8-K
Sleep Number Corp (SNBR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 26, 2022
SLEEP NUMBER CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation)
| 000-25121 | 41-1597886 |
|---|---|
| (Commission File Number) | (IRS Employer Identification No.) |
1001 Third Avenue South, Minneapolis, MN 55404
(Address of principal executive offices) (Zip Code)
(763) 551-7000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | SNBR | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| ITEM 1.01 | ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. |
|---|
On October 26, 2022, Sleep Number Corporation, a Minnesota corporation (“Sleep Number”), entered into an Eighth Amendment (the “Eighth Amendment”) amending and supplementing the Amended and Restated Credit and Security Agreement, dated as of February 14, 2018 (as amended, supplemented or otherwise modified from time to time, including by the Eighth Amendment, the “Credit Agreement”), among U.S. Bank National Association (“U.S. Bank”), as Administrative Agent, Swing Line Lender and Issuing Lender, and certain other financial institutions party thereto.
The Eighth Amendment, among other things, (a) provides relief from the requirement that the net leverage ratio not exceed 3.75 to 1.00 for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.00 to 1.00 for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.50 to 1.00; and (d) replaces the option to borrow at an interest rate based on LIBOR to one based on a Term SOFR Rate. The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio. A fee for the amendment is payable to the lenders in an amount equal to 7.5 basis points multiplied by the sum of the Revolving Credit Commitment and the outstanding amount of Term Loans (as each is defined in the Credit Agreement).
The foregoing description of the Eighth Amendment is qualified in its entirety by reference to the complete terms of the Eighth Amendment, which Sleep Number will file as an exhibit to its next Quarterly Report on Form 10-Q.
| ITEM 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION. |
|---|
On October 26, 2022, Sleep Number issued a press release announcing results for the fiscal third quarter ended October 1, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
| ITEM 2.03 | CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT. |
|---|
The information under Item 1.01 above is incorporated by reference into this Item 2.03.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS. |
|---|
(d) Exhibits.
| Exhibit No. | Description of Exhibit |
|---|---|
| 99.1 | Press Release datedOctober 26, 2022 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SLEEP NUMBER CORPORATION | ||
|---|---|---|
| (Registrant) | ||
| Dated: October 26, 2022 | By: | /s/ Samuel R. Hellfeld |
| Name: | Samuel R. Hellfeld | |
| Title: | Executive Vice President, Chief Legal and Risk Officer |
Document
Exhibit 99.1
FOR IMMEDIATE RELEASE
SLEEP NUMBER ANNOUNCES THIRD QUARTER 2022 Results
•Third-quarter net sales declined 16% versus the prior year as expected on semiconductor chip supply constraints
•Third-quarter diluted EPS of $0.22 ahead of expectation for breakeven profits
•Revised 2022 EPS outlook to a range of $1.50 to $2.00 per diluted share due to constrained, uneven flow of chip supply and softer demand
MINNEAPOLIS – (October 26, 2022) – Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended October 1, 2022.
“We continue to navigate a very difficult environment, including persistent electronic chip inventory constraints and softer-than-expected consumer demand. We are aggressively pursuing actions to improve supply, margin, and demand,” said Shelly Ibach, Chair, President and CEO. “While the consumer is understandably cautious, our brand health remains very strong, and our customer loyalty is stellar. Guided by our purpose, we continue to develop life-changing sleep innovations, including this month’s introduction of our revolutionary Climate360™ smart bed, that position us to generate renewed demand growth. This new smart bed solves one of our consumer’s greatest sleep issues – temperature, while also capitalizing on future profitable growth opportunities in health and wellbeing.”
Third Quarter Overview
•Net sales decreased 16% to $541 million, with demand decreasing 16% for the quarter, as consumer sentiment remains at historically low levels
•Gross margin of 56.1% of net sales, reflecting expediting costs and operating inefficiencies resulting from the uneven flow of electronics supply
•Diluted EPS of 22 cents, reflecting ongoing chip supply constraints and challenging macroenvironment
Cash Flows and Liquidity Review
•Year-to-date net cash from operating activities of $80 million despite macroeconomic pressures
•Invested $53 million in capital expenditures; suspended share repurchases (in the second quarter) until macroeconomic conditions improve
•Leverage ratio of 3.99x EBITDAR at the end of the third quarter; $413 million of liquidity remains against current debt facility
•Return on invested capital (ROIC) was 15.8% for the trailing twelve-month period
Financial Outlook
The company updated its full-year 2022 diluted EPS outlook to a range of $1.50 to $2.00 per share driven by insufficient and uneven flow of chip supply and softer demand. The outlook assumes flat net sales versus the prior year for the fourth quarter. The company anticipates 2022 capital expenditures of approximately $70 million.
