8-K
Sleep Number Corp (SNBR)
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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): February 22, 2024
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 2.02 | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
|---|
On February 22, 2024, Sleep Number issued a press release announcing results for the fiscal fourth quarter and full year ended December 30, 2023. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS. |
|---|
(d) Exhibits.
| Exhibit No. | Description of Exhibit |
|---|---|
| 99.1 | Press Release dated February 22, 2024 |
| 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: February 22, 2024 | 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 FOURTH QUARTER AND FULL YEAR 2023 RESULTS
•Fourth quarter net sales declined 14% versus the prior year with demand down low-single digits
•Full year diluted loss per share of $0.68; full year “as adjusted” loss per share of $0.14, excluding $16 million of restructuring costs recorded in the fourth quarter
•Reduced operating expenses by $85 million in 2023; expect a further expense reduction of $40 million to $45 million in 2024 for a two-year total reduction of approximately $130 million (before restructuring costs)
•Expect 2024 adjusted EBITDA of $125 million to $145 million
MINNEAPOLIS – (February 22, 2024) – Sleep Number Corporation (Nasdaq: SNBR) today reported results for the year ended December 30, 2023.
“While the consumer environment remains challenging for the mattress industry, our swift actions to improve demand and reduce costs allowed us to make better progress in the fourth quarter than we expected,” said Shelly Ibach, Chair, President and CEO. “Through broad-based restructuring actions to streamline our cost structure, restore margins and strengthen our balance sheet, we are transforming our operating model to improve our financial resilience and position our business for accelerating growth as the mattress industry demand environment improves. Importantly, our long-term opportunity remains intact as we lead through this transformation.”
Fourth Quarter Overview
•Net sales decreased 14% to $430 million, with demand down low-single digits year-over-year
•Gross margin of 56.6% was up 190 bp versus the prior year, primarily benefiting from pricing actions, easing commodity prices and operating cost reductions, partially offset by increased promotions
•Operating expenses were reduced by $24 million to $247 million (before restructuring charges) compared with $271 million last year
•Loss per diluted share of $1.12; “as adjusted” diluted loss per share of $0.58, excluding $16 million of restructuring costs recorded in the fourth quarter
Full Year Overview
•Net sales decreased 11% to $1.89 billion in 2023
•Gross margin increased to 57.7% of net sales, compared with 56.9% for the prior year, including the benefit of pricing actions, easing commodity prices and other cost reduction initiatives
•Loss per diluted share of $0.68; “as adjusted” diluted loss per share of $0.14, excluding $16 million of restructuring costs recorded in the fourth quarter
Cash Flows and Liquidity Review
•Net cash used in operating activities of $9 million, compared with $36 million of cash provided by operating activities last year
•Leverage ratio of 4.1x EBITDAR at the end of the fourth quarter versus covenant maximum of 5.0x
•Adjusted ROIC of 7.8% for the trailing twelve months
Business Restructuring Update
•The company’s broad-based cost management initiatives are progressing as planned. Operating expenses were reduced by $85 million in 2023, with $40 million to $45 million of additional operating expense reductions planned for 2024
•Reduced workforce to approximately 4,100 team members at end of 2023, 7% lower than 2019
•Expect specific ongoing workstreams including product value engineering, service simplification, streamlining suppliers and reprioritizing spend to accelerate near-term growth and efficiency
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 2 of 11
Financial Outlook
The company expects mattress industry demand to remain pressured in 2024. Against this backdrop, the company expects adjusted EBITDA of $125 million to $145 million in 2024, with net sales down mid-single digits versus prior year on a low-single digit demand decline. The company expects approximately 100 basis points of gross margin rate improvement and $12 million of restructuring charges for the year. The company expects to generate $60 million to $80 million of free cash flow with capital expenditures of $30 million.
Conference Call Information
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) 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.
About Sleep Number Corporation
Sleep Number is a wellness technology company. We are guided by our purpose to improve the health and wellbeing of society through higher quality sleep; to date, our innovations have improved over 15 million lives. Our wellness technology platform helps solve sleep problems, whether it’s providing individualized temperature control for each sleeper through our Climate360® smart bed or applying our 24 billion hours of longitudinal sleep data and expertise to research with global institutions.
