Mattress Firm.

More specifically, the research indicates that the most recent campaign, which aired in '24 and 2025, has now been significantly surpassed by the Sleep Easy campaigns results across literally every positive attribute measured in that research. Having charted a new and high potential messaging direction for the company, we've now also started to shape the composition of Mattress Firm's media investments. As background, pre-acquisition, a substantial and increasing portion of Mattress Firm's media investment was being allocated to so-called lower funnel channels and most notably to paid search advertising. This concentration was understandable as the company sought to capture demand in a difficult market and also to position itself for sale at that time. But it was otherwise suboptimal relative to consumers' media consumption habits and the notion of serving our 3 previously described constituents. Subsequent to the acquisition and linked to the strength of our new messaging campaign, we have, therefore, rebalanced our media spend.

Our 2026 plans reflect our ongoing effort toward this rebalancing. 62% of investments will be allocated toward upper funnel channels such as television, online video, radio and social media while only 38% will be allocated toward lower funnel activity. This compares to 56% and 44%, respectively, in 2025. This so-called richer mix of media will enable Mattress Firm to more fully derive the benefit of our industry-leading spend and share of voice via a larger allocation to these upper funnel channels which are more typically associated with demand creation. Notably, this richer mix also reflects insights from our internal media mix models which consistently suggests that we derive both higher revenue and higher ROIs from these channels. In addition to the positive impact, the changes to Mattress Firm's marketing strategy will have on the overall mattress category and Mattress Firm itself, they are already delivering substantial benefits to the Tempur Sealy brand portfolio.

As established earlier, the structure of the new Sleep Easy campaign now enables us to much more meaningfully integrate Tempur Sealy brands into the Mattress Firm brand story. The reach and quality of Tempur Sealy brands exposure has already improved as Mattress Firm's media mix have shifted to upper funnel channels. And given these shifts, and the magnitude of Tempur Sealy's co-op investments, its brand's share of Mattress Firm spend in upper funnel channels increased a full 20 percentage points since Q1 of 2025. Tempur-Pedic specifically has enjoyed a doubling of its share of spend since Q1 and was supported by over 1/3 of Mattress Firm's upper funnel spend in Q4 of 2025. And net of this is that Mattress Firm's increase in its advertising allocation to Tempur Sealy is now delivering far greater and better exposure and benefit to Tempur Sealy's brands, and especially to Tempur-Pedic. This increased and higher quality exposure has contributed to the Tempur Sealy brands, balance of share gains within Mattress Firm since Q1 of last year.

The changes to Mattress Firm's marketing approach that we've instituted to date have also and already enabled Somnigroup to realize substantial savings. We concepted and developed the new advertising campaign in-house and consequently ended our relationship with Mattress Firm's external agency of record. We successfully applied our scale leverage and best practices to achieve significant savings in our 2026 television upfront media buy. And we have revisited the company's 2 search engine marketing investments to eliminate redundancies. As we now look forward, we still have additional opportunity to realize marketing operational and financial synergies in 2026 and beyond. These synergies will likely be realized via further agency negotiations and consolidations, the establishment of Somnigroup functional centers of excellence for shared service marketing functions and an even more expansive coordination of our media planning and buying activities.

To summarize, I'd like to leave you with the following takeaways from my presentation today. The changes to Mattress Firm's advertising campaign and media strategy that we executed in 2025 have already demonstrated positive impact for the Mattress Firm brand and business for the Tempur Sealy portfolio of brands and for the mattress industry overall. We have started to optimize Mattress Firm's marketing strategy to realize significant cost synergies and to drive growth for the broader Somnigroup business. And we anticipate that our performance will continue to benefit from these changes for years to come and that Somnigroup will further benefit from our pursuit of the additional marketing synergies we have identified. As marketing is admittedly both in art and a science, it will naturally take some time for us to find the optimal balance of spend that drives sales and maximizes our ROI. That said, we have clearly embarked on a journey and, over time, expect to have continued good news to report.

With that, I'd like to now introduce Jonathan Hirst, the CEO of our market-leading Dreams retail business in the U.K. who is joining us via video to provide an overview of their business and growth outlook. Thank you kindly.

Hi, I'm Jonathan Hirst, Chief Executive Officer here at Dreams. We're the U.K.'s #1 bedding retailer at Dreams. At Dreams, we're actually simple. For over 40 years, we've been providing a better night seat for all by matching every customer with their perfect bed. I've worked in retail for 25 years across many different sectors, including mixed electricals, home improvements and now bedding. I mean my 12th year with Dreams, and this is my fifth year as CEO, leading over 2,500 colleagues is a privilege and responsibility I take great pride in. I was part of the original management team that took Dreams on private equity ownership, joining Sonder International in 2021.

Somnigroup is a hugely supportive owner giving us both the space to develop our business and the support to help us too. Being part of the Somnigroup family has helped Dreams turbocharge our growth plans. It has given us the financial security and backing to make long-term investments for our future and access to some incredible talent across the group that empowers us to drive the business forward in areas such as technology, innovation and retail strategy. Additionally, as you've heard from Hansbart parts earlier, Tempur is a critical partner for the Dreams business, becoming part of Somnigroup augmented the growth strategy for both Tempur U.K. entering business, enhancing our ability to work together to drive mutual success and improve consumer outcomes. The competitive U.K. betting market fragmented with approximately half the market made up of small independent bet stores and websites, and the rest of the market splits between multi-category retailers and national bed specialists.

Since the acquisition, we've continued to secure Dreams' position as a market leader, now with annual sales in excess of $600 million, allowing us to retain and attract customers. We are the U.K.'s largest multichannel bedding retailer with over 225 stores and U.K.'s second largest mattress producer. To give you a sense of our scale now, our bed factory makes over 500,000 mattresses in bed basis each year. Around 60% of all the mattresses we sell have been made by us and proudly displayed the Dreams brand. More than 98% of customer orders are fulfilled by Dreams Home Delivery Group in an average week, we'll make a bit 11,000 individual bet deliveries. Our power is our position in the markets. We operate as a fully vertically integrated business we are a manufacturer, but the thriving direct-to-consumer model. Alongside this, we offer unparalleled levels of customer service and a unique range of products, allowing us to retain and attract customers.

Our Sleep Match machines in store help customers find their perfect mattress using 3D fit technology to measure the body and assess individual support needs. Sleep Match has been perfected over the past 20 years and is backed by 25 different patents. And we also offer a variety of products to meet the needs of all shoppers, including Dreams brands and also private labels. Complemented by our trusted brand partners, including Tempur and Sealy. Looking ahead, we see significant opportunities to strengthen Dreams' market position even further, driving sales and profitability. By leveraging our vertically integrated business model and broad product range, we're confident we will continue to deliver exceptional value for our customers and sustainable growth for the business.

Thank you for taking a moment to learn more about Dreams, the U.K.'s most loved bed and mattress retailer. We're excited about the future and look forward to continuing this journey together.

Thanks, Jonathan. I want to thank you all again for joining us today. It is great to have this opportunity to walk through our story and the opportunities that we see ahead. For those of you I have not met, I joined Tempur Sealy in 2004 and served in a variety of roles throughout the finance organization, supporting the transformation into the global leader that we are today.

Since I joined the company more than 2 decades ago, the company evolved into meeting the shifting needs of the consumer and shopping preferences. From navigating economic cycles in COVID, leading shift to DTC and capitalizing on strategic opportunities that have shaped where we are today. '25 was a big year for SomniGroup. We feel good about what we've accomplished as a combined company. Let me start with an overview over the last 12 months. First, we successfully integrated 2 discrete organizations, Tempur Sealy and Mattress Firm. Under the newly established Somnigroup umbrella that created the leading vertically integrated global bedding company and more importantly, brought us closer to the end consumer. We have worked hard to make the integration seamless by unifying our teams and our goals. Everyone across the organization is aligned on the right things, an integrated strategy, teamwork and execution. Second, we have leveraged the benefits of our vertical integration and scale to unlock efficiencies and drive synergies across the organization.

We began by optimizing combined supply chain and improving manufacturing productivity, refocus Mattress Firm's marketing and merchandising strategies and improved efficiencies across the organization. Third, we outperformed the industry and captured market share in all of our geographies, in particular, the acquisition of Mattress Firm unlocked a major market share gains domestically by simplifying the consumer journey. Fourth, we drove adjusted EPS growth and delivered record financial performance as recently announced on our fourth quarter earnings call. We achieved record full year net sales and adjusted EBITDA, our strongest adjusted EPS since 2021 and record cash flow, demonstrating the power of our business model. We also successfully executed the largest launch in the bedding history with Sealy Posturepedic collection. We continue to drive international growth. The bottom line, we emerged from 2025 as a fully integrated combined company that is positioned well for the long term.

Turning to '26 guidance. We covered this in our fourth quarter earnings call, but let me quickly recap the key metrics we expect. Adjusted EPS to be between $3 and $3.40, with sales at the midpoint of approximately $7.9 billion after intercompany eliminations and adjusted EBITDA midpoint of $1.45 billion. Our guidance assumes that we capture share across all of our business segments. From an industry perspective, global bedding will grow slightly versus the prior year, driven by low single-digit growth in the first half of the year. A way to think about industry sensitivity is that if the industry were to grow by 1% or declined by 1% in 2026, that would result in an impact of about $0.10. With our strengthened position as a vertically integrated company, we feel confident in our ability to deliver on these targets.

Now let me talk about where we're headed for the next few years. As Scott previewed, we recently updated our 28 EPS target, $0.30 from $4.85 to $5.15. This new target represents a 24% CAGR over the period. It also assumes mid-single-digit sales CAGR and mid-teens adjusted EBITDA CAGR. Relative to our initial $4.85 perspective, this updated view represents additional progress and momentum in our business including additional share gains across our global business units, including those achieved in '25, realization of sales synergies at Mattress Firm, Incremental cost synergies resulting from the Mattress Firm combination and line of sight to additional productivity efficiencies across our global supply chain. These incremental opportunities are partially offset by our revised industry outlook, which now assumes the industry will underperform our initial expectations by mid-single digits in both '25 and '26.

We have maintained our assumption for the industry to grow at its historical mid-single-digit rate in '27 and '28. As you heard today, each of our business unit CEOs laid out their sales growth strategies. It comes down to an algorithm of brand, product channel, operational excellence, traffic, conversion and average order value. Overall, we expect mid-single-digit sales CAGR, which includes share gains at all of our business units and low single-digit industry tailwind resulting from the assumption I mentioned a moment ago for the industry to be slightly up in '26 and returning to its normalized mid-single-digit normalized growth rate in '27 and '28. Therefore, we have not assumed a benefit from the release of pent-up demand, which should come to pass, would be an incremental opportunity. As you heard from Cliff this morning, we are well positioned to continue to leverage our global competitive advantage to drive growth for Tempur Sealy.

In North America, we are targeting mid-single-digit sales CAGR over the period with the drivers including our consumer-centric introduction of new innovative products, our leading brands sold through our diverse omnichannel platform, all supported by world-class manufacturing and logistics capabilities. As you heard from Hansbart, we have made great strides in expanding our Tempur International business. And we have significant runway for further enhance our position over the long term. We're targeting high single-digit sales CAGR over the period driven by our leading Tempur brand, which is now merchandised to a broader addressable market through a robust supply chain and omnichannel strategy, reaching the consumer where and how they want to shop.

As you heard from Steve, Mattress Firm is well positioned to drive mid-single-digit sales growth. Category -- supported by category-leading national footprint, consumer-led merchandising, executed through our proprietary sales process and supported by robust data insights. As Jonathan noted, Dreams is well positioned to drive mid-single-digit sales CAGR through the period. Our vertically integrated business model and broad product assortment, while delivering exceptional value to our consumers. And finally, as you heard from Tom, we expect to continue to invest in advertising to support our business units, our partners and the broader global industry, employing a marketing strategy to drive our leading share of voice. As we step back and look across the Somnigroup portfolio, each business has a tangible growth plan and our teams are executing against those plans with discipline and focus that will drive results. We feel good about our ability to drive market outperformance worldwide over the next few years.

As we move down the P&L, we expect 300 basis points of gross margin expansion and 100 basis point benefit from operating expense leverage, resulting in a cumulative 400 basis points operating and margin expansion from '25 to '28. Our focus is to continue servicing our customers and delivering shareholder value by driving operational excellence throughout the organization. Our objective is to do more with less through productivity initiatives across the entire chain, from sourcing the logistics to manufacturing. This means ensuring we have the right strategic partners who can scale with us, creating win-win scenarios when our partners benefit, we benefit. Optimizing our raw material and source product supply chain designing products that not only meet consumer needs but are also easy to make in reducing cost and complexity, optimizing the labor it takes to convert raw materials into finished goods creating best-in-class products with low return rates because returns are expensive and attract from the customer experience. And ultimately, making sure the final mile is executed flawlessly because that is the last impression that we make our customer and is critical to drive consumer satisfaction.

As a reminder, approximately 30% of our COGS and 55% of our operating expenses are fixed. We have seen significant cost deleverage in recent years due to industry trends. But we still continue to grow adjusted EBITDA, that is the testament and resilience of the business model. And going forward, we expect to get fixed cost leverage as sales grow.

Before discussing our synergies in more detail, I wanted to highlight a couple of additional margin opportunities that have not been included in our target. First, we are undertaking a network study across our combined U.S. logistics operations to identify further areas of potential efficiencies. Second, the plan I've talked about does not assume we continue -- sorry, this plan assumes we continue to fully invest in marketing, which we believe is critical to driving long-term category growth. As Tom mentioned, over time, we will continue to consider the optimal level of marketing. And as a result, this could be future margin upside.