Conference Call Information
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days.
Sleep Number Announces Third-quarter 2022 Results - Page 2 of 9
About Sleep Number Corporation
Sleep Number is a leader in sleep and wellness technology. Our 360® smart bed platform connects the physical and digital worlds, creating an immersive, adaptive, and individualized sleep health experience. Quality sleep is vital for physical, mental, and emotional wellbeing; our smart beds deliver exceptional sleep by automatically sensing and effortlessly adjusting to the needs of each sleeper. Through partnerships with the world’s leading health and research institutions, we are advancing sleep science with our 17 billion hours of highly accurate, longitudinal sleep data from millions of sleepers in our Smart SleeperSM community.
Sleep Number is a company with purpose, with over 5,300 mission-driven team members who are dedicated to improving the health and wellbeing of society through higher quality sleep. We have improved more than 14 million lives and are committed to lifelong relationships with our smart sleepers.
For life-changing sleep, visit SleepNumber.com or one of our more than 660 Sleep Number® stores. More information is available on our newsroom and investor relations sites.
Forward-looking Statements
Statements used in this news release relating to future plans, events, financial results or performance, such as the company’s expectations for full-year 2022 diluted EPS, are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future general and industry economic trends and consumer confidence; risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic; risks inherent in global-sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, geo-political turmoil, acts of terrorism, global conflicts or war (such as the current war in Ukraine), strikes, labor shortages, government-mandated work closures, and the potential for shortages in supply or disruption or delay of production and delivery of materials and products in our supply chain; risks of disruption in the operation of any of our main manufacturing, distribution, logistics, home delivery, product development, or customer service facilities or operations; our manufacturing processes operate with minimal levels of inventory, which may leave us vulnerable to shortages in supply; our dependence on significant suppliers and third parties and our ability to maintain relationships with key suppliers or third parties, including several sole-source suppliers or service providers; rising commodity costs and other inflationary pressures; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; our ability to execute our Total Retail distribution strategy; our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image; industry competition, the emergence of additional competitive products and the adequacy of our intellectual-property rights to protect our products and brand from competitive or infringing activities; claims that our products, processes, advertising, or trademarks infringe the intellectual-property rights of others; availability of attractive and cost-effective consumer credit options; increasing government regulation; pending or unforeseen litigation and the potential for adverse publicity associated with litigation; the adequacy of our and third-party information systems to meet the evolving needs of our business and existing and evolving risks and regulatory standards applicable to data privacy and cybersecurity; the costs and potential disruptions to our business related to upgrading or maintaining our information systems; the vulnerability of our and third-party information systems to attacks by hackers or other cyber threats that could compromise the security of our systems, result in a data breach or disrupt our business; environmental risks, including increasing environmental regulation and the broader impacts of climate change such as from weather-related events; and our ability, and the ability of our suppliers and vendors, to attract, retain and motivate qualified management, executive and other key team members, including qualified retail sales professionals and managers. Additional information concerning these and other risks and uncertainties is contained in the company’s filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.