Our smart bed ecosystem drives best-in-class engagement through dynamic, adjustable, and effortless sleep with personalized digital sleep and health insights; our millions of Smart Sleepers are loyal brand advocates. And our almost 4,100 mission-driven team members passionately innovate to drive value creation through our vertically integrated business model, including our exclusive direct-to-consumer selling in over 650 stores and online.
To learn more about life-changing, individualized sleep, visit a Sleep Number store near you, our newsroom. and investor relations sites, or SleepNumber.com
Forward-looking Statements
Statements used in this news release relating to future plans, events, financial results or performance, such as the statement that the company is positioned for accelerating growth as the bedding industry demand environment improves and the company’s financial outlook, including the company’s expected adjusted EBITDA, in 2024 and future capital expenditures and operating expenses, are forward-looking statements subject to certain risks and uncertainties including, among others, changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending; increases in interest rates, which have increased the cost of servicing our indebtedness; availability of attractive and cost-effective consumer credit options; ability to achieve savings and efficiencies from cost savings plans related to operating model transformation and to avoid unexpected adverse effects; dependence on, and ability to maintain working relationships with key suppliers and third parties; fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures; risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics, labor challenges, foreign currency fluctuations, inflation, and climate or other disasters, and resulting supply shortages and production and delivery delays and disruptions; operating with minimal levels of inventory, which may leave us vulnerable to supply shortages; the effectiveness of our marketing strategy and promotional efforts; the execution of our Total Retail distribution strategy; ability to achieve and maintain high levels of product quality and to improve and expand the product line; ability to protect our technology, trademarks, and brand and the adequacy of our intellectual property rights; ability to effectively compete; risks of disruption in the operation of our facilities and operations, including manufacturing, assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer service operations; ability to comply with existing and changing government regulations and laws; pending or unforeseen litigation and the potential for associated adverse publicity; the adequacy of the company’s and third-party information systems and costs and disruptions related to upgrading or maintaining these systems; our ability to identify and withstand cyber threats that could compromise the security of our systems, result in a data breach or business disruption; risks associated with advancements in or adoption of artificial intelligence technologies; our ability, and the ability of our suppliers and vendors, to attract, retain and motivate qualified and effective personnel; the volatility of Sleep Number stock, our removal from various stock indices, and the potential negative effects of shareholder activism or of changes in coverage by securities analysts; environmental, social and governance risks, including increasing regulation and stakeholder expectations; and our ability to adapt to climate change and readiness for legal or regulatory responses thereto. Additional information concerning these and other risks and uncertainties is contained in the company’s filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K and other periodic reports. We have no obligation to publicly update or revise any of these forward-looking statements.
#
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; julie.elepano@sleepnumber.com
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 3 of 11