Now let me give you an update on where we stand with Mattress Firm synergies. As we discussed on our most recent earnings call, we are targeting $225 million of total run rate EBITDA synergies from the Mattress Firm acquisition, $125 million from costs and $100 million from sales. Here's how that breaks down by year. By the end of '26, we plan to have achieved the full $100 million of sales synergies and $75 million of the cost synergies. Looking ahead to we anticipate realizing the remaining $50 million of cost synergies, which will bring us to the full $225 million run rate target. As you heard from Steve earlier, Mattress Firm's market-driven merchandising strategy has resulted in meaningful expansion of Tempur Sealy's balance of share which reflects strong consumer demand for our brands and products. On the cost synergy side, we are leveraging our expanded scale and vertical integration to drive operational efficiencies across sourcing, manufacturing and logistics.

Now let me bring it all together and show you what we expect from our 3-year EPS target. The key drivers are sales growth, gross margin, operating expense leverage and capital allocation. In terms of capital allocation, we generate a meaningful amount of cash and we are not expecting large capital expenditure needs going forward. Our normalized CapEx run rate is about $200 million. The majority of our excess cash will go toward paying down debt in the next quarter or 2 and then towards share buybacks and dividends after we return to our target leverage range. As a reminder, we have executed our usual Q1 share repurchases related to employee equity vestings. Our plan assumes we will return to our target range of 2 to 3x in the next 6 months. And then we will manage the business to the midpoint of 2.5x thereafter.

Here's how we're thinking about our capital allocation priorities going forward. Number one, we always prioritize reinvesting in the business to drive competitive advantage; two, maintaining our debt-to-EBITDA leverage in our target range of 2 to 3x. Three, paying a modest dividend to our shareholders. As a reminder, we increased our quarterly dividend 13% to $0.17 for '26. Four, meaningful share repurchases; and five, opportunistic M&A.

Before I discuss our future capital allocation plans, let me briefly review our track record over the past decade. From '15 to '25, we generated $5 billion in operating cash flow. We returned $3.1 billion to our shareholders over this period, demonstrating our commitment to returning value to shareholders. We also deployed $3.3 billion strategic, accretive M&A, which strengthened our market leadership position, for some group over the long term. Highlights include our acquisition of Sherwood Bedding in 2018, which expanded our product offering in the value segment. Specialty U.K. bedding retailer dreams in '21, which enhanced our international retail footprint. And most recently, the acquisition of Mattress Firm, which we covered today. Throughout, we maintained financial discipline, raising $3 billion in debt to support our strategic investments. In total, we allocated $8 billion of capital, balancing investments in growth to returning value to shareholders and maintaining a prudent capital structure.

With this foundation, I will now turn to our future capital allocation strategy. Here's what our capital allocation approach looks like over the next 3 years. We expect $3.7 billion of operating cash flow and to raise approximately $300 million of debt to maintain the midpoint of our target range, resulting in approximately $4 billion of capital to deploy. First, we will continue to invest in the business through maintenance CapEx and targeted strategic initiatives. Our normalized capital expenditures is expected to be $600 million over the period with an additional $200 million allocated to store investments. This leads significant dry powder for returns to shareholders and strategic flexibility. We intend to deploy at least 50% of free cash flow to shareholders in '26 and then have assumed we allocate capital at the midpoint of our target range thereafter. This outlay will be through a combination of dividends and more aggressive share repurchases.

Our dividend policy targets a modest but reliable payout while the majority of capital will be through buybacks. We believe this approach is both disciplined and responsive to market conditions. No acquisitions are included in this view. But as consistent with our historic strategy, we will continue to explore opportunities. This view also assumes we're at the midpoint of our target of 2.5x adjusted EBITDA. I should note that a half turn of leverage would result in an incremental $1 billion of dry powder to deploy. Our plan ensures we can continue to deliver on our growth ambitions, maintain financial strength and consistently return value to shareholders throughout the target period.

Finally, let me provide a bit more color on our M&A strategy. We have a successful track record of acquisitions, more than 10 deals under the current leadership, and we understand what makes an acquisition successful. Our strategy is straightforward. First, we are opportunistic buyers. We pursue transactions that strengthen our competitive position and have strong cash flow potential; two, we look to add value and build partnerships. We want to build long-term relationships with management teams and create win-win scenarios. And third, we see targets that diversify our capabilities geographic presence, brands and channels across the industry worldwide. That could mean upstream acquisitions like the Leggett & Platt opportunity, it could mean downstream acquisitions like Mattress Firm or Dreams or it could mean horizontal acquisitions that expand, extend our brand portfolio across geographic reach. We are regularly evaluating opportunities that drive long-term value. And when the right one comes along, we move decisively.

In closing, we are excited about the potential of Somnigroup. We are targeting mid-single-digit top line growth and compound annual EPS growth of 24% through '28. That's industry-leading performance, and we believe it is achievable given the platform we have built and the competitive advantages we have. Importantly, these targets are set against the backdrop of an industry that is poised to normalize. As the bedding industry returns to growth, we are well positioned to capture share of that upside. During this period, we expect to continue capturing market share by leveraging our competitive advantages, our scale, our vertical integration, our iconic bands, our innovative pipeline of products and our omnichannel distribution. We're going to drive operational excellence, expand margins and generate strong cash flow and we're going to return value to shareholders through dividends, buybacks and a disciplined capital allocation approach.

With that, I'll turn it back to Scott.

Thank you, Bhaskar. Before turning to our investment thesis, I want to touch briefly on another strategic initiative that we've announced, which you're likely tracking. We've submitted a proposal to acquire Leggett & Platt in an all-stock transaction, which values the company at $12 per share. We're confident this proposal will deliver significant value to Leggett & Platt's shareholders through a compelling premium and tax advantage participation in our combined platform, while also being accretive before synergies to all Somnigroup shareholders.

The strategic rationale here is straightforward, vertical integration, Leggett & Platt is a key supplier to the bedding industry. They supply critical inputs like innerspring units, specialty foam and other components to the bedding producers globally. By bringing Leggett & Platt into Somnigroup's fold, we'd further strengthen our value chain advantages, unlock additional synergies and enhance our competitive position. We're currently conducting due diligence and our active discussions with Leggett & Platt's board. There is no certainty that these discussions will ultimately lead to a transaction. But I wanted to flag it for you because it's consistent with our overall M&A strategy, build scale, capturing efficiencies, creating long-term shareholder value through disciplined accretive transaction. We will not be expanding today on the status of the proposed transaction.

With that said, let me bring us back to where we started. We have a clear and compelling investment thesis. We will continue to leverage our competitive advantage to drive profits and generate cash. The bedding industry has attractive attributes, strong long-term growth prospects and is poised to normalize. Our unique position within the industry creates strategic optionality. And we are in the early stages of capitalizing on our long-term potential. And I'll say it again, the actions we have taken over the past several years, culminating in the transformational transaction, Mattress Firm's combination. We set the stage. The best is yet to come.

Thank you. That concludes our prepared remarks today. We'll now host a Q&A session. The rest of the presenters here are in person today come on up to the stage. Additionally, [ Scott Blatt ], our Executive Vice President and Global Operations at Tempur Sealy, and [ Brent Feaster ], our Senior Vice President, Brand Management and new product development at Tempur Sealy, are also here this morning, and they'll join us as a panelist. Lauren, we're ready to start Q&A.

Thank you, Scott. So while we get the stage set, I'll just provide a brief overview of the Q&A session. [Operator Instructions] We'll just give the stage one moment to get set and then we'll begin.

Thank you. And now we'll welcome to the stage, the rest of the Somnigroup team. Great. So with the show of hands, does anyone have a first question?

Susan Maklari from Goldman Sachs. First, I just want to say thank you all for the presentation today. It's impressive to see the depth of the team experience and your global competitive reach with everything that you've talked us through. My question is around the 2026 to 2028 targets. Can you talk about the potential to see some upside from the synergies that you've outlined, just given the progress that you've already made, the way you're thinking about this year coming together, how should we think about the potential upside and what that could mean relative to the targets that you've set?

Sure. Let me start with that, and then Bhaskar, why don't you clean me up and pass it along to the extent we should. First, Bhaskar called it out in his prepared remarks, any improvement in the industry. It's, we believe, a conservative estimate over the overall industry. So that would be the first one I'd point out.

The other one that was indicated in Tom's presentation, is, we'll call it, additional synergies that are not in the forecast. We have some that we've told you about, some we're working on that we are kind of in the funnel, we call it, but we're not far enough along yet that we're ready to commit to them and put a number on the street. Tom talked about marketing. We're clearly doing a lot in the marketing area. We're not pushing to optimize marketing yet. It's unrealistic to think that during that period, there won't be some more synergies would be our expectation.

The question that we have on the marketing side is to the extent that it becomes more effective, do we leave it as a spend and have it drive sales for the industry or go after share? Or do we take it to the bottom line? And we have not kind of worked through that. We're confident that there's something there, but we have not put it in synergies or in major logistic project.

The other item that comes to mind for me, Bhaskar, is the major logistics project. Mattress Firm had a huge logistics operation. Tempur Sealy has a huge one, getting that combined, okay? The good news is there's more opportunity there than we thought. Bad news is it's going to take longer than we thought because it's more complex. And we've got some consultants in. We're working through that. And we're going to spend 2026, making sure that we know exactly what we're doing, quantify it. And remember, while we're working on this logistics issue, we also have to do everyday business.

So we got to fix it while it's working. And so we're working through that during the period. But Scott, as I remember, $450 million is what we spend in logistics between the two companies. There's something more there. There's not any of that in the projection. Bhaskar probably also so -- he's just doing upside, I can do upside for quite a while because I like upside. Thank you.

Upside is you're running at 2.5x leverage in the model, as I recall, clearly, at times, we would run -- we might run over that if we see an opportunity either through additional stock buyback. There is no acquisitions in the model. Obviously, we're also kind of working on an acquisition that's fairly public, but there's no acquisition activity during the period. And as I recall, on your stock buyback, I think you had like a '25 or '26 -- '27 to try to kind of pull down any impact of actual stock buyback even on -- in the stock buyback.

On top of that, anybody else -- I'll keep right here in real estate. You heard Steve talk about Mattress Firm's real estate. We spent the first year once we acquired Mattress Firm to make sure we fully understood the organization. And one area we spent a lot of time on is real estate and what the real estate strategy should be going forward. So it's basically put on pause. Don't open any stores for a while. Let's see how this works. Let's make sure we understand what we're doing. Let's look at real estate as a total return on invested capital, capping out the leases. Let's think about this and what we're trying to do. And so we're going to finish that analysis in '26. We're getting closer. And probably during the period, I think it's likely that there's store growth at Mattress Firm.

You might not get a lot of the impact until later on. And the incremental piece that was interesting for us and maybe for some of you all, you've already kind of clicked on it, is once we shifted the floor, okay, the cash flows from, we'll call it, a new box are much different for the consolidated Somnigroup than it was just for Mattress Firm because you've got the balance of share shift, and that is significant. And we want to work through that. So the economics are much different once the balance of year has shifted. Bhaskar is your model. We only signed off on it.

The only thing I would add is what's interesting is Scott has mentioned this a couple of times before, which is as we're having discussions around synergies, is it a synergy or is it a productivity? So as you noted or as I noted today is that we took our estimate up $25 million on the cost side, and that's basically a function of once you get in and you start seeing some things, there's incremental opportunities. So as I think about the future is as we get in and start learning, there's more likely than not, there are going to be some incremental opportunities there. But is it a productivity or a synergy, that will be the -- how we classify it.

Great. next question, please.

It's Peter Keith with Piper Sandler. Good to see everyone and echo the comments, great content in the presentation today. One slide that we get asked about a lot is where we are in the cycle right now. And you guys like to show U.S. produced units at levels below 2009. The reality is that since 2009, there's been a lot of import units coming in. And so how should we think about where we are from a total unit standpoint, U.S. and domestically produced? On that front, the second part of the question, the imported units are sold heavily online. How do you think about that online competition, specifically from something like Amazon?

I do most of that, I think, Bhaskar, help me. I think if I put the import units in there, the trend line is the same. You might not get the exact same number. I think we showed down 30, but you would get the same trajectory. Maybe it's 24. So if you just add them on, it'd be taller. So I think you get the same curve. As you know, in doing import units, there's an argument of what's an import unit, what you find and the codes and stuff. There's a reason we don't use it. But I don't think the trend line changes. If you talk about the online business, which is also where I look for changes in import activity, we work with the large online companies. We don't see anything in there that looks unusual. Their growth has not been very good this last year, was probably flattish in sales. I talk sales, not units. The units you're talking about that are being sold there are generally $200 and below. 60% to 65% of them are twin mattresses, not really in our fairway very much. So we're not seeing a lot of new activity there.

The other place that I look at because the guess to your question is, is there something else going on that we're not capturing when we look at the downturn, okay? And so we look at the import data, we talk to Leggett about Springs. We talk to the large houses that sell online. We obviously have online business. But the other place we go is we go actually to the market. And we go look at our retail, talk to our salespeople, look at the retailers say, hey, you see any mattresses come to the floor that are new brands that are surfing other brands and maybe there's a Chinese mattress over there, they're selling a lot of beds and we're losing balance this year, we don't see that. Sales force doesn't see that. You can go do your channel checks. We don't see a lot of that activity. So I think we've got a pretty good handle on where the industry is, but the data is not clean. You're absolutely right. It's not perfectly clean. Bhaskar, do you have anything else on that one -- just...

No, [indiscernible]

This is Keith Hughes, Truist. Back on marketing. So on the 100 basis points leverage, you're not assuming a change in percentage of sales going towards advertising. Is that -- do I have that correct?

That's correct.

Are you assuming the effectiveness of that advertising changes?

Yes, we are. So basically, what we've assumed in the model is that we have more eyeballs for the same dollars, and we're reinvesting those dollars. So holding rate, more eyeballs.

But to answer your question a little bit. He's correct there, but have we added sales incrementally to the model just because of this effectiveness.

No.

Or expanded our market share because of the advertising. The answer to that is no.

Okay. Also on the same topic, you showed a graph that you shifted from Mattress Firm spend to Tempur-Pedic spend over the last 4 quarters just in dollars. Is that going to stay in the future? How will that breakout look at, say, in '28 when you get the end of this plan?