#
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com
Sleep Number Announces Third-quarter 2022 Results - Page 3 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| October 1,<br>2022 | % of<br>Net Sales | October 2,<br>2021 | % of<br>Net Sales | |||||
| Net sales | $ | 540,566 | 100.0 | % | $ | 640,393 | 100.0 | % |
| Cost of sales | 237,479 | 43.9 | % | 250,039 | 39.0 | % | ||
| Gross profit | 303,087 | 56.1 | % | 390,354 | 61.0 | % | ||
| Operating expenses: | ||||||||
| Sales and marketing | 239,656 | 44.3 | % | 255,512 | 39.9 | % | ||
| General and administrative | 36,003 | 6.7 | % | 47,676 | 7.4 | % | ||
| Research and development | 14,786 | 2.7 | % | 14,431 | 2.3 | % | ||
| Total operating expenses | 290,445 | 53.7 | % | 317,619 | 49.6 | % | ||
| Operating income | 12,642 | 2.3 | % | 72,735 | 11.4 | % | ||
| Interest expense, net | 5,606 | 1.0 | % | 1,816 | 0.3 | % | ||
| Income before income taxes | 7,036 | 1.3 | % | 70,919 | 11.1 | % | ||
| Income tax expense | 2,003 | 0.4 | % | 17,198 | 2.7 | % | ||
| Net income | $ | 5,033 | 0.9 | % | $ | 53,721 | 8.4 | % |
| Net income per share – basic | $ | 0.23 | $ | 2.29 | ||||
| Net income per share – diluted | $ | 0.22 | $ | 2.22 | ||||
| Reconciliation of weighted-average shares outstanding: | ||||||||
| Basic weighted-average shares outstanding | 22,218 | 23,464 | ||||||
| Dilutive effect of stock-based awards | 355 | 769 | ||||||
| Diluted weighted-average shares outstanding | 22,573 | 24,233 |
Sleep Number Announces Third-quarter 2022 Results - Page 4 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| Nine Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| October 1,<br>2022 | % of<br>Net Sales | October 2,<br>2021 | % of<br>Net Sales | |||||
| Net sales | $ | 1,616,769 | 100.0 | % | $ | 1,692,965 | 100.0 | % |
| Cost of sales | 686,439 | 42.5 | % | 653,842 | 38.6 | % | ||
| Gross profit | 930,330 | 57.5 | % | 1,039,123 | 61.4 | % | ||
| Operating expenses: | ||||||||
| Sales and marketing | 700,405 | 43.3 | % | 685,123 | 40.5 | % | ||
| General and administrative | 116,049 | 7.2 | % | 131,488 | 7.8 | % | ||
| Research and development | 46,908 | 2.9 | % | 43,633 | 2.6 | % | ||
| Total operating expenses | 863,362 | 53.4 | % | 860,244 | 50.8 | % | ||
| Operating income | 66,968 | 4.1 | % | 178,879 | 10.6 | % | ||
| Interest expense, net | 11,352 | 0.7 | % | 4,400 | 0.3 | % | ||
| Income before income taxes | 55,616 | 3.4 | % | 174,479 | 10.3 | % | ||
| Income tax expense | 13,576 | 0.8 | % | 31,874 | 1.9 | % | ||
| Net income | $ | 42,040 | 2.6 | % | $ | 142,605 | 8.4 | % |
| Net income per share – basic | $ | 1.87 | $ | 5.84 | ||||
| Net income per share – diluted | $ | 1.83 | $ | 5.63 | ||||
| Reconciliation of weighted-average shares outstanding: | ||||||||
| Basic weighted-average shares outstanding | 22,444 | 24,404 | ||||||
| Dilutive effect of stock-based awards | 515 | 920 | ||||||
| Diluted weighted-average shares outstanding | 22,959 | 25,324 |
Sleep Number Announces Third-quarter 2022 Results - Page 5 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
| October 1,<br>2022 | January 1,<br>2022 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,348 | $ | 2,389 |
| Accounts receivable, net of allowances of $1,508 and $924, respectively | 26,747 | 25,718 | ||
| Inventories | 113,554 | 105,644 | ||
| Prepaid expenses | 21,214 | 18,953 | ||
| Other current assets | 34,803 | 54,917 | ||
| Total current assets | 197,666 | 207,621 | ||
| Non-current assets: | ||||
| Property and equipment, net | 199,917 | 195,128 | ||
| Operating lease right-of-use assets | 389,524 | 371,133 | ||
| Goodwill and intangible assets, net | 68,666 | 70,468 | ||
| Deferred income taxes | 6,267 | — | ||
| Other non-current assets | 78,741 | 75,190 | ||
| Total assets | $ | 940,781 | $ | 919,540 |
| Liabilities and Shareholders’ Deficit | ||||
| Current liabilities: | ||||
| Borrowings under revolving credit facility | $ | 406,300 | $ | 382,500 |
| Accounts payable | 199,154 | 162,547 | ||
| Customer prepayments | 95,274 | 129,499 | ||
| Accrued sales returns | 25,651 | 22,368 | ||
| Compensation and benefits | 27,339 | 51,240 | ||
| Taxes and withholding | 31,361 | 22,087 | ||
| Operating lease liabilities | 77,243 | 72,360 | ||
| Other current liabilities | 60,949 | 64,177 | ||