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 30,<br>2023 | % of<br>Net Sales | December 31,<br>2022 | % of<br>Net Sales | |||||
| Net sales | $ | 429,518 | 100.0 | % | $ | 497,528 | 100.0 | % |
| Cost of sales | 186,609 | 43.4 | % | 225,562 | 45.3 | % | ||
| Gross profit | 242,909 | 56.6 | % | 271,966 | 54.7 | % | ||
| Operating expenses: | ||||||||
| Sales and marketing | 198,032 | 46.1 | % | 219,224 | 44.1 | % | ||
| General and administrative | 35,477 | 8.3 | % | 37,217 | 7.5 | % | ||
| Research and development | 13,276 | 3.1 | % | 14,613 | 2.9 | % | ||
| Restructuring costs | 15,728 | 3.7 | % | — | — | % | ||
| Total operating expenses | 262,513 | 61.1 | % | 271,054 | 54.5 | % | ||
| Operating (loss) income | (19,604) | (4.6 | %) | 912 | 0.2 | % | ||
| Interest expense, net | 12,687 | 3.0 | % | 7,633 | 1.5 | % | ||
| Loss before income taxes | (32,291) | (7.5 | %) | (6,721) | (1.4 | %) | ||
| Income tax benefit | (7,103) | (1.7 | %) | (1,291) | (0.3 | %) | ||
| Net loss | $ | (25,188) | (5.9 | %) | $ | (5,430) | (1.1 | %) |
| Net loss per share – basic | $ | (1.12) | $ | (0.24) | ||||
| Net loss per share – diluted | $ | (1.12) | $ | (0.24) | ||||
| Reconciliation of weighted-average shares outstanding: | ||||||||
| Basic weighted-average shares outstanding | 22,483 | 22,249 | ||||||
| Dilutive effect of stock-based awards | — | — | ||||||
| Diluted weighted-average shares outstanding | 22,483 | 22,249 |
For the three months ended December 30, 2023 and December 31, 2022, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 4 of 11
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| Twelve Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 30,<br>2023 | % of<br>Net Sales | December 31,<br>2022 | % of<br>Net Sales | |||||
| Net sales | $ | 1,887,482 | 100.0 | % | $ | 2,114,297 | 100.0 | % |
| Cost of sales | 798,952 | 42.3 | % | 912,001 | 43.1 | % | ||
| Gross profit | 1,088,530 | 57.7 | % | 1,202,296 | 56.9 | % | ||
| Operating expenses: | ||||||||
| Sales and marketing | 847,442 | 44.9 | % | 919,629 | 43.5 | % | ||
| General and administrative | 146,621 | 7.8 | % | 153,266 | 7.2 | % | ||
| Research and development | 55,797 | 3.0 | % | 61,521 | 2.9 | % | ||
| Restructuring costs | 15,728 | 0.8 | % | — | — | % | ||
| Total operating expenses | 1,065,588 | 56.5 | % | 1,134,416 | 53.7 | % | ||
| Operating income | 22,942 | 1.2 | % | 67,880 | 3.2 | % | ||
| Interest expense, net | 42,695 | 2.3 | % | 18,985 | 0.9 | % | ||
| (Loss) income before income taxes | (19,753) | (1.0 | %) | 48,895 | 2.3 | % | ||
| Income tax (benefit) expense | (4,466) | (0.2 | %) | 12,285 | 0.6 | % | ||
| Net (loss) income | $ | (15,287) | (0.8 | %) | $ | 36,610 | 1.7 | % |
| Net (loss) income per share – basic | $ | (0.68) | $ | 1.63 | ||||
| Net (loss) income per share – diluted | $ | (0.68) | $ | 1.60 | ||||
| Reconciliation of weighted-average shares outstanding: | ||||||||
| Basic weighted-average shares outstanding | 22,429 | 22,396 | ||||||
| Dilutive effect of stock-based awards | — | 456 | ||||||
| Diluted weighted-average shares outstanding | 22,429 | 22,852 |
For the year ended December 30, 2023, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 5 of 11
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
| December 30,<br>2023 | December 31,<br>2022 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 2,539 | $ | 1,792 |
| Accounts receivable, net of allowances of $1,437 and $1,267, respectively | 26,859 | 26,005 | ||
| Inventories | 115,433 | 114,034 | ||
| Prepaid expenses | 16,660 | 16,006 | ||
| Other current assets | 44,637 | 39,921 | ||
| Total current assets | 206,128 | 197,758 | ||
| Non-current assets: | ||||
| Property and equipment, net | 179,503 | 200,605 | ||
| Operating lease right-of-use assets | 395,411 | 397,755 | ||
| Goodwill and intangible assets, net | 66,634 | 68,065 | ||
| Deferred income taxes | 20,253 | 7,958 | ||
| Other non-current assets | 82,951 | 81,795 | ||