Are you talking about the area where Mattress Firm is advertising the brand Mattress Firm?

Peaker 10

Yes, the brand Mattress Firm...

Tom, do you want to talk about...

Yes, I would expect that what you're seeing now is more consistent with how it will look moving forward. As we made the point, the focus on the retailer brand itself without linkage to the mattress brand is not necessarily as effective from Tempur Sealy perspective historically as well as what we've learned at Mattress Firm. I think one way to think about it also is the mattress brand story is integral to telling the Mattress Firm story because what we're in the business of doing is matching consumers with a product that will help them to get a better night sleep. And so as opposed to that being a displacement of a Mattress Firm story, it's actually a component of that story. And I think, therefore, the model that you saw today will indeed continue, and you would expect the allocations to continue accordingly.

Great. Next question.

Great. It's Brad Thomas with KeyBanc Capital Markets. Thank you again for all the detail this morning and a lot to be excited about. My question is really indirectly about the proposed Leggett transaction. I know you're not going to want to...

It's very indirect.

I know you're not going to want to comment on that specifically, so I'll try to make it a broader question, really about organizational bandwidth to do another deal. Can you help us think about the company's ability to execute on what is really 2 sizable deals in potentially a short amount of time?

Yes. First of all, if you were in our M&A group, they know like job one, if we don't do anything, we can't do. Like we're not ready, we don't -- we wouldn't do something. There is no acquisition budget at Tempur Sealy. So there's no pressure to do a deal. When people say, okay, we've got $50 million here in the budget. We got to go get something. And we've always been -- that's what we described as opportunistic. So that's actually just -- that's fundamental. But the reason we could look at another large transaction at this point is because of the success of the Mattress Firm combination, both the quality of people we found at Mattress Firm, their willingness to make some changes, the willingness of the Tempur Sealy people to work with the Somnigroup restructuring.

We were able to take some of Mattress Firm's staff and people and move them up into Somnigroup, which has been great. We're able to move Steve and Tom to kind of help out what Tom is kind of doing dual role over there at Mattress Firm. So that may look like it was a heavy lift. I mean it was a big company and everything else. But because the organizations knew each other so well, the people got along so well, the cultures were so connected, it wasn't as big a lift. So to answer your question, we are ready to do more. Do you want to talk about the combination as long we're kind of on?

Yes. I would just say that the reception from the Mattress Firm team or all the employees has been pretty remarkable. So when you think about Mattress Firm, we're the fifth owner in 25 years. And so to -- they really embrace the concept of a forever owner. And the focus was not on selling Mattress Firm, the focus is on selling mattresses. And it was evidenced by our engagement survey that went from 70 for the entire company to a 76. So it went up 600 basis points. And when you look at acquisitions or mergers, that just doesn't happen. So I think the important thing to note is that they're all in, they're excited about it, and they can focus on taking care of our guests.

Good morning, everyone. This is Dan Silverstein from UBS. I'll echo great presentation, and thanks for having us. One thing that stuck out to me was just the number of internal opportunities cited at Mattress Firm. So putting aside the synergies, but the store refreshes, new store technology, things like that. How should we think about a normalized margin structure for this business today or in the future versus what it's achieved in the past?

Great question. Stepping back a second. And some of you all know Mattress Firm well. Mattress Firm had an appropriate business strategy for that entity at the time. It was a little bit more like vendor, okay? We're just going to trade vendors off each other. And the focus was always on getting something more from the supplier, okay, and less customer-centric. So one of the big pivots that we're in the middle of, quite frankly, is being more like what I would think of as a traditional retailer, okay, and focus on the customer and the customer is centered to all that we do. And Steve, from the brand walls to your merchandising, I think he's right. I think there is a lot of opportunity. And I think you're going to see it in share gains, but they're not embedded in any forecast yet. It's a major cultural shift, not that they weren't -- they were customer focused, but I wouldn't say that the customer is the center of their focus.

Jon Matuszewski from Jefferies. Appreciated the update on Practice Lab and the Mattress matcher. Steve, maybe you could give us some perspective on just the average productivity of a Sleep Expert today, where your top performers are and maybe how you can close that gap with new technology and more adoption of these initiatives?

You're all over that.

Yes. The -- we'll start with Mattress matcher. We're at a point where about half the consumers are exposed to it, which we're fine with because there are some consumers that come in and we don't want to force it on them. So we think that the utilization is where it's at. We did do some secret shops. And when we do secret shops and compare folks that don't use Mattress matcher when they should versus the ones that do. There's a noticeable increase in the productivity, right, in terms of the trust that's established, the experience.

The Sleep Expert AI was just -- we launched -- we did a soft launch last summer, and that was really about chat. So we just launched it at the end of January, and that's in terms of the practice lab. And our goal is to have the sleep experts do about 2 million practice labs on an annualized basis. Our run rate right now is about half of that, but we don't want to take a stick to them on that. We want them to use it. We'll build up the people that use it and we see results from them. So that's how we want to drive the change management and the adoption. So for us, it's an adjacent tool. The payback in terms of effectiveness, if our sales go up 20 or 30 bps, it's a home run. But it's really about, again, building on what we see as our lead in terms of our sleep experts being superior to the rest of the industry and really enhancing their ability to engage with consumers.

And Bhaskar, I think the other part of his question was how to think about normalized margins at Mattress Firm.

So when you think about the margin expansion that I spoke to, not only the network study as well as just the leverage will flow through both entities, but specifically on the Mattress Firm side is 40% fixed or 40% flow-through. So as that revenue starts coming back and the industry starts coming back and Mattress Firm starts taking share, it will be very helpful as it relates to the incremental dollar at Mattress Firm.

Great. Next question. [Operator Instructions]

Reza Vahabzadeh at Bank of America. Bhaskar, just following up on that. Can you talk about the incremental margins you would expect by segment as we get a potential volume recovery here? And then that 400 basis points of operating margin expansion you're talking about, can you maybe help us disaggregate how much of that is synergies versus volume leverage versus productivity gains?

Sure. Let me do the last one first. When I think about the 400 -- let's talk about 300 basis points on the gross margin side. Let's think about a little bit less than half of that will be associated with leverage as the volumes come back. When you think about the next biggest component of that, let's call it, a little bit less than 100 basis points is going to be in and around the productivity initiatives that we have line of sight toward and then the synergies. Now embedded in the efficiency number is that we have assumed the normal fixed. So every year, let's assume fixed goes up about 3% just from an inflation factor, and we've also assumed some commodities as well. On the operating side is we've taken nothing as it relates to marketing. So the vast majority of that is just doing more with less, so -- and getting the benefit from a leverage standpoint as sales go up, holding -- getting leverage on the rate side of it.

What was the first part of your question?

The incremental margins by segment on volume recovery.

Absolutely. So we talked about Mattress Firm. Let's think about that as about 40%. And a big hand wave on the Tempur Sealy side is let's think about that somewhere between 30% to 35%. Obviously, if it's coming from Tempur, it's going to be more toward the high end of that, if not over that. And when you think about Sealy, it's going to be on the lower end of that range.

Jeff Lick with Stephens. A question for Steve. Steve, interestingly enough, prior to your running Mattress Firm, you were actually the senior leader of Tempur Sealy on the other side of the transaction or other side of the ledger. I'm just curious, in your experience as you were running with Tempur, you probably said, boy, if I was ever the CEO of Mattress Firm, this is how I do things. I mean, Scott alluded to certain things, but I'm just curious maybe you could drill down on areas that now that you're running Mattress Firm, you see as opportunities. And then maybe just building on that, I think your percentage of tempered product on the floor was probably 40% or so in that area. Now you guys are guiding towards low 60s. Just curious what gives you comfort that, that's the right number and that there might not be any holes there or whatnot?

Well, to be fully transparent, I never really thought I would be the CEO of Mattress Firm.

I can confirm that.

So when I went in, I didn't have preconceived notions. I went in wanting to listen to understand what their issues were. But I knew enough to know that there were certain levers that you could pull. And one of the levers that we pulled is that the field was heavily distracted. And we have district managers and RVPs that go into the stores to train, to develop, to help drive the business and work with our sleep experts.

There is a lot of clutter self-inflicted from other departments and also the sales team itself. So what we did is we put this initiative together, which was clear the path because we needed to get back to a focus on operational excellence and execution, and that enabled our district managers and RVPs to get in stores Tuesday through Friday, no meetings, no due dates or nothing from corporate. So the first thing was to get that level of focus.

The other thing that I did notice when I worked with other retailers as many retailers were very reactionary, okay? So you would -- you'd see them go through a period that may be tough. And then all of a sudden, there's a whole set of new different initiatives and directives. So there was a lot of guardrailing. And that type of thing also happened at Mattress Firm, where there was a lot of guardrailing if they had 2 weeks of bad sales, then all of a sudden, you're going in a different direction. The problem with that is nothing ever gets executed really well because they assume it's always going to change.

So one of the big things that we did is we laid out, here's what our strategy is, here's what our focus is. And finally, after 6 or 7 months, they've realized, well, they're serious about it and they're sticking to it. So that's really about driving the execution. So I think in a nutshell, taking what I learned in how other retailers operated was to deliver that focus and really that steady hand and stay on strategy. And the reception from the team has been great because now they can focus on continuous improvement.

In terms of the Tempur Sealy and the balance of share, which was in the low 40s and now we're low 60s, that really -- that balance of share, why I'm confident, that balance of share really was suppressed. And Scott talked a little bit about the vendor roulette type of situation. And there were numerous little thumbs that were on the scale that really kept Tempur Sealy balance of share contained. So really, it was about leveling the playing field, advertising the brands in terms of a share of voice that they should be. And you saw that it happened pretty quickly. So I think it feels that we're right now at about what the consumer demand is, and it feels like it has sustainability.

Next question.

Phillip Blee from William Blair. Can you maybe break down the mid-single-digit growth assumption for Mattress Firm? How much of that is coming from the refreshes and relocations? How much of that is coming from marketing improvements, maybe an uptick in ASP? And then you mentioned there could be some potential for new stores. Is there anything else major that we should be considering for upside in Mattress Firm?

Well, some of the -- we probably can't do that detail. Certainly, ASP has been a driver. As I spoke to in the prepared remarks, the high-end customer has been very strong, been very accepting of price increases and ASP has been a major driver. Traffic has still been flattish. Is that fair? Yes. Yes. But the combination -- and we gave some pretty detailed information about Mattress Firm's performance on the earnings call recently, primarily because the weather was so bad in January, everybody was all curious about what things were going to be.

Now we've had a little activity in the Middle East. And as long as I'm FD protected, we have to roll it forward a little ways because everybody is worried about that. But I can tell you, as we sit here today, we've done a couple of things. One, Bhaskar, you studied all other Middle East activities or European wars. And why don't you give them your conclusions on that rather than speak for you?

What I would tell you is that it is super interesting. In the -- from a United States or North America perspective, it's hard to really discern during the event. I think that's just the U.S. consumer has got so used to things happening from a global standpoint. So the week prior and you look at it during the couple of weeks during and then the week after, there's really maybe a little bit of a dip, but it bounces right back. What I would go to on the international side, specifically around Ukraine, obviously, a different set of circumstances there is that international blowing and going before, however, during a couple of week period, you saw a dip down. However, super interesting. Again, the consumer gets their head around it and it comes back.

So -- yes, there is some -- there's an impact. However, again, it goes to the nature of the consumer. Once you kind of get a new normal, the consumer is back. I think Hanspart, you had a story that you told to Scott a couple of years ago. He was like -- or a year ago, it was, how are you able to do what you're doing when you have this war happening? And your comment was?

There's always a war somewhere.

Exactly.

And so if you look at the numbers right now, we're comping positive at Mattress Firm quarter-to-date, okay? We're comping positive at Mattress Firm since the actions in the Middle East. It has not had a dramatic effect. We're comping about a push-ish at Dreams. So from our perspective, it's been relatively minor so far. No one knows what the future is, so I can't predict past today, but it's not been -- hasn't been impactful was what I'd say. And if you go to the Tempur Sealy side of the house, we're comping low double digits quarter-to-date in sales.

Thank you. Are there questions or follow-ups?

Because you look eager.

Always excited to talk about the Tempur Sealy, the Somnigroup story, still trying to get the Tempur Sealy out of my brain after all the years of covering the company. I want to follow up on product development. It seems to me that in owning Mattress Firm, you have a known captive audience for products that you develop. Can you talk about how you may change innovation and when we might see that come to fruition?

Sure. You're right. We have -- we've always had a close relationship with Mattress Firm on product development. And quite frankly, we have a close relationship with all retailers in product development. And I'll let Cliff and Brent here talk about the process going forward. But I really think it's going to be more streamlined and probably additive plus you've got additional insights that we're getting through actual retail data, which before is just the manufacturer to get the retailer to actually give you real data, that didn't work very well. But Cliff, Brent, do you guys want to that for a while?

Brent, do you want to take that from the standpoint of how you guys and your team interact with Matt Firm and how that will help inform future product development ideas?

Yes. As Scott said, it's always been a really constructive relationship with Mat Firm and a lot of retailers, and we're always looking to get more and more first-party voice of customer data. And so with the transaction, getting closer with those colleagues, there's definitely some opportunities there. As Cliff showed you on the slides, those big key consumer needs, those are pretty sticky. And so what we're working on is how do we continue to improve upon them, get close to them and spending even more time now with sleep experts and some of their regional managers to hear kind of firsthand what's working, what's not working, so we can keep tweaking and optimizing to do it better.

I think the only thing I would add to that is in the case of specific products, whether it's something like an active Breeze, we've got something that we call the heritage collection that will come out as a fast follow to the Stearns & Foster launch, knowing I referenced it in the presentation. We have a large retailer that we can look at specific slot placement and say, okay, we know we can put these products don't fit every retailer, but they will fit certain stores, certain demographics, and we've got, to some degree, a captive customer. We always have to earn our slot space. It gives us the ability to move forward with those product development cycles on some things that may not have a really broad audience initially, but allows us to test and learn in an environment that is somewhat controlled.