| Total current liabilities | 923,271 | 906,778 | ||
| Non-current liabilities: | ||||
| Deferred income taxes | — | 688 | ||
| Operating lease liabilities | 350,370 | 336,192 | ||
| Other non-current liabilities | 104,611 | 100,835 | ||
| Total non-current liabilities | 454,981 | 437,715 | ||
| Total liabilities | 1,378,252 | 1,344,493 | ||
| Shareholders’ deficit: | ||||
| Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | — | — | ||
| Common stock, $0.01 par value; 142,500 shares authorized, 22,001 and 22,683 shares issued and outstanding, respectively | 220 | 227 | ||
| Additional paid-in capital | 458 | 3,971 | ||
| Accumulated deficit | (438,149) | (429,151) | ||
| Total shareholders’ deficit | (437,471) | (424,953) | ||
| Total liabilities and shareholders’ deficit | $ | 940,781 | $ | 919,540 |
Sleep Number Announces Third-quarter 2022 Results - Page 6 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
| Nine Months Ended | ||||
|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 42,040 | $ | 142,605 |
| Adjustments to reconcile net income to net cash provided by<br><br>operating activities: | ||||
| Depreciation and amortization | 49,342 | 44,786 | ||
| Stock-based compensation | 8,585 | 19,701 | ||
| Net loss (gain) on disposals and impairments of assets | 274 | (20) | ||
| Deferred income taxes | (6,955) | 291 | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (1,029) | (1,517) | ||
| Inventories | (11,080) | (4,767) | ||
| Income taxes | 4,530 | 5,615 | ||
| Prepaid expenses and other assets | 20,082 | (13,879) | ||
| Accounts payable | 28,889 | 51,543 | ||
| Customer prepayments | (34,225) | 35,785 | ||
| Accrued compensation and benefits | (23,735) | (12,725) | ||
| Other taxes and withholding | 4,744 | 7,636 | ||
| Other accruals and liabilities | (1,340) | 17,630 | ||
| Net cash provided by operating activities | 80,122 | 292,684 | ||
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (52,808) | (49,370) | ||
| Proceeds from sales of property and equipment | 49 | 257 | ||
| Net cash used in investing activities | (52,759) | (49,113) | ||
| Cash flows from financing activities: | ||||
| Net increase in short-term borrowings | 34,781 | 132,222 | ||
| Repurchases of common stock | (64,141) | (381,496) | ||
| Proceeds from issuance of common stock | 998 | 3,847 | ||
| Debt issuance costs | (42) | (557) | ||
| Net cash used in financing activities | (28,404) | (245,984) | ||
| Net decrease in cash and cash equivalents | (1,041) | (2,413) | ||
| Cash and cash equivalents, at beginning of period | 2,389 | 4,243 | ||
| Cash and cash equivalents, at end of period | $ | 1,348 | $ | 1,830 |
Sleep Number Announces Third-quarter 2022 Results - Page 7 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | October 1,<br>2022 | October 2,<br>2021 | |||||||||
| Percent of sales: | ||||||||||||
| Retail stores | 86.3 | % | 88.4 | % | 86.7 | % | 87.5 | % | ||||
| Online, phone, chat and other | 13.7 | % | 11.6 | % | 13.3 | % | 12.5 | % | ||||
| Total Company | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
| Sales change rates: | ||||||||||||
| Retail comparable-store sales | (21 | %) | 19 | % | (10 | %) | 32 | % | ||||
| Online, phone and chat | 0 | % | 0 | % | 3 | % | 11 | % | ||||
| Total Retail comparable sales change | (18 | %) | 16 | % | (8 | %) | 28 | % | ||||
| Net opened/closed stores and other | 2 | % | 5 | % | 3 | % | 3 | % | ||||
| Total Company | (16 | %) | 21 | % | (5 | %) | 31 | % | ||||
| Stores open: | ||||||||||||
| Beginning of period | 659 | 621 | 648 | 602 | ||||||||
| Opened | 12 | 18 | 35 | 55 | ||||||||
| Closed | (9) | (7) | (21) | (25) | ||||||||
| End of period | 662 | 632 | 662 | 632 | ||||||||
| Other metrics: | ||||||||||||
| Average sales per store ($ in 000's) 1 | $ | 3,302 | $ | 3,689 | ||||||||
| Average sales per square foot 1 | $ | 1,093 | $ | 1,249 | ||||||||
| Stores > $2 million net sales 2 | 77 | % | 85 | % | ||||||||
| Stores > $3 million net sales 2 | 38 | % | 50 | % | ||||||||
| Average revenue per smart bed unit 3 | $ | 5,083 | $ | 5,021 | $ | 5,416 | $ | 5,045 |
1 Trailing twelve months Total Retail comparable sales per store open at least one year.
2 Trailing twelve months for stores open at least one year (excludes online, phone and chat sales).
3 Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units.