| Total assets | $ | 950,880 | $ | 953,936 |
| Liabilities and Shareholders’ Deficit | ||||
| Current liabilities: | ||||
| Borrowings under revolving credit facility | $ | 539,500 | $ | 459,600 |
| Accounts payable | 135,901 | 176,207 | ||
| Customer prepayments | 49,143 | 73,181 | ||
| Accrued sales returns | 22,402 | 25,594 | ||
| Compensation and benefits | 28,273 | 31,291 | ||
| Taxes and withholding | 17,134 | 23,622 | ||
| Operating lease liabilities | 81,760 | 79,533 | ||
| Other current liabilities | 61,958 | 60,785 | ||
| Total current liabilities | 936,071 | 929,813 | ||
| Non-current liabilities: | ||||
| Operating lease liabilities | 351,394 | 356,879 | ||
| Other non-current liabilities | 105,343 | 105,421 | ||
| Total non-current liabilities | 456,737 | 462,300 | ||
| Total liabilities | 1,392,808 | 1,392,113 | ||
| Shareholders’ deficit: | ||||
| Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | — | — | ||
| Common stock, $0.01 par value; 142,500 shares authorized, 22,235 and 22,014 shares issued and outstanding, respectively | 222 | 220 | ||
| Additional paid-in capital | 16,716 | 5,182 | ||
| Accumulated deficit | (458,866) | (443,579) | ||
| Total shareholders’ deficit | (441,928) | (438,177) | ||
| Total liabilities and shareholders’ deficit | $ | 950,880 | $ | 953,936 |
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 6 of 11
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
| Twelve Months Ended | ||||
|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | |||
| Cash flows from operating activities: | ||||
| Net (loss) income | $ | (15,287) | $ | 36,610 |
| Adjustments to reconcile net income to net cash provided by<br><br>operating activities: | ||||
| Depreciation and amortization | 74,043 | 67,401 | ||
| Stock-based compensation | 14,855 | 13,223 | ||
| Net loss on disposals and impairments of assets | 2,898 | 291 | ||
| Deferred income taxes | (12,295) | (8,646) | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (854) | (287) | ||
| Inventories | (1,399) | (11,560) | ||
| Income taxes | (5,969) | 1,356 | ||
| Prepaid expenses and other assets | (5,220) | 19,379 | ||
| Accounts payable | (28,934) | (4,743) | ||
| Customer prepayments | (24,038) | (56,318) | ||
| Accrued compensation and benefits | (2,943) | (19,821) | ||
| Other taxes and withholding | (519) | 179 | ||
| Other accruals and liabilities | (3,366) | (926) | ||
| Net cash (used in) provided by operating activities | (9,028) | 36,138 | ||
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (57,056) | (69,454) | ||
| Proceeds from sales of property and equipment | 21 | 49 | ||
| Issuance of notes receivable | (1,317) | — | ||
| Investment in non-marketable equity securities | — | (1,202) | ||
| Net cash used in investing activities | (58,352) | (70,607) | ||
| Cash flows from financing activities: | ||||
| Net increase in short-term borrowings | 73,463 | 97,647 | ||
| Repurchases of common stock | (3,747) | (64,188) | ||
| Proceeds from issuance of common stock | 428 | 1,131 | ||
| Debt issuance costs | (2,017) | (718) | ||
| Net cash provided by financing activities | 68,127 | 33,872 | ||
| Net increase (decrease) in cash and cash equivalents | 747 | (597) | ||
| Cash and cash equivalents, at beginning of period | 1,792 | 2,389 | ||
| Cash and cash equivalents, at end of period | $ | 2,539 | $ | 1,792 |
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 7 of 11
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | December 30,<br>2023 | December 31,<br>2022 | |||||||||
| Percent of sales: | ||||||||||||
| Retail stores | 85.9 | % | 84.8 | % | 86.8 | % | 86.3 | % | ||||
| Online, phone, chat and other | 14.1 | % | 15.2 | % | 13.2 | % | 13.7 | % | ||||
| Total Company | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
| Sales change rates: | ||||||||||||
| Retail comparable-store sales | (14 | %) | (3 | %) | (12 | %) | (8 | %) | ||||
| Online, phone and chat | (20 | %) | 10 | % | (15 | %) | 4 | % | ||||