It's a good point because it does derisk some of the launches.

Absolutely, without question.

The other thing it's a little bit different, Steve, I think it is, and you can correct me, feel free. But now they're in the family, there's a better balance of private label branding versus branded label, Sleepy's versus.

Yes. Prior to the acquisition, Mattress Firm was, I would say, overweighted into private label, and they took it too far up the price ladder, which is really where brands play best. So we had a rebalancing. This product was within the family. It was produced by TSI's OEM plant. So we rebalanced that and because brands fit more in those price points than where private label was for that product.

Next question.

Pars Shah with Jane Global. So one question just on consumer health maybe near term. So looking at President's Day, you said coming out of the quarter, Mattress Firm is positive comp, Tempur low double digits. Have you seen anything on the consumer side that's maybe a little bit different than what you described with respect to the premium customer outperforming the value end? Did the value side kind of come back maybe through that weekend? And then I also wanted to ask just with respect to low single-digit market growth and potential upside. We have tax refunds coming in, lower rates coming in general, it looks like consumer retail earnings are pretty positive. Just kind of curious if there's any optimism going into the next few months.

Yes. Let me -- I can do some of that one. Yes, there's actually quite a bit of optimism about all the tax refunds, rates coming down, that's not put in our numbers because burn for the last 4 years because we'd get optimistic and then something happens. But I totally agree that there's certainly a foundation there that could be some certainly near-term optimism. When you come to what you see in consumers, I don't think we've seen very much different. You see anything different anywhere. I don't think we really see anything much different. I mean -- you've heard everywhere from every retail, high end is strong and the low end is just not really in the marketplace for the most part. The good news in this industry is we don't make a lot of money on the low-end bets, but they'll come back some. They do cover some fixed cost.

Thank you. Further questions?

It's Peter Keith again from Piper Sandler. I wanted to ask actually on the international front, just how you've really dominated the U.S. in a way with this multi-brand approach and have done a good job of sort of capturing the full price spectrum. When we think about the international opportunity, is there still so much low-hanging fruit for Tempur-Pedic that that's where the focus is? Or can you start to leverage some of the U.S. practices in those international markets with a multi-branded broader price spectrum approach?

That's a good question. Scott asked me that on a regular basis.

I didn't set you apart.

No, no, no. So this was not planted. No, there's a lot of runway with Tempur at this stage. And it also makes sense from the highest return that we get from driving Tempur. So it will be a long time before I think the economics would work to introduce, for example, on a wholesale level, Sealy across the world. A lot of runway with Tempur as we have moved in from the super premium like above 3,000 to and up, which is the meat of the market to a large extent. So yes, there's a lot of runway there.

Let me kind of make sure because it's a little bit of a complicated organization when you go internationally. Hanspart is mainly focused on Tempur, okay? Then if you go to retail dreams, which would be part of your attack if you were going is Jonathan, which is a different business unit. And we certainly are in the marketplace in Continental Europe for possibly another retailer, small retailer. And if you have that, then you can do some things whether the Sealy brand or kind of the lower end market. If you go to Asia, most of the Sealy product is done through the Asian joint venture, which is a 50-50 joint venture. It generally are high end. And generally, those markets at the low end, as Cliff knows very well from being on the board, is really low end. I mean it's like you don't want to be there kind of business. So I think going forward, if you give me years, not quarters, I think it's likely we do something in Europe with small couple of retail tuck-in kind of stuff that's not -- would be not material to the Somnigroup, but would be material to those business units, I think, is probably likely. And I think Hanspart is going to be very successful getting Tempur more in the meat of the market, high end, but the meat of the market.

Next question.

Keith Hughes, Truist. That comment on double digit at Tempur Sealy, what do you attribute that to given the industry is kind of flat at best right now? What's -- I assume that's Tempur-Pedic, but just any kind of detail you can give would be great.

No. I mean, I can do detail. You got me miced up to the world. No, it's actually not just Tempur-Pedic. It's also the successful Sealy launch at Sealy Posturepedic. It's driven a lot by Mattress Firm and balance of share at Mattress Firm, Hospitality has certainly been very strong also.

And that's pretty close to the got any other details?

That's right.

Susan Maklari from Goldman Sachs again. Coming from more of a manufacturing background, can you talk to what the reception of retailers have been as you've stepped into this new role ?and how you perhaps have leveraged your background to help drive those relationships?

Yes. Great question. It was about a year ago that I called all the retailers and told them that I was coming to Mattress Firm, and the reception was very positive. They were all very gracious about it. Several of them said, if I can ever help you or provide any advice, feel free to call me. So the relationships have been very good. I think that they know that we're going to compete, but we're going to play clean, hard football. But we're going to do it the right way in a way that elevates the industry. I think the other thing that -- and a lot of the conversations I've had with them and have gotten a lot of positive comments about our new campaign. And so I've been really beating the drum with them that as an industry, we're all somewhat responsible for where we're at due to the fact that we're so focused on lower funnel advertising, and we're leading the path by investing in upper funnel advertising. So I really encourage them to do that and to come up with their own version of problem solutions. So I would say it's been a positive.

Raf Chhatterich at Bank of America. Scott, can you talk about the data that Mattress Firm had when you acquired it? And what is the opportunity to utilize and leverage that going forward? And I think somewhat related to that, the industry shipments were very strong from, say, to 2022. How do you think about like the replacement cycle of that potentially coming up here in the next few years?

First, let's just talk about data. I think one of our big surprises once we actually acquired Mattress Firm and said in management meetings, I think we were, first, quite frankly, just surprised, then probably a little bit confused, then quite frankly, impressed, kind of went through all those cycles because we did not realize that they had as robust data collection processes in place. We had no idea that they had ever many data scientists have a complete department that the management team was truly data-driven. I might say even maybe too far data-driven and might need to do a little human intervention occasionally. Because, look, we are a manufacturer. And we did not have much raw data for our people to look at it. It wasn't -- we weren't data focused. We just didn't have a source where we were getting the data. So Tom, you'd be the best person to talk about some of the stuff with Nate or Steve, you want it and how you see it being going across.

I would echo your observations there, Scott. I think we've been very impressed, and I'll speak to marketing, but I think that the point is broader than that. They have developed by virtue of having that data and data scientists who are very sophisticated. They've developed really sophisticated models to help inform forecasting. And given the magnitude of our marketing investment, the media mix model that I referenced during my presentation. And it is considered to be, frankly, by professionals who run media mix companies best-in-class amongst retailers.

And so one clear opportunity is continuing to leverage that combined with our judgment to run the Mattress Firm operation, but then starting to apply some of those tools to Tempur Sealy. So I mentioned some of the centers of excellence that we have created at the Somnigroup level. Data and analytics is amongst those. And we'll use the tools now to better inform the Tempur Sealy operation. They won't still have necessarily all the data that we have at Mattress Firm, but I think the capability is something that can be stretched. Additionally, we have really robust data on who's actually buying products at Mattress Firm. And so you could envision standing up clean rooms borne out of that insight about who's buying what brands and what products and then using that to become even more sophisticated in our targeting efforts as we deploy our sizable marketing investment. So we're early stage in all of this, but it definitely is in place. And I would expect that it's going to benefit the overall Somnigroup operation.

And what was the second part of your question?

Replacement cycle.

Replacement cycle, thank you. Again, no data that you can really prove because we don't -- it's not like a car from the car industry, you don't have bins and I don't know every bed to age and all that. So this is my perception. It's an informed perception. Actually, the Leggett people work on this, too. There's -- I don't think any doubt that the average unit in the installed base, we'll call it, has aged quite a bit. You can look at the stats. There's no question that 5 or 6, 7 years ago, a wave of cheap imports, bed in the box, Chinese foam came in, and those units got put in the marketplace, and they don't hold up.

I mean, I think even the people that sell them know that. They're basically a disposable bed. And I think the bed industry as almost a separate bedding industry. It's designed to be disposable. We make some lower-end beds or they're generally twins. They're basically college students, people in apartment complexes. But when people basically have a new house, they want to grownup bed. They want a real bed. So we can't prove it, but there would appear to be pent-up demand, if nothing else, just in replacement cost. It's aged out. It's aging. The difference in the car business is you know when your car is worn out, you turn the key and it doesn't start or something. In beds, you have to be triggered to think about your bed. You're not sitting there going, I wonder how my bed is and whether it's worn out until you bump into one of Tom's ads. And that's why advertising can be so important in this industry. You have to trigger somebody to think about their bed. And then once you're thinking about them, it's a good chance you got to hook into them when you've got them in the purchase journey.

Phillip Blee from William Blair again. Since we were just talking about marketing and the improvements there, has there been any sort of meaningful change in the marketing co-op dollars you're getting from third-party brands? Are they potentially putting more dollars as you get more sophisticated and you see more successful in the campaign? Or has there been any pullback from following the merger? I guess how should we think about that piece evolving over time?

I don't think there's been any change in marketing at Mattress Firm other than your incremental payments for the slots, right? Other than that, everything has pretty much been the same.

Well, we have had 2 manufacturers since we launched the campaign ante up and say that they wanted to participate in it.

That would be incremental above their contractual commitment to be.

That's right. That's right. And the initial feedback from when we put some of that advertising in the market from them has been very encouraging. So that's something we would expect and hope to continue in 2026 and beyond.

And I think Tom mentioned it in his prepared remarks, but it's a big deal. $100 million, I think the $100 million that Mattress Firm was getting from Tempur Sealy and Co-op, part the problem was that was not being used very effectively. And that is like -- that's a $100 million gift that Tom has been able to turn into much more productive advertising. There's not an insignificant, call it, synergy that has not yet been captured yet, I would call it in the numbers. We're working through it.

I had a question about the changing customer journey. In the past, I think the discussion has been around search queries leading to in-store experience. Now it's a lot about back and forth with chat agents.

AI, yes. No question.

How is that changing the advertising spend on online interactions? And are you working directly with OpenAI, Claud to get into that customer thinking so that the agents can help them think about what mattress is best?

My executive summary is the world has changed some. Google searches aren't quite as effective, and it is changing. And we have people working on the change. And Tom, do you want to tell them where you think things are.

Yes, indeed. I mean, you recognize the trends, what's happening with kind of we'll call it historical search, and it is evolving. I think if you think about Mattress Firm particularly, but also obviously, Somnigroup at large, given our leadership position, we have both the need and the opportunity to establish and reinforce our expertise to consumers who are typically when they're using AI, seeking guidance, right? They're not only looking for a search result, but they're typically seeking guidance. And so still early days for us, but we're definitely on it. We have a team focused upon it specifically. And we have to start with making sure that we appear in those searches and that the credibility that we rightly have is conveyed to consumers and then they have reason to look for our Tempur Sealy brands and then seek guidance from Mattress Firm.

I'd say we started probably looking at last June or July. But as you probably know, it's complex. But absolutely, the world is changing. It's a good call out.

Question on the logistics front that, post Mattress Firm acquisition, you guys from middle mile to last mile cross-docking, first mile, you have huge scale and you're moving a huge amount of units. So in a weaker industry environment, are third-party retailers surfing on your infrastructure more? And as you think about optimizing the logistics network, if customer demand originates from a Tempur direct store, Tempur.com, Mattress Firm, wherever it is or a third-party retailer, could you move to a drop shipping model like Mattress logistics as a service like Wayfair is doing with CastleGate?

Scott, I think he's been working on your logistics consulting project. That's right. Here you dropped that cross dock on you. be careful. He knows.

Maybe I'll hit a couple of points. One is on the Mat Firm TSI network study we're doing, we're doing a clean sheet view of if we're drawing it up from scratch, what would that look like. And it will absolutely result in all sorts of things around maybe adding or taking away some DCs, combining DCs. We have a pilot in Phoenix here by the end of second quarter. The Mat Firm DC in Phoenix will shift into the Tempur Sealy DC. So we'll combine it, leverage the space. There will be inventory improvements because we'll have a fence between both sides, but we won't be taking product out of our DC in a truck, shipping it over there, delivering it, and it will lower inventory and then some costs associated with that.

We'll probably do that in a much bigger way across the network as we get through our network study this year. And then there's other more structural fundamental things that we will look at in order to optimize. Separate from all that, we're always trying to optimize our TSIs transportation and with volume sort of being lower overall driven by the low end of the product base, it becomes challenging, but we're trying to optimize and get as many units on a truck as we can when we go out and do a multi-stop delivery. And there's things you can do there. But clearly, as volumes increase over the next few years, which we're planning, a lot of that's going to ride for free and it's going to drive productivity. And it's not fixed cost productivity, it's variable productivity. Instead of delivering 4 units to that retailer, it might be 5 or 6, and those 1 or 2 extra will ride for free.

Lots of opportunities there. Another area on logistics in general is -- and we've had an effort on this that is showing good results is quite often after we do deliveries, we'll come back empty. And so we have a pretty significant backhaul effort underway to find other people are moving product to our base location. And that's looking really good as well. And we do have some customers that we drop ship for versus ship through their DCs.

Jay Sakuta from Millennium. Good to see you. What I think is lost is if you look at your '28 target going from $4.85 to $5.15, you had assumed the industry would grow low single digits in '25, low single digits in '26. It was down in '25. We're saying flattish '26. And every point of industry is $0.10. So there's, call it, $0.40 to $0.50 of earnings power that you made up. Part of it is the incremental revenue synergies, part of it is the $25 million of costs. What else is there that makes up that gap?

That we -- where we overperformed the industry expectation.

Got it.

So from a bridge standpoint, you called out -- that is the right way to think about it. Those first 2 years, '25, let's call it, mid-single-digit decline, we were expecting some kind of growth and '26, we're expecting flattish to perhaps slightly up. So however, our expectations, meaning we had incremental share gains in '25 and in '26. So a part of the offset is that we've done better than what we thought we would from a market share standpoint, number one. Number two is in the original assumption, there was no revenue synergies. Steve and team partnering with Cliff, we realized that faster than we expected, call that $100 million. We got $25 million more cost synergies than we than we originally had thought about. We think there's upside there. You've heard it across the panel here where that upside could come from.