Sleep Number Announces Third-quarter 2022 Results - Page 8 of 9
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
(in thousands)
We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:
| Three Months Ended | Trailing Twelve Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | October 1,<br>2022 | October 2,<br>2021 | |||||
| Net income | $ | 5,033 | $ | 53,721 | $ | 53,181 | $ | 203,964 |
| Income tax expense | 2,003 | 17,198 | 15,247 | 44,294 | ||||
| Interest expense | 5,606 | 1,816 | 13,196 | 5,214 | ||||
| Depreciation and amortization | 17,180 | 14,820 | 64,217 | 59,539 | ||||
| Stock-based compensation | 542 | 7,317 | 12,097 | 25,961 | ||||
| Asset impairments | 95 | 23 | 338 | 154 | ||||
| Adjusted EBITDA | $ | 30,459 | $ | 94,895 | $ | 158,276 | $ | 339,126 |
Free Cash Flow
(in thousands)
| Three Months Ended | Trailing Twelve Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | October 1,<br>2022 | October 2,<br>2021 | |||||
| Net cash provided by operating activities | $ | 51,431 | $ | 131,264 | $ | 87,448 | $ | 285,063 |
| Subtract: Purchases of property and equipment | 16,249 | 17,358 | 70,338 | 58,396 | ||||
| Free cash flow | $ | 35,182 | $ | 113,906 | $ | 17,110 | $ | 226,667 |
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
| Trailing Twelve Months Ended | ||||
|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | |||
| Borrowings under revolving credit facility | $ | 406,300 | $ | 359,100 |
| Outstanding letters of credit | 5,947 | 3,997 | ||
| Finance lease obligations | 450 | 566 | ||
| Consolidated funded indebtedness | $ | 412,697 | $ | 363,663 |
| Capitalized operating lease obligations 1 | 650,742 | 593,034 | ||
| Total debt including capitalized operating lease obligations (a) | $ | 1,063,439 | $ | 956,697 |
| Adjusted EBITDA (see above) | $ | 158,276 | $ | 339,126 |
| Consolidated rent expense | 108,457 | 98,839 | ||
| Consolidated EBITDAR (b) | $ | 266,733 | $ | 437,965 |
| Net Leverage Ratio under revolving credit facility (a divided by b) | 4.0 to 1.0 | 2.2 to 1.0 |
1A multiple of six times annual rent expense is used as an estimate for capitalizing our operating lease obligations in accordance with our credit facility.
Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data and Calculation of Net Leverage Ratio under Revolving Credit Facility are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.
GAAP - generally accepted accounting principles in the U.S.
Sleep Number Announces Third-quarter 2022 Results - Page 9 of 9
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC)
(in thousands)
ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:
| Trailing Twelve Months Ended | ||||||
|---|---|---|---|---|---|---|
| October 1,<br>2022 | October 2,<br>2021 | |||||
| Net operating profit after taxes (NOPAT) | ||||||
| Operating income | $ | 81,625 | $ | 253,472 | ||
| Add: Rent expense 1 | 108,457 | 98,839 | ||||
| Less: Depreciation on capitalized operating leases 2 | (27,784) | (25,030) | ||||
| Less: Income taxes 3 | (36,853) | (78,975) | ||||
| NOPAT | $ | 125,445 | $ | 248,306 | ||
| Average invested capital | ||||||
| Total deficit | $ | (437,471) | $ | (440,066) | ||
| Add: Long-term debt 4 | 406,750 | 359,666 | ||||
| Add: Capitalized operating lease obligations 5 | 867,656 | 790,712 | ||||
| Total invested capital at end of period | $ | 836,935 | $ | 710,312 | ||
| Average invested capital 6 | $ | 791,970 | $ | 717,670 | ||
| Return on invested capital (ROIC) 7 | 15.8 | % | 34.6 | % | ||
| 1 | Rent expense is added back to operating income to show the impact of owning versus leasing the related assets. | |||||
| --- | --- | |||||
| 2 | Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 5) for the respective reporting periods with an assumed thirty-year useful life. This life assumption is based on our long-term participation in given markets though specific retail location lease commitments are generally 5 to 10 years at inception. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets. | |||||
| 3 | Reflects annual effective income tax rates, before discrete adjustments, of 22.7% and 24.1% for October 1, 2022 and October 2, 2021, respectively. | |||||
| 4 | Long-term debt includes existing finance lease liabilities. | |||||
| 5 | A multiple of eight times annual rent expense is used as an estimate for capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency. | |||||
| 6 | Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances. | |||||
| 7 | ROIC equals NOPAT divided by average invested capital. | |||||
| Note - Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. | ||||||
| GAAP - generally accepted accounting principles in the U.S. |