| Total Retail comparable sales change | (15 | %) | (1 | %) | (12 | %) | (6 | %) | ||||
| Net opened/closed stores and other | 1 | % | 2 | % | 1 | % | 3 | % | ||||
| Total Company | (14 | %) | 1 | % | (11 | %) | (3 | %) | ||||
| Stores open: | ||||||||||||
| Beginning of period | 678 | 662 | 670 | 648 | ||||||||
| Opened | 9 | 14 | 36 | 49 | ||||||||
| Closed | (15) | (6) | (34) | (27) | ||||||||
| End of period | 672 | 670 | 672 | 670 | ||||||||
| Other metrics: | ||||||||||||
| Average sales per store ($ in 000's) 1 | $ | 2,853 | $ | 3,281 | ||||||||
| Average sales per square foot 1 | $ | 926 | $ | 1,081 | ||||||||
| Stores > $2 million net sales 2 | 65 | % | 76 | % | ||||||||
| Stores > $3 million net sales 2 | 24 | % | 36 | % | ||||||||
| Average revenue per smart bed unit 3 | $ | 5,541 | $ | 5,361 | $ | 5,755 | $ | 5,403 |
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 Fourth-quarter and Full-year 2023 Results - Page 8 of 11
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, restructuring costs 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 | |||||||
|---|---|---|---|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | December 30,<br>2023 | December 31,<br>2022 | |||||
| Net (loss) income | $ | (25,188) | $ | (5,430) | $ | (15,287) | $ | 36,610 |
| Income tax (benefit) expense | (7,103) | (1,291) | (4,466) | 12,285 | ||||
| Interest expense | 12,687 | 7,633 | 42,695 | 18,985 | ||||
| Depreciation and amortization | 17,984 | 17,843 | 72,479 | 66,626 | ||||
| Stock-based compensation | 3,982 | 4,638 | 14,855 | 13,223 | ||||
| Restructuring costs 1 | 15,728 | — | 15,728 | — | ||||
| Asset impairments | 198 | 17 | 672 | 295 | ||||
| Adjusted EBITDA | $ | 18,288 | $ | 23,410 | $ | 126,676 | $ | 148,024 |
1 Represents costs related to business restructuring actions initiated in the fourth quarter of fiscal 2023.
Free Cash Flow
(in thousands)
| Three Months Ended | Trailing Twelve Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | December 30,<br>2023 | December 31,<br>2022 | |||||
| Net cash (used in) provided by operating activities | $ | (40,844) | $ | (43,984) | $ | (9,028) | $ | 36,138 |
| Subtract: Purchases of property and equipment | 9,034 | 16,646 | 57,056 | 69,454 | ||||
| Free cash flow | $ | (49,878) | $ | (60,630) | $ | (66,084) | $ | (33,316) |
Note - Our Adjusted EBITDA calculations and Free Cash Flow data 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 Fourth-quarter and Full-year 2023 Results - Page 9 of 11
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
Our calculation of Net Leverage Ratio under Revolving Credit Facility was changed effective with the amendment of our credit facility on November 2, 2023. Prior to the amendment, the calculation included capitalized operating lease obligations based on a multiple of six times annual rent expense. The amendment replaced this line item with operating lease liabilities included in our financial statements under ASC 842. The calculations in accordance with the November 2, 2023 amendment are presented below. The prior year is presented in conformity with the November 2, 2023 amendment.
| Trailing Twelve Months Ended | ||||
|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | |||
| Borrowings under revolving credit facility | $ | 539,500 | $ | 459,600 |
| Outstanding letters of credit | 7,147 | 5,947 | ||
| Finance lease obligations | 319 | 420 | ||
| Consolidated funded indebtedness | $ | 546,966 | $ | 465,967 |
| Operating lease liabilities 1 | 433,154 | 436,412 | ||
| Total debt including operating lease liabilities (a) | $ | 980,120 | $ | 902,379 |
| Adjusted EBITDA (see above) | $ | 126,676 | $ | 148,024 |
| Consolidated rent expense | 113,801 | 110,657 | ||
| Consolidated EBITDAR (b) | $ | 240,477 | $ | 258,681 |
| Net Leverage Ratio under revolving credit facility (a divided by b) | 4.1 to 1.0 | 3.5 to 1.0 |
1Reflects operating lease liabilities included in our financial statements under ASC 842. The prior period has been updated to reflect this calculation.