Then what I would finally say is from a productivity standpoint. So at some point, is it a synergy? Is it a productivity? Right now, we've got good line of sight in each bucket. But incrementally and how we -- not only do we make up the softness in the industry in those first 2 years, but now how we've exceeded the expectations going to $515 million was around productivity. So we have line of sight to just doing more with less, both from a logistics standpoint as well as manufacturing.

And some of that's probably just in the way we forecast. We really do try to forecast middle of the fairway, conservative. We're careful not to put synergies or efficiencies as we call them before we did Mattress Firm into our numbers until the line of sight is like right in front of us because you never know for sure.

[indiscernible]

Cliff, do you want to do the share gain stuff? I mean a lot of it is going to be in Mattress Firm.

Yes, a lot of it's Mattress Firm.

You don't want to call out too many retailers by name in general.

No, I won't mention retailers.

It's mainly velocity.

A lot of it's velocity. If you think about, as I mentioned in the presentation earlier, where we were in the product life cycle with Sealy as an example, we were coming on 4 years of product. It was tired. And so we, through the design of the product, really sought to reposition Sealy to take share in the marketplace. And that's what we saw in the back half of the year after the product came into the market.

We have similar expectations as we come to market with Stearns later this year that we will see growth not only in slot count, but also growth from across the aisle and taking share from competitors. So I think it's a combination of our overall sales efforts and how we connect with the retailers day in, day out, the fact that we are driving advertising in the industry, and we're driving awareness of our brands. Retailers are aware of that. And then the innovation and the products that we're bringing to market, whether it's Sealy, whether it's the upcoming Stearns or whether it's going to be the new Breeze product in 2027, bringing products to market that differentiate themselves from the sea of sameness on that retail floor.

I mean advertising is strong. I mean you predispose a customer to your brand when they walk into a multi-branded store, and that helps. And then certainly, RSAs are very aware of when products are advertising and bringing customers in.

Thank you. And that ends the time for today's presentation. Thank you all so much for joining us in person and virtually.

Good job, guys.

Good morning, ladies and gentlemen, and welcome to Somnigroup Fourth Quarter 2025 Earnings Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]

I would now like to turn the conference call over to Aubrey Moore, Investor Relations. Please go ahead.

Thank you, operator. Good morning, 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 report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statement speaks only as on the date from 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 release, which has been posted on the company's website at www.somigrou.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release.

Finally, before I turn the call over to Scott, I want to take a moment to share that this is my final earnings call in this role. I am transitioning to Somnigroup Vice President, Consumer and Market Intelligence. I'm pleased to say that Lauren, who many of you know well, will be leading Investor Relations going forward. It has been a privilege to work closely with our investor community and I'm confident Lauren will continue to serve as a strong partner going forward.

And with that, it is my pleasure to turn the call over to Scott.

Aubrey, thank you for your outstanding contributions to Investor Relations. Maybe even a bigger thank you for you jumping into your new role at SGI that is important to our future success. Moving on to today's earnings call. Good morning. Thank you for joining us on our fourth quarter and full year 2025 earnings call. I'll begin with highlights for the quarter and full year, and then turn the call over to Bhaskar to review our financial performance in more detail and discuss our 2026 guidance and our updated 3-year EPS targets. After that, I'll open the call up for Q&A.

In the fourth quarter of 2025, we achieved record net sales and adjusted EBITDA, while our adjusted EPS increased a robust 20% or Year-over-year net sales were up approximately 55% to $1.9 billion. Adjusted EBITDA was up approximately 59% to $349 million adjusted EPS was $0.72 per share. This financial performance was particularly notable given it was achieved while the industry is at a record low and underperformed our expectations. 2025 proved to be another challenging year for the bedding industry.

We estimate the U.S. industry trend declined mid-single digits in the fourth quarter and full year. The non-U.S. markets we operate in were similarly challenged. After multiple year headwinds, we are confident the bedding industry will normalize to at least historical growth trends in the near future. Our conviction in our industry outlook is supported by our demand-driven innovation, compelling advertising, the industry's pent-up product demand. growing health and wellness trends, consumer confidence and future growth in housing formation. We'll continue to strive to win market share gains, drive cost efficiencies and prudently allocate capital, all to deliver shareholder returns.

Before turning the call over to Bhaskar, let me highlight several notable achievements in 2025, which marked a transformational year for Somnigroup. Our first highlight is the successful execution of the Mattress Firm combination and transition to Somnigroup International. We've made significant progress with the combination in our first year. and we're still in the early stages of realizing all of the benefits. We brought all of our business units together through a holding company structure with unified management and a shared business strategy and focus. This structure allows us to operate effectively while maintaining a large degree of independence at the business unit level.

Building upon the successful combination of Mattress Firm, we were able to accelerate the pace of sales and cost synergies exceeding our initial expectations. We now expect to deliver $225 million in total EBITDA synergies. $125 million in cost synergies and $100 million from sales synergies. Bhaskar will provide more color on the increase in our cost synergy outlook in just a moment. We cemented our position as the largest bedding company in the world, allowing us to drive economies of scale, streamline operations, reduce product costs, invest in advertising and fully support industry partners.

Lastly, this transaction drove earnings, derisked distribution volatility as we are now 65% direct-to-consumer and positioned us for sustainable growth. Our second highlight is the strength of our operating model, which allows us to aggressively execute its long-term growth initiatives while remaining responsive to current market conditions. In 2025, we drove share gains across all business segments, extending our lead as the world's largest bedding company. Our competitive advantage underpin the strong results and include our diverse portfolio of trusted brands and innovative products.

Our unmatched global scale and vertically integrated business model, a broad omnichannel reach with our products sold through tens of thousands of third-party retail stores worldwide and direct-to-consumer. And finally, our strong cash generation and disciplined capital allocation, which supports reinvestment in the business, returning cash to shareholders, deleveraging and providing dry power to capitalize on compelling opportunities such as our recent investments in full power and Kingston.

The third highlight is the outperformance of our U.S. Tempur Sealy business, supported by innovative new products, targeted advertising initiatives and expanded distribution. In 2025, we launched our all-new Sealy Posturepedic line, the largest launch in our history with over 65,000 more samples shipped. The launch is performing well and the new collections driving meaningful sales growth. This year also marked the first national advertising investment to support the Sealy brand and product, amplifying Sealy's share of voice and driving valuable customer traffic industry-wide.

As we look ahead to 2026, we are excited to continue investing in national advertising designed to drive traffic to retailers and reinforce our commitment to innovation with the launch of our new Stearns & Foster products in the back half of the year. Fourth highlight is that Mattress Firm's full year performance outpaced the broader U.S. market. driven by our refined merchandising strategy, strengthen supplier relations and exceptional in-store execution. Since closing the acquisition, we've elevated Mattress Firm's merchandising. Our focus has been on curating a portfolio of complementary products that deliver exceptional quality and value across all price points.

We deepened partnerships with some suppliers, we've not only met our quality standards, but also actively supported Mattress Firm's success through differentiated offerings and traffic driving advertising initiatives. We also activated multiple initiatives to deliver retail excellence, including optimizing marketing strategies, enhancing the in-store experience and leveraging our best-in-class retail talent, supporting them with quality sales tools training to provide customers with targeted sleep solutions.

Additionally, we're making steady progress on our plan to invest $150 million between 2025 and 2027 to refresh certain Mattress Firm stores, bringing them up to our brand standards. Further, we've ramped installation of Tempur brand walls, which lead to improved customer engagement and education. These brand walls placed at both Mattress Firm and other retailers have proven to be worthwhile is by driving higher retail ASP. We made substantial progress in expanding this initiative in the back half of 2025, and we remain firmly on track to complete the rollout across all mattress from stores nationwide at the end of the year.

As previously mentioned, we undertook a new advertising strategy for Mattress Firm to harmonize the message with Somnigroup initiatives culminating in the launch of our new Mattress Firm advertising campaign, Breathe Easy in the back half of 2025. We introduced new campaign iterations into the marketplace over the last quarter and continues to achieve all-time market research scores. Key performance indicators consistently indicate the campaign is having a measurably positive impact on customers' impression of Mattress Firm and the brands being presented, enhancing awareness and triggering consumer interest embedded benefiting all betting retailers.

Campaign's strong performance has already prompted to non-SGI vendor partners to commit additional advertising dollars directly to Mattress Firm to capitalize on the opportunity both our scale and our messaging platform now clearly represents for bedding brands. We are pleased with these preliminary results I expect to see additional momentum if the campaign becomes more established in the market. Our fifth highlight is related to our international business. We saw impressive sales growth, demonstrating the long-term global growth opportunity ahead.

Our Tempur International business delivered low double-digit sales growth in the quarter or on a constant currency basis, high single-digit sales growth in the fourth quarter and full year, outpacing the broader industry while navigating a challenging market. This marks our third consecutive year of solid growth across all key international regions driven by the refreshed Tempur product lineup standard distribution reach and enhanced marketing investments. Green, our U.K.-based retail brand also posted another solid year of market outperformance driven by conversion and increased order volume. Full year performance was supported by robust same-store sales and strategic new store openings.

The team continued to deliver operational efficiencies and execute on growth initiatives and exceptional product quality and customer satisfaction, driving share gains against a challenging U.K. bedding market. Overall, we are pleased with the momentum we've accumulated during 2025 and look forward to carrying that momentum into 2026.

And with that, I'll turn the call over to Bhaskar.

Thank you, Scott. In the fourth quarter of 2025, consolidated sales were $1.9 billion, and adjusted earnings per share was $0.72, up 20% over the prior year. There are approximately $10 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, we have the line accounting for store occupancy costs across Somnigroup, which resulted in Tempur Sealy reclassifying their store occupancy costs from operating expense to cost of goods sold. We've adjusted prior year Tempur Sealy financial information included in today's earnings release to reflect the change for ease of comparability.

As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in the first quarter of 2025 and the related divestitures of Sleep Outfitters and certain Mattress Firm retail locations in the second quarter of 2025. I will be highlighting like-for-like comparisons defined as reported numbers adjusted for the acquisition and divestiture impacts to normalize for these items in our commentary.

Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $890 million in the fourth quarter and declined 3% on a like-for-like basis. Same-store sales were flattish, outperforming a market we believe declined mid-single digits in the quarter. Mattress Firm's adjusted gross margin was 32.4% and adjusted operating margin was 5.4%.

Turning to Tempur Sealy North American results. Like-for-like net sales through the wholesale channel increased approximately 6% in the fourth quarter, normalizing for the previously disclosed for cost distribution. Our sales with third-party retailers were flattish on a like-for-like basis, outperforming the broader industry by a solid margin. Like-for-like net sales through the direct channel declined 7% in the fourth quarter as our direct Tempur stores underperformed our expectations and our e-commerce sales faced difficult comps. North American adjusted gross margins increased 2,000 basis points to 59.5%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy.

On a like-for-like basis, North American gross margins increased 250 basis points versus the prior year, primarily driven by operational efficiencies and mix as the premium consumer demonstrated continued resilience. North American adjusted operating margins improved 1,300 basis points to 27.6% primarily driven by Mattress Firm intercompany sales elimination. On a like-for-like basis, North American adjusted operating margins increased 450 basis points versus the prior year, primarily driven by the improvement in gross margin and fixed cost leverage.

Now turning to international results. International net sales grew a robust 13% on a reported basis and 9% on a constant currency basis. Our international gross margins increased 40 basis points to 51.1%, primarily driven by operational efficiencies, offset by modest headwinds from a competitive U.K. marketplace. Our international operating margin increased 110 basis points to 22.4%, driven by the expansion in gross margins and fixed cost leverage. Now turning to our sales and cost synergy targets. In 2025, we achieved a $60 million benefit in adjusted EBITDA from sales synergies ahead of our initial expectations.

We exited the year at a low 60% of Mattress Firm's total sales averaging mid-50s for the full year. At the same time, Purple and Kings down both grew share at Mattress Firm. We will see the wraparound effect of Tempur Sealy's share gains in 2026, resulting in an incremental $40 million of EBITDA benefit and positioning us to confidently deliver on our $100 million run rate sales synergy target. Since we have held Mattress Firm sales flat and estimating this balance of share opportunity, we expect the synergy benefit to grow as we start to see the U.S. bedding industry normalize.

On cost synergies, I'm excited to share that we are increasing our estimate to $125 million with $20 million realized in 2025, $55 million expected in 2026 and an incremental $50 million in 2027. Our increased cost synergy outlook is principally being driven by increased expected savings from logistics and supply chain activities. Now moving on to omni Group's balance sheet and cash flow items. At the end of the fourth quarter, consolidated debt less cash was $4.6 billion, and our leverage ratio under our credit facility was 3.2x, down nearly 1/3 of a turn versus the Mattress Firm acquisition date demonstrating our strong cash flow generation and disciplined capital allocation. We expect to return to our target leverage range of 2 to 3x in the next 6 months.

We also expect lower market interest rates will drive crude cost of our variable rate debt, which will add to future EPS growth. Finally, as we announced this morning, we are increasing our quarterly dividend 13% to $0.17 in 2026. This marks the sixth consecutive year of dividend increases, reflecting our confidence in sustained cash generation. Now turning to guidance. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to represent approximately 23% of global Tempur Sealy 2026 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit.

Please also note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year 2026 reported results will reflect the impact of a little over 1 additional month of Mattress Firm financial results. We expect adjusted earnings per share to be between $3 and $3.40. This guidance range contemplated sales midpoint of approximately $7.9 billion after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will grow slightly versus the prior year, driven by low single-digit growth in the first half of the year.

Tempur Sealy North America sales growing mid-single digits on a like-for-like basis and reported sales to be impacted by the intercompany elimination I referenced a moment ago. International business growing mid- to high single digits as our legacy International continues to drive new distribution through its product strategy and dreams continue to drive share in a competitive U.K. market. And our like-for-like mattress firm sales to grow low to mid-single digits. We also expect reported gross margin slightly above 45%, driven by approximately 100 basis points of net margin expansion from operational efficiencies, including synergies and fixed cost leverage.

Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private labels to be in the low 60% of Mattress Firm total sales. This represents about an incremental $40 million of EBITDA benefit for 2026 compared to 2025 and approximately $720 million of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1.45 billion at the midpoint. Regarding capital expenditures, we expect 2026 CapEx and of approximately $250 million, which includes $75 million of investments in Mattress Firm store refreshes and brand wall installations.

We expect our CapEx to normalize the $200 million in future years. And for at least 50% of our free cash flow in 2026 to go to quarterly dividends and share repurchases.

Now I would like to flag a few modeling items. For the full year 2026, we expect D&A of approximately $315 million, interest expense of approximately $225 million on a tax rate of 25% with a diluted share count of 214 million shares. Lastly, we are raising our 2028 target EPS to $5.15, representing a 24% compound annual growth rate from 2025. We are also targeting mid-single-digit annual sales growth and double-digit annual adjusted EBITDA growth over that period.

With that, I'll turn the call back over to Scott.

Thank you. Bhasker, well done. Now I want to quickly address our proposed position of Leggett Platt for opening the call for Q&A. We welcome Legend Platts Board's willingness to engage in discussions and conduct customary due diligence, which is currently underway. Omni Group remains committed to pursuing a transaction that will deliver substantial value to shareholders of both companies. There can be no assurances regarding the completion of a transaction or the terms of any transactions and we will not be commenting further on this topic.

Lastly, I'd like to headline that we will be hosting an Investor Day in New York on March 4. During that day, we expect to share more information on our 3-year EPS target, our strategic vision for some group, discuss growth initiatives, for Tempur Sealy, Mattress Firm and Dreams and provide additional details on our capital allocation strategy. With that, Operator, that ends our call. Please open the call up for questions.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] -Your first question is from Susan Maklari from Goldman Sachs, Canada.

My question is around the outlook for demand. Can you talk a bit about the state of the consumer? How you're thinking about the shape of demand as we come into 2026? And how you're thinking of the drivers and the potential for out or underperformance relative to the guide for Tempur North America sales to be up low single digits on a like-for-like basis?

Sure, Susan. Thank you the question. I mean first thing in demand, our estimates are for $3, $2.40 for 2026. One of the foundations of it's basically a flat market. we didn't call a turn in there. And if we had, obviously, the flow-through on that guidance would be significant. But we thought considering the fourth quarter came in a little light from an industry standpoint from our expectations that probably flat was the right way to go into the year. And then we'll see how demand develops.

If you're talking about what are we thinking about, gee, fourth quarter, again, came in a little bit less from an industry standpoint than we expected. And if you look at the start of the first quarter, it's kind of a tale of 2 cities. If you look at the pre presence day holiday period, call it January 1, I don't know, February 10 or so, we had tough weather and I hate talking about weather, obviously. But if you talk about short period, you always have to think about it. And it was tough weather in the U.S. And the way I always look at that as I look at lost days and if you look at Mattress Firm, we had 5,000 days of store losses that were incremental to last year.

So to be clear, that's not like rain or something. I mean weather was so bad, the store didn't open. So we lost 5,000 days of sales during that period off of a possibility of 90,000 days. So it's about a 6% headwind incrementally in store closings. So as you would expect during that period, Mattress Firm same-store sales were slightly down. But then as soon as you get into the present holiday period, which we'll call that February 11 forward, sales have been very robust. And when I say very robust, I mean, double digits robust, driven by strong AOV driven by Tempur, clearly, a customer is in the market wanting to buy.

And the result is looking at U.S. Mattress Firm sales because that's kind of the best index for consumers, and we have real-time data is now we're running positive same-store sales at Mattress Firm to start the quarter. So when I look at it, it looks like a betting market and a consumer that wants the market to grow. And we've got to get out of our way, whether it be some drama in Washington or whether it be an unusually strong storm slows you down a little bit. But it does feel like it's a market that is poised for growth.

And if I could add on to that, then the way to think about the quarter, when you put all that together, is from a first quarter sales standpoint, we would expect something in and around positive 14% or a little over $1.8 billion with EPS growing in and around 20%.

Your next question is from Bobby Griffin from Raymond James.

Aubrey, congrats on the new position. It's been great working with you over the last few years. I guess, Bhasker and Scott, for my question, I want to maybe unpack the guide a little bit. And Boston, can you help us and just kind of clean up some things in the model in terms of like what's left on the customer transition as well as I know we have the wraparound benefit of Mattress Firm and some of the divestitures. And I guess I'm asking in the context if I take the cost synergies the EBITDA benefit from the floor shift as well as our guess at what the 1 month the maker is, we can walk our way pretty close to the midpoint just on those. So is there anything I'm missing on an offset? Or is the way to view that more just conservative in the model? I just want to make sure we're thinking about all the parts the right way.

Sure. Let me give it a try and then you can follow up as necessary. So when I think about this fundamentally, it's all based on an industry that's flat to slightly up. On top of that, what we have is share gains in all of our deals. So internationally, growing high single and in North America, call it that mid-single and that would get you, let's call it, in and around $7.9 billion. When you go forward from a gross profit standpoint, Well, let's talk about the stub period. So the step period, you're correct, is about 1 month shy relative to prior year and call that in and around, call it, $280 or so million net.

When you think about from a profitability standpoint is we're going to continue to support those brands. We called out about $720 million of advertising to continue to support from a launch standpoint, what's embedded in there is very nice gross profit improvement, let's call it about 100 basis points on a year-over-year perspective. And the principal driver of that is a couple of things. One is productivity through the plants. And on top of that would be the synergies that we've identified. And as noted in the prepared material, we've taken that number up about 25 basis -- sorry, $25 million on a year-over-year basis.

There is a bit of an associated with, let's call it, commodities that would offset from a gross profit standpoint. But if you add all those pieces up, I think fundamentally the foundation being industry, market share gains and margin expansion, it gets you to in and around the midpoint.

The next question is from Rafe Jadrosich from Bank of America.

You have Victoria Piskarev on for Rafe Jadrosich. I was wondering if you could talk a little bit more about the elasticity of demand? And how did price increases impact your volumes?

Yes. We took quite a bit of price over the last couple of years. And I can't really see any significant impact from a volume standpoint. This is an industry that has always been very efficient in passing actual cost -- commodity cost increases through the channel. And it looks like it's continued to do that.

The next question is from Dan Silverton from UBS.

Maybe just to build on Bobby's question. If we kind of expand that out to the 2028 target, is the raise there just the additional synergies? Or has anything else changed on kind of the outlook on the pace of an industry recovery or Somnigroup's growth against that industry?

Great question. Some of it is synergies and the success that we've achieved in synergies plus what we see going into the funnel from a synergy standpoint primarily in the area of logistics and advertising. The other probably big driver would be when we look at our relative competitive position. And it's a little early in the reporting quarter to have all the numbers and that the industry fully analyzed. But we think we took a major step forward from a competitiveness and everywhere we look, I'd highlight that we're growing in all of our geos and those are in markets that we believe had a tough tough fourth quarter.

So again, I guess it's confidence in our competitive position and synergies are the main drivers. I mean and if the industry turns in 2016, which we did not embed in our guidance, our guidance range would be light. To wrap around the perspective of 515, what we're excited about is the ability to take it up in light of an industry in 2025 that did not achieve what we thought it would be when the original $485 million was put out there. So we did have some wins, as Scott said, competitive positioning, revenue synergies, cost synergies, et cetera, that allowed us to take the number to $515 million. And then at the conference in New York here in a few weeks. We'll give you more detail in the buildup to that $55 million I think, which will give you more confidence that, that raise was appropriate.

The next question is from Peter Keith from Piper Sandler.

And congrats to Aubrey and to Lauren. I wanted to just ask about the lack of product launches in the first half with the gross margin guide of 100 basis points, could we see a little bit of excess gross margin expansion in the first half with no product launches than the opposite of that in the second half? And then Scott, also product launches usually are a big sales driver. So you're anticipating gaining market share at Tempur North America. I guess, can you walk us through the rationale on that because product launches usually are a nice sales accelerating?

Yes. A lot in that question, and I'll start with it and Bhasker, you clean me up. When you do a product launch, yes, you do get more sales, but those sales are obviously much lower profit margin, closer more than breakeven. So it's kind of a mixed bag. If you look what's in the marketplace, we've got great products in the marketplace in Sealy cost trapedic launch, the Tempur stuff. We do have a small launch later in the year, Stearns & Foster. But from a competitive standpoint, we feel very good about the launches. So I think we're well positioned to continue to take share of what we've got in the market back with advertising. You want to talk to gross margins.

Absolutely. Peter, good question. So when I think about the full year, I would step back on the sales and let's call it the EBIT or the fall-through line, it is effectively a push, but there is some first half, back half phasing. So think about it as a sales headwind in the first half, call it about $20 million or so and effectively reversing in the back half. And from a margin standpoint, you are correct. There is the -- if you look at it in isolation, the gross profit will be impacted more so in the first half of the year versus the back half of the year.

However, we also, again, as we announced the synergy opportunity and the productivity is that, that as the year progresses, is those things will progress as well. But fundamentally, when you look at the full 4 models in and of itself, yes, first half, back half impact, net full year, basically nothing.

Your next question is from Brad Thomas from KeyBank Capital Markets.

The question is about the changes at Mattress Firm from a consumer and an operational perspective. Scott, it does feel seem like even same-store sales having slowed a bit in the fourth quarter that that's more a function of the industry and that Mattress Firm is still really outperforming. But I was hoping you could just comment a little bit on how you measure the new lineup is resonating with the consumer and then how we should think about kind of the pace of change that we're putting in place? And then maybe just finally, any more details that you could share on the timing of purple Kings down, some of the other changes that you're doing here this year?

Sure. So I mean to summarize question, Scott, can you tell me everything you know about Mattress Firm -- just get Look, from everything we see, Mattress Firm continues to take share both in the fourth quarter and the start of the first quarter. So I would say that's evidence of resonating with customers. As far as performance you're seeing share growth and we'll call it the family brands, the Tempur Sealy brands, particularly Tempur, you're seeing growth in Kingsdown, which is doing a great job for us. And you're seeing growth in Purple and there's a test going on in Kings down, considering expanding it. And then the new Purple high-end bed will be hitting the floor at Mattress from, I think, late first quarter.

We get a lot of feedback from our RSAs. And I think where the merchandising changes have been well received both in-store and with consumers and Nektar is doing well, I forgot to mention Nektar has been doing well on the floor. So overall, I couldn't be happier with our merchandising changes, both the way they've been executed, the pace they've been executed and how the market has received it.

Your next question is from Jeff Lick from Stephens.

Aubrey and Lauren, congrats on the new roles and Scott nice to reconnect with you. It's a long time. Question is got, I was wondering, now that you've had Mattress Firm pretty much for an entire year. you had mentioned in your prepared remarks about some marketing step-up from some of your partners. Just curious how you're seeing -- I know this is a little sensitive, but just owning mattress or the competitive dynamics or the strategic dynamics? Any thoughts there on how that kind of meshes with your original expectations when you bought it?

Yes. A couple of things. Great question and good to hear from you. I guess starting with the advertising. We completely changed the advertising message and the approach. It's kind of -- it's built in a way that there's a mattress for message and then you can kind of plug in brand and product into the ad and get a 1-2 punch. Obviously, we're doing that with the family brands, the Tempur Sealy, Stearns & Foster. But we're also doing it with other brands, third-party brands. and that's been effective. In fact, it's been so effective that other manufacturers are giving us incremental support, incremental outside of, we'll call it, normal support to take some positions in those ads because they're seeing when they do, it drives traffic, not only on the mattress for floor but it also drives their brand at other third-party retailers.

So it's become -- it's a very effective way for them to get to market. And so couldn't be happier with the way that program has worked. And I think the third-party manufacturers who participated in it are happy with that, too. As it relates to, I'll call it, channel dynamics or those kind of things, we have a term called the other because it's a short way to say how are the other retailers doing in the U.S. that are not mattress firm and how are the sales of Tempur Sealy products. We call it other other. And if you look at the other, Other, our other sales, we think that they are outperforming the general market.

So we think we're taking share in the other area, too. And so I'm not seeing any significant channel conflict. I think everybody understands that the advertising we're doing is helping drive product, not just at our retail stores, but throughout the industry. and found good support. It's probably gone better than I probably initially thought, wouldn't too worried about, but you got to work through it. So no, I think I think the Mattress Firm acquisition, you could take the price, you take the performance, you take the synergies that have been realized I think we would say that it's been very good from our standpoint.

Your next question is from Bobby Griffin from Raymond James.

Scott, I guess we spent a lot of time in North America, but honestly, international just continues to be a bright spot there with robust kind of constant currency growth on top of a really good quarter last year. I understand you guys did a lot of work on the product portfolio, but us understand like how much is new door growth versus how much is throughput or slot velocity. And then when we think about the opportunity international, like do you still see a robust amount of new door potential? Or is it more just continuing the velocity? Just help us think about the sustainability of what is turning into a nice bright spot in the story?

Yes. I mean great call out. International has been growing for a couple of years, very strong, again, in not a great market, which is particularly impressive. As you know, from an international standpoint, we don't have a large balance of share internationally. So it is a long-term growth trajectory that we are very bullish on. Bhasker, do you know the split between new distribution and velocity because we're getting both internationally?

Absolutely. So when you think about the growth over the last couple of years, it's been principally at its existing distribution and what existing distribution looks like is perhaps a few more slots in stores that we're in, but really improving the velocity per slot on where we're at. And really, what that does is that we have to prove ourselves in the international market. As Scott said, we have relatively low share relative to the U.S. also a very difficult execution. The borders, they're not state their country. So it's a tougher slug.

So the key there is making sure you have the right product, advertise ahead of that to educate the retailers and the consumers, therefore, you get the incremental slots within the store prove yourself in those stores and then get into new distribution. So when I think about the next leg of growth internationally, continue to do what we're doing but also expand the distribution outside of our historic footprint.

There are no further questions at this time. I will now hand the call back over to Scott Kempson for the closing remarks.

Thank you, operator. To our 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends the call today, operator. Thank you.

Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the Somnigroup Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Aubrey Moore of Investor Relations. Please go ahead.

Thank you, operator. Good morning, 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 report on Form 10-K and quarterly reports on Form 10-Q.

Any forward-looking statements speak only as of the date from 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 is posted on the company's website at www.somnigroup.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. As a reminder, year-over-year comparisons are impacted by the acquisition of Matriform in the first quarter of 2025 and the related divestiture of Sleep Outfitters and certain mattress from retail locations in the second quarter.

At certain times in the call, to better illustrate underlying business trends, we will focus on like-for-like numbers defined as reported numbers adjusted for the acquisition and divestiture impact. We would also like to mark the calendars for March 4, 2026, as we will be having our Investor Day in New York. That will include various members of executive management from Somnigroup, Tempur Sealy and Matriform Formal invitations will be sent out closer to the event. And now with that introduction, it's my pleasure to turn the call over to Scott.

Good morning, and thank you for joining us on our third quarter 2025 earnings call. I'm pleased to share with you that Somnigroup International delivered a record quarter across nearly all key operating metrics. These results were driven by the early benefits from the Mattress Firm combination and successful execution of our key operating initiatives. Importantly, we achieved this strong financial performance while the U.S. bedding market remains basically flat from a sales perspective, and it is still at trough levels. While the U.S. housing market is yet to recover and international markets continue to face numerous challenges. Additionally, we have not fully realized all of the benefits from the Mattress Firm combination.

This backdrop underscores the potential of our business, the strength of our competitive position and the meaningful opportunity ahead as our markets improve and we continue to deploy capital and optimize our vertical structure. In the third quarter of 2025, we're pleased to achieve record net sales, adjusted EBITDA and adjusted EPS. Net sales were up approximately 63% to $2.1 billion. Adjusted EBITDA was up approximately 52% to $419 million, and adjusted EPS was up approximately 16% and to $0.95 per share. Now turning to some highlights for the third quarter.

First highlight. Our aggregate like-for-like sales growth was 5% over the same period last year, led by strong performance in our international operations, which I'll discuss in a minute. Tempur Sealy North America reported 5% like-for-like sales growth which is the strongest quarterly sales trend in 9 quarters. This performance was broad-based across our portfolio and price points as we significantly increased our balance of share at Mattress Firm and experienced growth with our other third-party retailers. Both Tempur-Pedic and Sealy brands reported solid growth in the quarter, driven by our new Sealy Posturepedic products and our strong commitment to advertising, including over $110 million invested in the third quarter to keep our brands top of mind and drive valuable customer traffic to all retailers. Our collaborative marketing approach focused on delivering high-quality, brand-centric advertising retail partners continues to drive strong results for us and the industry. Retailers who have actively participated in our brand activation program have seen a significant boost in sales of Tempur Pedic and Sealy products. In short, we continue to win in the market with great product robust advertising and a dedicated sales force to help our customers improve their business.

Second highlight. Mattress Firm continues to outperform the market, reporting strong same-store sales growth of 5% in the quarter. The strong third quarter performance was possible due to our relentless focus on delivering superior in-store execution and equipping our sleep experts with the tools and training they need to meet the customers' sleep needs. Further, we continue to invest in the consumer experience for our store refresh program, including installing Tempur brand walls to support increased customer engagement and education. We're placed Tempur brand walls have shown to drive higher retail tickets resulting in strong return on investment. We began scaling this initiative in the back half of the quarter and expect to finish rolling it out to all 2,200 store locations nationwide by the end of next year. Other retailers have also taken part in this program as we are committed to an omnichannel approach.

Additionally, we are ramping up our previously disclosed 3-year program to invest a total of $150 million between 2025 and 2027 to refresh certain Mattress Firm stores. ensuring all locations meet our brand standards. Third highlight, our international business continues to deliver impressive sales growth despite a challenging operating environment. Our Tempur International sales grew 11% in the quarter and continued to outperform the market by a solid clip, driven by the refreshed Tempur product lineup, expanded distribution. Strong local execution, combined with meaningful investments in advertising that significantly boost brand visibility, consumer engagement resulted in this double-digit performance.

We continue to refine our late-stage customization manufacturing process to support this momentum. This approach allows us to efficiently tailor products for specific markets, channels and customer segments. With a solid foundation and significant long-term potential, we are confident in the growth trajectory of our Tempur international operations. Streams, our U.K.-based bedding retailer also delivered strong quarterly market outperformance, driven by same-store sales growth and new store openings. Greens continues to drive cost efficiencies, advance strategic growth initiatives and deliver exceptional product quality and industry-leading customer satisfaction.

Our final highlight is related to the progress on our sales and cost synergy initiatives following the combination of Mattress Firm. Mattress Firm is focused on retailing high-quality products with differentiated innovation at all price points, while driving industry demand with market-leading advertising investments. On synergies, we are ahead of our expectations in achieving a more market-driven distribution of Tempur Sealy brands and private label products at Matter. We now expect Tempur Sealy to represent a mid-50% of Mattress Firm's total sales in 2025, up from our previous estimate of below 50%. In total, we now expect sales synergies to result in $60 million of benefit to adjusted EBITDA this year.

Looking to 2026, we expect an incremental $40 million of EBITDA benefit from the wraparound impact of these share gains and is on track to comfortably achieve our targeted $100 million of run rate sales synergies. As a reminder, we held Mattress Firm sales flat and estimating the balance of share opportunity. As the U.S. bedding industry recovers and Mattress Firm sales increase, we expect the dollar synergies to grow. Our increased scale and vertical integrated operations are unlocking efficiencies throughout manufacturing, logistics and sourcing. Additionally, improved insights into in-consumer demand patterns is enabling us to optimize production, upcoming product introductions and product end-of-life strategies. We remain on pace to achieve a minimum of $100 million in annual run rate net cost synergies, beginning with $15 million projected for 2025, an incremental $50 million in 2026 and an other $35 million in 2027.

Long term, we're excited about the potential to align Temper Sealy and Mattress Firm's messaging to increase our advertising efficiency, an opportunity which is not yet quantified in our cost synergy targets. Today, as a unified Somnigroup entity, we are positioned to deliver more cohesive, high-impact advertising to support both our brands and the broader U.S. bedding market. Our new Mattress Firm advertising campaign, Sleep easy, launched mid-third quarter, aligns our messaging with a cohesive voice. The campaign educates consumers on the importance of a well-suited mattress for restorative sleep and activates them to take the next step in their purchase journey. It highlights some of the most common impacted sleep disruptors and shows how certain products and Mattress Firm's sleep experts can effectively address these important sleep issues.

We're very encouraged by the strong consumer response to Sleep Easy campaign. Initial research identified it as the highest performing campaign in Mattress Firm's recent history across all metrics. Subsequent studies have reinforced this finding. Showing the campaign significantly outperformed both industry benchmarks and Mattress Firm's previous messaging. Although it's still early in the campaigns rollout, we are confident that we are on the right path. We expect the positive impact to grow as the campaign becomes more established in the marketplace. Overall, we are pleased with the rapid progress in both sales and cost synergy efforts and remain excited about the long-term opportunities retail customers, Somnigroup employees and shareholders. And with that, I'll turn the call over to Bhaskar to review the financial statements. Bhaskar?

Thank you, Scott. In the third quarter of 2025, consolidated sales were $2.1 billion, and adjusted earnings per share was a record $0.95, up 16% over the prior year. There are approximately $40 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with the combination. We expect pro forma adjustments to decline going forward. As a reminder, we have aligned accounting for store occupancy costs across SomniGroup, which resulted in Tempur Sealy reclassifying our store occupancy costs from operating expense to cost of goods sold. We have adjusted prior year Tempur Sealy financial information included in today's earnings release to reflect this change for ease of comparability. .

I will be highlighting like-for-like comparisons to normalize for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $1.1 billion in the third quarter. On a like-for-like basis, Mattress Firm sales grew 3% over the prior year. which includes strong same-store sales growth of 5%. Mattress Firm's adjusted gross margin was 35.6% and adjusted operating margin was 9.4% and in line with our expectations. Now turning to Tempur Sealy North American results. Like-for-like net sales through the wholesale channel grew approximately 10% in the third quarter. Normalizing for the previously disclosed foreclosed distribution. Without this normalization, the wholesale channel grew approximately 6%.

Like-for-like net sales through our direct channel declined 4% in the third quarter. North American adjusted gross margins increased 1,700 basis points to 58.6%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy. On a like-for-like basis, North American adjusted gross margins declined 40 basis points versus the prior year, primarily driven by merchandising mix, which includes strong Sealy performance. This was partially offset by operational efficiencies and fixed cost absorption. North American adjusted operating margins improved 940 basis points to 29.5%, primarily driven by Mattress Firm intercompany sales elimination. On a like-for-like basis, North American adjusted operating margins increased 60 basis points versus the prior year, primarily driven by fixed cost leverage, partially offset by the decline in gross margin. Now turning to Tempur Sealy International results. International net sales grew a robust 11% on a reported basis and 7% on a constant currency basis.

Our international gross margins declined 40 basis points versus the prior year, primarily driven by a competitive U.K. marketplace, partially offset by operational efficiencies. Our international operating margin was consistent with the prior year at 18.1% with fixed cost leverage offsetting the decline in gross margins. In July, Tempur Sealy rolled out a price increase equating to approximately 2% of total North America sales, largely focused on the higher-end products in our portfolio. We believe this price increase was generally lower than the industry peers and succeeded in offsetting implemented tariff headwinds with no discernible impact and consumer demand. As the tariff landscape has continued to evolve, we see another $20 million of incremental cost exposure, primarily on an adjustable basis. To offset this headwind, we announced a small price increase earlier this week that will go into effect in early 2026.

We remain confident in our ability to adapt to tariff changes supported by our strong product offering, agile team and support of supply partners. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the third quarter, consolidated debt less cash was $4.6 billion, down $300 million versus the second quarter, and our leverage ratio under our credit facility was 3.3x, down 30 basis points or 8% versus the second quarter. We expect our leverage to return to our target leverage range of 2 to 3x early in 2026. We achieved record operating cash flow of $408 million and record free cash flow of $360 million in the quarter demonstrating the power of our business model even in a soft market. Our strong cash generation positions us well to continue to optimize our debt structure. We expect to continue to pay down debt and benefit from lower market interest rates and improved cost of our variable price debt as we return to our target leverage range.

We expect this trend to add to future EPS growth. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to represent approximately 20% of global Tempur Sealy 2025 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Consistent with prior quarter, our guidance also reflects the divestiture of Tempur Sealy Sleep Outfitters retail business as well as 73 Mattress Firm stores in May of 2025. Before turning to our annual guidance, let me also share our perspective on the fourth quarter. We expect continued like-for-like sales growth across all of our business units, with an underlying assumption that the demand environment will be stable. Now to our revised 2025 guidance. We have raised our adjusted earnings per share guidance to be between $2.60 and $2.75.

This guidance range contemplates a sales midpoint of approximately $7.5 billion after intercompany eliminations. This revision includes our expectation for the bedding industry to be down low to mid-single digits versus prior year, a slight improvement from our prior outlook. Our annual guidance also reflects like-for-like Tempur Sealy sales to be flattish and reported sales to be impacted by the intercompany elimination I referenced a moment ago. Tempur Sealy North America sales declining low-single digits on a like-for-like basis, which includes our continued market outperformance, a mid-single-digit headwind from foreclosed distribution and the industry pressures. International business growing low double digits on a reported basis and constant currency basis, which includes the continued momentum of our omnichannel expansion strategy. And our like-for-like Mattress Firm sales to be flattish, supported by in-store initiatives to grow AOV and conversion and reflecting the industry pressures.

We also expect gross margins to be slightly above 44%. Our outlook also contemplates our updated assumption for Tempur Sealy to be in the mid-50s percentage of Mattress Firm's total sales. This represents about a $60 million EBITDA benefit for 2025 compared to 2024 and $700 million of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1.3 billion at the midpoint. Regarding capital expenditures, we expect 2025 CapEx to include approximately $150 million of normal recurring CapEx and an investment of approximately $25 million to bring stores acquired by Mattress Firm prior to the acquisition up to our standards. We expect to invest an additional $125 million over the next couple of years to refresh these stores. Over the long term, we expect normalized run rate Somnigroup CapEx to be approximately $200 million.

Lastly, I would like to flag a few modeling items. For the full year 2025, we expect D&A of approximately $295 million, interest expense of approximately $260 million on a tax rate of 25% with a diluted share count of 210 million shares. With that, I'll turn the call back over to Scott.

Thank you, Bhaskar. Well done. Just a couple of thoughts on capital allocation. First, we are pleased to report our investment in Kingsdown, acquiring 25% passive interest in this leading North America luxury mattress manufacturer and valuable buyer to Mattress Firm. This will allow SGI to participate in expected growth in Kingsdown sales and profits as their presence on Mattress Firm's floor expand, and they pursue other growth opportunities. This decision reflects our disciplined capital allocation strategy, which is focused on high-return investments to strengthen our competitive position and drive long-term value for shareholders. .

Second, we're ahead of our financial plan, and we believe that we've mitigated significant risk over the last few quarters, including those related to the Mattress Firm combination. As a result, in the first quarter of 2026, we intend to begin to allocate approximately 50% of free cash flow to capital returns to shareholders in the form of dividends and share repurchase. At the same time, we will continue to deleverage, targeting our historical range of 2 to 3x adjusted EBITDA. After we are comfortably back within our targeted leverage range, we'll reevaluate this allocation. In closing, this quarter's performance reaffirms our strength of our strategic direction and underscores our momentum we've gained through the combination with Mattress Firm.