Note - Our Net Leverage Ratio under Revolving Credit Facility, Adjusted EBITDA and EBITDAR calculations 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 Fourth-quarter and Full-year 2023 Results - Page 10 of 11
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (Adjusted ROIC)
(in thousands)
Adjusted ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. We compute Adjusted ROIC as outlined below. Our definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:
| Trailing Twelve Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 30,<br>2023 | December 31,<br>2022 | |||||
| Adjusted net operating profit after taxes (Adjusted NOPAT) | ||||||
| Operating income | $ | 22,942 | $ | 67,880 | ||
| Add: Operating lease interest 1 | 27,777 | 25,912 | ||||
| Less: Income taxes 2 | (11,851) | (23,542) | ||||
| Adjusted NOPAT | $ | 38,868 | $ | 70,250 | ||
| Average adjusted invested capital | ||||||
| Total deficit | $ | (441,928) | $ | (438,177) | ||
| Add: Long-term debt 3 | 539,819 | 460,020 | ||||
| Add: Operating lease liabilities 4 | 433,154 | 436,412 | ||||
| Total adjusted invested capital at end of period | $ | 531,045 | $ | 458,255 | ||
| Average adjusted invested capital 5 | $ | 496,612 | $ | 400,038 | ||
| Adjusted ROIC 6 | 7.8 | % | 17.6 | % | ||
| 1 | Represents the interest expense component of lease expense included in our financial statements under ASC 842, Leases. | |||||
| --- | --- | |||||
| 2 | Reflects annual effective income tax rates, before discrete adjustments, of 23.4% and 25.1% for December 30, 2023 and December 31, 2022, respectively. | |||||
| 3 | Long-term debt includes existing finance lease liabilities. | |||||
| 4 | Reflects operating lease liabilities included in our financial statements under ASC 842. | |||||
| 5 | Average adjusted invested capital represents the average of the last five fiscal quarters' ending adjusted invested capital balances. | |||||
| 6 | Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital. | |||||
| Note - the Company's adjusted 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. The Company updated its Adjusted ROIC calculation effective beginning with the reporting period ended December 31, 2022, to reflect adjustments consistent with ASC 842. | ||||||
| GAAP - generally accepted accounting principles in the U.S. |
Sleep Number Announces Fourth-quarter and Full-year 2023 Results - Page 11 of 11
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 30, 2023 | December 31, 2022 | |||||||
| As<br>Reported | Restructuring Costs 1 | As<br>Adjusted | As<br>Reported | |||||
| Operating (loss) income | $ | (19,604) | $ | 15,728 | $ | (3,876) | $ | 912 |
| Interest expense, net | 12,687 | — | 12,687 | 7,633 | ||||
| (Loss) income before income taxes | (32,291) | 15,728 | (16,563) | (6,721) | ||||
| Income tax (benefit) expense 2 | (7,103) | 3,680 | (3,423) | (1,291) | ||||
| Net (loss) income | $ | (25,188) | $ | 12,048 | $ | (13,140) | $ | (5,430) |
| Net (loss) income per share: | ||||||||
| Basic | $ | (1.12) | $ | 0.54 | $ | (0.58) | $ | (0.24) |
| Diluted | $ | (1.12) | $ | 0.54 | $ | (0.58) | $ | (0.24) |
| Basic Shares | 22,483 | 22,483 | 22,483 | 22,249 | ||||
| Diluted Shares | 22,483 | 22,483 | 22,483 | 22,249 | ||||
| Twelve Months Ended | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 30, 2023 | December 31, 2022 | |||||||
| As<br>Reported | Restructuring Costs 1 | As<br>Adjusted | As<br>Reported | |||||
| Operating income | $ | 22,942 | $ | 15,728 | $ | 38,670 | $ | 67,880 |
| Interest expense, net | 42,695 | — | 42,695 | 18,985 | ||||
| (Loss) income before income taxes | (19,753) | 15,728 | (4,025) | 48,895 | ||||
| Income tax (benefit) expense 2 | (4,466) | 3,680 | (786) | 12,285 | ||||
| Net (loss) income | $ | (15,287) | $ | 12,048 | $ | (3,239) | $ | 36,610 |
| Net (loss) income per share: | ||||||||
| Basic | $ | (0.68) | $ | 0.54 | $ | (0.14) | $ | 1.63 |
| Diluted | $ | (0.68) | $ | 0.54 | $ | (0.14) | $ | 1.60 |
| Basic Shares | 22,429 | 22,429 | 22,429 | 22,396 | ||||
| Diluted Shares | 22,429 | 22,429 | 22,429 | 22,852 |
1 Represents costs related to business restructuring actions initiated in the fourth quarter of fiscal 2023.
2 Reflects annual effective income tax rate, before discrete adjustments, of 23.4%.
Note - Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts.
GAAP - generally accepted accounting principles