We've demonstrated our focus on long-term growth and our ability to navigate a complex industry backdrop across our Tempur Sealy Mattress Firm and Dreams operations. We are positioned as a global industry leader committed to delivering products that provide customers innovative solutions that can change their lives to improve sleep. Our operational agility, strong manufacturing capabilities, trusted brands, retail leadership and exceptional workforce drive SomniGroup's performance and we expect will drive future value creation. That ends our prepared remarks. Operator, you can open the call up for questions.

[Operator Instructions] Your first question comes from Susan Maklari from Goldman Sachs.

I want to talk about demand. It's interesting to see how it sounds like the industry is starting to come back a bit and that's really counter to what we've seen in the housing market, but also just what we're hearing in terms of housing and consumer-related categories broadly. Can you talk about what is driving the relative divergence that we're seeing in bedding and how much of it do you think is attributable to the efforts that you've put in over the last several months and years around new products, more recently, some of the ad spend and the initiatives there. And how we should think about the sustainability of it, just given the macro and the environment that we're in?

Thank you for your question, Susan. All 12 of them that you wound into one. First of all, I think we've talked about this before. Look, the housing market can be a headwind or a tailwind for the bedding industry. But we've always thought of it as it's in the top 5 items that we think about, but it's certainly not the first or second. And I think the point you make in your question is exactly right. The bedding industry can be successful without the housing market necessarily be turning around. And we've always thought about in the bedding industry, what drives the bedding industry, of course, is innovation. And clearly, the new Sealy Posturepedic product that came out this summer is helping us, Mattress Firm and the industry.

It's also -- the other thing we think that drives the industry is advertising. And you know that we've completely retooled we'll call it the advertising at Mattress Firm, and Mattress Firm is the leading advertiser in the U.S. by a factor of 2 and we've changed their creative and we've changed the placement and some of the strategies there. And we're seeing benefits again for us and for the industry. For the first time in, I think, probably 15 or 20 years, we had direct advertising coming out of Tempur Sealy on the Sealy brand in support of the new Sealy product. That certainly has been incremental. And then the other things we watch obviously are consumer confidence. And it hasn't been robust, but at least it hasn't been negative. So when we look forward, certainly, we're hoping for lower interest rates. And I think if you put a 5 handle, on the 30 year, you might get quite a bit of activity in housing and probably furniture and bedding.

We're getting close. We're a low 6. But we can be successful without the housing market turning around and it does feel like if you look at the numbers in the industry, you can't get perfect industry numbers. But there's no question the industry, I think step -- had a good step forward from the second quarter. So sequentially, certainly improved. I think we're calling it somewhere close to flat from a sales standpoint. And then as expected and as designed, we performed better than the marketplace, and you can see that in our numbers. I think one of the things that I really focused on this quarter was when I take a look back, in the first quarter, we delivered basically flat EPS, adjusted EPS. In the second quarter, we were down 16% had some launch costs in there. And then we delivered quarter-to-date at plus 16%. And obviously, people can squeeze out what the implied fourth quarter is, and we'll call that 15% to 20%.

So you can see the momentum as the industry has gotten slightly better. We have implemented some of our strategies, and we're getting the synergies both in sales and costs from Mattress Firm acquisition.

Your next question comes from Bobby Griffin from Raymond James.

Congrats on the momentum here in the quarter. I'm going to hit you with a 2-part question, unfortunately. But when you kind of sit and look at the business today starting to flex and you kind of look at the enterprise as it's set up now, where do you see the most opportunities for growth among the different brands that SGI is pushing into -- and on the optimization of the enterprise, is there a big unlock to come? Or is it more little parts that get more optimized over the next kind of 3 to 5 years during the recovery?

Okay. I think I got your question, and Bhaskar help me out. So when you look at it by brand, okay? Obviously, I think the Sealy posturepedic brand probably has a greater growth potential in the short term, next few quarters. Some of that is new technology, some of that's new advertising. And quite frankly, it's got an easier compare in that the product we're replacing had a little bit of age on it. Then you have Stearns coming out and we've cannibalized a little bit of sterns with the new postrepedic product as we moved it upstream from a pricing standpoint. And we'll have new sterns out, call it, late 2026 with some interesting technology. And that's certainly an opportunity there. And then as you know, I mean, Tempur is just magical, and it continues to take share every quarter a little bit. and I would expect it to continue. But I think also when you look at opportunities, if you look at the whole enterprise, you have to say all of the changes we've made in Mattress Firm are really just getting started.

I mean we've changed the advertising program. There's certainly a more sophisticated and broad-based looking at the merchandising strategy to really understand what products on the floor are good for customers first and are good for Mattress Firm. And I think that's going to continue to pay benefits. And then you've got the whole bucket of synergy -- cost synergies, which, as we've talked about, are going to take -- it's a multiyear project. as you work through logistics, warehousing, delivery, lots of stuff, but there's a good trail there that's going to be -- is going to gift that keeps on giving for a number of years. And I would be remiss if I didn't mention the international operations, which is, I don't know, how many quarters is this double digits, Bhaskar, 10 quarters of double-digit growth. in an international market that is not robust. It's challenging. And we sometimes underestimate how difficult that lift been, but both the Dreams operation which has been fighting a U.K. economy, which has not been pleasant or it's been grumpy as they like to say, has done very well over there.

And the Tempur International, what we call the legacy Tempur Sealy operation has done a great job opening up new customers and in taking share. So I mean those are all kind of we call it company-specific opportunities robust. But the other thing you just can't miss is if you look at the bedding industry in the U.S. And I'm going to use round numbers and say that it's down 30%, and it has been down 30% for multiple years, okay? And if you just -- whether it's pent-up demand or just going back to trend line, if you layer in going back to trend line, okay, just get me back to 30% that fell. The flow-through on that is very robust as we've positioned the company during this downturn.

Your next question comes from Rafe Jadrosich from Bank of America.

There are a lot of moving pieces here just on the guidance. In terms of the kind of guide to guide changes, can you just walk us through what assumptions have changed from the prior guidance. It sounds like a lot of that is just better synergies on the revenue side. And then what's embedded in terms of like-for-like and underlying industry growth in the fourth quarter?

Absolutely, absolutely. And if I were to just think about it high level, there's only been a couple of items that we've refreshed on as it relates to our expectations. The first one is around the industry. We expected the industry to be, let's call it, down mid-single digits. That's for the full year. Sitting here today, our expectation is that it's going to be down low to mid-single digits. So an improvement from an industry environment standpoint. Then what I would go to is the balance of share. Previously, where we were at is thinking about it as low 50% from a balance of share of the family brands into Mattress Firm. Now we're at the mid-50s. So as it relates to a high level, those are the 2 moving pieces that impacted how we performed in the third quarter and then our expectations for the full year. As it relates to the fourth quarter specifically, let me just aggregate that a bit. So given our sales guide of in and around $7.5 billion for the full year, think about the fourth quarter somewhere a little north of $1.9 billion.

If you ratchet that down, what that would get you is from a Tempur Sealy, let's call it, like-for-like legacy standpoint, that would put the growth rate in Tempur Sealy somewhere between mid- to high single digits. Going to North America on a like-for-like basis, that would imply a mid-single digits. And then turning to Mattress Firm, we called that out specifically, but think about that as low-single digits from a growth standpoint in the fourth quarter. As you go below the line, just call out for gross profit. Naturally, what happens is, is that you get the seasonality of the business, the third quarter being the highest on a consolidated and on a business unit perspective and the natural step down that you'd expect going from the third into the fourth.

Your next question comes from Peter Keith from Piper Sandler.

Great results, guys. Bhaskar, if I could just follow up on that. There's a little bit of short-term investor anxiety around the fourth quarter just because following last year's election, the industry did improve. So we will just say kind of high-level compares get a little bit tougher. It seems like the outlook you just gave on the like-for-like is basically a continuation from Q3, I guess, slightly tougher compares. So if you break out your crystal ball, I guess how do you think about the fourth quarter as this, I don't know, coming off the bottom, but still a little bit more challenge compared year-on-year.

Great question. I'm going to jump in and let Bhaskar clean me up because I also thought that there was, I'm going to call it, a pretty good-sized bump in the fourth quarter last year when we had a peaceful transition of government is what we call it. And so we studied that. And because we now own Mattress Firm, we have more data. Before, when we talked about that, we had to look at our wholesale orders, which can kind of be lumpy and sometimes they don't totally track retail sales from a timing standpoint. So getting that kind of data was difficult. But now that we at Mattress Firm, and if we could go back and look at last year's fourth quarter on a day-by-day basis and week by week and then look at our data. I would tell you that I do not believe that we had a bump in our business in bedding, in Mattress Firm or Tempur Sealy from a peaceful transition of government, which was different than my thinking going into preparing for the quarter. Fair Bhaskar, I would look through that data. But they basically had to pull that data to get me off of that same anxiety that you're mentioning. .

Your next question comes from Daniel Silvertstein from UBS.

Given the strong progress you're making in gaining the balance of share at Mattress Firm, what penetration level is reasonable at this point in 2026 or 2027, what's the upper bound we should think about from that standpoint? And then maybe just 1 quick follow-up. Where will Kingsdown fit in the assortment at Mattress Firm?

Sure. Let me answer it this way. The way we think about Mattress Firm is that a reasonable balance of share for the strength of our brands and they're running a multi-branded retailer. When we look across all of our customers and everything is to think about it in the low 60s, 62% of the business would probably land in the family brands, okay? And I think we'll be there. There's still some merchandising changes that will go on in the fourth quarter. So -- but we'll be there probably, give or take, at that run rate by the end of the year. Now after that, that's going to bounce around a bit. And it will bounce around based on the strength of the innovation of each brand, whether it be family brand or outside brand and the strength of their sales force and their advertising that supports that. And so if it 1 day gets 60%, that's not being the world someday, it might be 64%. But there'll be a reasonable bandwidth around that 62%.

Again, based on strength of innovation, strength of advertising is the way we think about the business model, consistent with that. And we ran into the Kingsdown brand and the merchandising team at Mattress Firm, which is in charge of their floor to optimize what the customer wants and to drive their business. They became apparent that Kings down was underrepresented at Mattress Firm compared to what we think the customers want what the RSAs want and bring some more differentiated product to the floor. And then when we looked at that, it was clear that they were going to be expanded, some in the store. And when we thought through the financial impact of that, it appeared to us to be the best way to participate in that economics was with a passive equity investment so that we could win in that success, and they could win.

And so they'll be at the high end and the concentrate primarily in spring area, high profile and have good brand strength in Canada and the Northeast. So they're good people, and we're glad to be a passive investor.

[Operator Instructions] Your next question comes from Brad Thomas from Capital Markets.

Congrats on the great quarter here. My question was going to be around any thoughts.. My question was going to be around 2026. And any early thoughts you might be willing to share particularly in light of a longer-term target you have for earnings by 2028, which does imply sort of a mid-20s growth rate. How should we think about the shape of earnings in any particular high-level comments on 2026, we want to share?

That I want to share that, of course, be no comments, what I will share will be some comments Okay. A couple of observations. I mean quarter, you can see with just what I'll call minimum sales growth, the flow-through is really the first quarter we've printed that you can see. So you can see some of the dynamics of the business model. So you don't need much from the top line to get to the bottom line numbers that you're talking about. And I think you're referencing what we call we're calling a prospectus, but now we're just going to go ahead and just call it a target because now we've done enough at Mattress Firm integrated enough, have enough confidence in the plan that I think we can call that 3-year glide path on EPS more of a target than a perspective. I think the only other call out I would give is probably new to me that I probably haven't talked much about is the impact of interest rates on the consolidated Somnigroup because there's a couple of items there. I mean you can obviously see from a debt standpoint, obviously, interest rates go down. We got some variable debt. That's good, blah, blah, blah.

Of course, then as you pay down your debt, you get into a lower spread grid, blah, blah, blah, that's good, too. The 1 that sometimes I don't think people would fully appreciated because I know I didn't fully appreciate is the cost of the promotion when Mattress Firm or the Tempur stores offer a 60 months, 0% financing or 72 months. That is a retailer's expense. But that is -- that's grid-priced based on short-term rates. So as short-term rates come down, the cost of that financing comes down. And that's kind of -- you don't see that in the balance sheet when you're looking for the impact of 100 basis points.

So I'm going to give you the number that for me was a little surprising, which is a 100 basis point change in interest rates on our cost, okay, equates to $0.18 to $0.20 per share or about a 7% lift of EPS based on our midpoint, okay? That's more leverage to falling interest rates probably than people were thinking. And that does not include the benefit that we would get from falling interest rates from a recovery in housing market. So the way I think about it, and maybe the big -- the newest news for '26, although we're certainly not doing any guidance or anything we prospectus is really the benefits of the falling interest rates are, I think, more robust than the market is perceiving.

Your next question comes from Keith Hughes from Truist.

You've given us kind of cash flow uses next year, shifting back to cash flow to shareholders because you've ever-younger this thing pretty fast. At what point would you consider instead of doing these passive investment in brands, would you consider a purchase of another retailer or another manufacturing brand? Is that something on the horizon?

Yes. The way we think about utilization of capital is it really hasn't changed. I mean, obviously, we've got to keep being disciplined and keep our balance sheet properly leveraged, not overleveraged, okay? And then we are constantly looking at opportunities to do exactly what you just said, other manufacturers, other adjacents, other retailers and we are constantly in discussions around the world and have been for years that nothing changes. And we're constantly considering it. And we basically look at that and said, we'd rather do that or buy stock back. So I do think it's likely that we will do some more acquisitions over the next few years. but that will be dependent on finding the right acquisition at the right price.

If we don't do another acquisition, that would be fine with me. We never do one. We don't budget them. We don't target them. But I think the nature of the market, the competitive advantages we bring to a company when they join us are such that it's probably likely that we will do something in the future. And that may slow down a little bit on the glide path on deleveraging or it might slow down the actual ending ratio. But we continue to be active and looking at various companies.

There are no further questions at this time. I will now turn the call over to Scott Thompson for closing remarks. Please go ahead.

Thank you, operator. To our 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends the call today, operator. Thank you. .

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect.