LEXINGTON, Ky., May 2,
2019 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE:
TPX) announced financial results for the first quarter
ended March 31, 2019. The Company also revised its
financial guidance for the full year 2019.
FIRST QUARTER 2019 FINANCIAL
SUMMARY(1)
- Total net sales increased 8.4% to $690.9
million as compared to $637.4 million in
the first quarter of 2018. On a constant currency
basis(2), total net sales increased 10.4%, with an
increase of 12.7% in the North
America business segment and an increase of 3.0% in the
International business segment.
- Gross margin under U.S. generally accepted accounting
principles ("GAAP") was 40.8% as compared
to 41.5% in the first quarter
of 2018.
- GAAP operating income increased 8.6% to $60.5 million
as compared to $55.7 million in the first quarter
of 2018. Operating income in the first quarter of 2019
included $3.3 million of
acquisition-related and other costs. Adjusted operating
income(2) increased 14.5% to $63.8 million as compared to $55.7 million in the first quarter of 2018. The
Company had no adjustments to operating income in
the first quarter of 2018.
- GAAP net income increased 22.9% to $28.4
million as compared to $23.1
million in the first quarter of 2018.
Adjusted net income(2) increased 18.7% to $29.8 million as compared to $25.1 million in the first quarter of 2018.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(2) increased 16.2% to $96.3 million as compared to $82.9
million for the first quarter of 2018. Adjusted
EBITDA(2) increased 8.3% to $92.8
million as compared to $85.7
million in the first quarter of 2018. In the first quarter
of 2019, EBITDA(2) included other income of $7.2 million related to the sale of a certain
interest in the Company's Asia-Pacific joint venture.
EBITDA(2) also included transaction costs of
$3.3 million in the first quarter of
2019.
- GAAP earnings per diluted share ("EPS") increased 21.4% to
$0.51 as compared to
$0.42 in
the first quarter of 2018. Adjusted
EPS(2) increased 17.4% to $0.54 as compared to $0.46 in the first quarter of 2018.
KEY HIGHLIGHTS
(in millions,
except percentages and per common
share amounts)
|
Three Months
Ended
|
|
% Reported
Change
|
|
%
Constant
Currency Change(2)
|
March 31,
2019
|
|
March 31,
2018
|
Net sales
|
$
|
690.9
|
|
|
$
|
637.4
|
|
|
8.4
|
%
|
|
10.4
|
%
|
Net income
|
28.4
|
|
|
23.1
|
|
|
22.9
|
%
|
|
34.6
|
%
|
EBITDA
(2)
|
96.3
|
|
|
82.9
|
|
|
16.2
|
%
|
|
21.1
|
%
|
Adjusted EBITDA
(2)
|
92.8
|
|
|
85.7
|
|
|
8.3
|
%
|
|
13.1
|
%
|
EPS
|
0.51
|
|
|
0.42
|
|
|
21.4
|
%
|
|
33.3
|
%
|
Adjusted EPS
(2)
|
0.54
|
|
|
0.46
|
|
|
17.4
|
%
|
|
28.3
|
%
|
Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "The strength of our
brands and product, supported by the power of our world-wide
omni-distribution strategy, drove our operating results.
North America was a major
highlight with outstanding growth in our Tempur-Pedic products and
a solid performance by Sealy and Stearns & Foster
products. While we recently introduced the most innovative
product suite in our company's history, we will be in market
testing new revolutionary products that we expect will extend our
leadership position. This aligns to our initiative to provide the
most innovative bedding solutions in the world. Additionally, we
continue to make progress toward optimizing our omni-distribution
model, as we expanded both in wholesale and direct channels. A
highlight for the quarter was global direct to consumer which grew
to a record $75 million in the
quarter while expanding margin. This channel represented 11% of
global revenues."
(1) All amounts presented for 2018 reflect reclassifications to
previously reported amounts to adjust for discontinued
operations.
(2) This is a non-GAAP financial measure. Please refer to "Non-GAAP
Financial Measures and Constant Currency Information" below.
Business Segment Highlights
The Company's business segments include North America and International. Corporate
operating expenses are not included in either of the business
segments and are presented separately as a reconciling item to
consolidated results.
North America net
sales increased 12.2% to $544.0 million as
compared to $485.0 million in the first quarter
of 2018. On a constant currency basis(2), North America net sales increased 12.7%
as compared to the first quarter of 2018. GAAP gross
margin was 37.6% as compared to 37.9% in the first quarter of 2018.
GAAP operating margin was 11.8% as compared to 11.1% in the first
quarter of 2018.
North America net sales through
the wholesale channel increased $47.8
million, or 10.5%, to $501.8
million as compared to the first quarter of 2018.
North America net sales through
the direct channel increased $11.2
million, or 36.1%, to $42.2
million, as compared to the first quarter of 2018,
driven primarily by growth from expanded retail stores.
North America gross margin
declined 30 basis points as compared to the first quarter of
2018. The decline was primarily driven by commodity cost inflation,
increased floor model expenses and unfavorable merchandising mix.
These were partially offset by brand mix and favorable pricing.
North America operating margin
improved 70 basis points as compared to the first quarter of 2018.
The improvement in operating margin was driven by operating expense
leverage, which was partially offset by the decline in gross
margin.
International net
sales decreased 3.6% to $146.9 million as compared to $152.4
million in the first quarter of 2018. On a constant
currency basis(2), International net sales increased
3.0% as compared to the first quarter of 2018. GAAP gross margin
was 52.7% as compared to 53.0% in the first quarter of 2018. GAAP
operating margin was 17.2% as compared to 18.8% in the first
quarter of 2018.
International net sales through the wholesale channel decreased
$15.0 million, or 11.6%, to
$114.1 million as compared to the
first quarter of 2018. International net sales through the direct
channel increased $9.5 million, or
40.8%, to $32.8 million as compared
to the first quarter of 2018.
International gross margin declined 30 basis points as compared
to gross margin for the first quarter of 2018. The decline in gross
margin was primarily driven by unfavorable foreign exchange. The
decline was partially offset by operational improvements.
International adjusted operating margin(2) declined 140
basis points as compared to operating margin in the first quarter
of 2018. The decline was driven by operating expense deleverage,
unfavorable performance in the Asia-Pacific joint venture and the decline in
gross margin.
Corporate operating expense increased to $29.0 million as compared to $27.0 million in the first quarter of 2018.
Corporate adjusted operating expense (2) decreased to
$26.0 million as compared to
corporate operating expense of $27.0
million in the first quarter of 2018.
Balance Sheet
As of March 31, 2019, the Company reported $39.6 million in cash and cash equivalents and
$1.7 billion in total debt, as
compared to $45.8 million in cash and
cash equivalents and $1.6 billion in
total debt as of December 31, 2018.
The Company ended the first quarter of 2019 with consolidated
funded debt less qualified cash(2) of $1.7
billion. Leverage based on the ratio of consolidated funded debt
less qualified cash to adjusted
EBITDA(2) was 3.84 times for the trailing
twelve months ended March 31, 2019.
Financial Guidance
The Company revised its financial guidance for 2019. For the
full year 2019, the Company currently expects adjusted
EBITDA(2) to range from $435
million to $475 million, raising the low end of the range
by $10 million, which includes losses
of $5 million to $8 million related to the April 1, 2019 acquisition by Sleep Outfitters
USA, LLC ("Sleep Outfitters"), an
affiliate of the Company. The Company expects Sleep Outfitters will
break even after its first year of operations following its
post-acquisition restructuring.
The Company also noted that its expectations are based on
information available at the time of this release, and are subject
to changing conditions, many of which are outside the Company's
control.
Adjusted EBITDA as used in connection with the Company's 2019
outlook is a non-GAAP financial measure that excludes or has
otherwise been adjusted for items impacting comparability. The
Company is unable to reconcile this forward-looking non-GAAP
financial measures to GAAP net income, its most directly comparable
forward-looking GAAP financial measure, without unreasonable
efforts, because the Company is currently unable to predict with a
reasonable degree of certainty the type and extent of certain items
that would be expected to impact GAAP net income in 2019 but would
not impact adjusted EBITDA. Such items may include restructuring
activities, foreign currency exchange rates, income taxes and other
items. The unavailable information could have a significant
impact on the Company's full year 2019 GAAP financial results.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, May 2, 2019, at
8:00 a.m. Eastern Time. The dial-in
number for the conference call is 800-850-2903. The dial-in number
for international callers is 224-357-2399. The call is also being
webcast and can be accessed on the investor relations section of
the Company's website, http://www.tempursealy.com. After the
conference call, a webcast replay will remain available on the
investor relations section of the Company's website for 30
days.
Non-GAAP Financial Measures and Constant Currency
Information
For additional information regarding EBITDA, adjusted EBITDA,
adjusted EPS, adjusted net income, adjusted operating income
(expense), adjusted operating margin, consolidated funded debt, and
consolidated funded debt less qualified cash (all of which are
non-GAAP financial measures), please refer to the reconciliations
and other information included in the attached schedules. For
information on the methodology used to present information on a
constant currency basis, please refer to "Constant Currency
Information" included in the attached schedules.
Forward-Looking Statements
This press release contains statements that may be characterized
as "forward-looking," within the meaning of the federal securities
laws. Such statements might include information concerning one or
more of the Company's plans, guidance, objectives, goals,
strategies, and other information that is not historical
information. When used in this release, the words "assumes,"
"estimates," "expects," "guidance," "anticipates," "projects,"
"plans," "proposed," "targets," "intends," "believes," "will" and
variations of such words or similar expressions are intended to
identify forward-looking statements. These forward-looking
statements include, without limitation, statements relating to the
Company's expectations regarding EBITDA and adjusted EBITDA for
2019 and performance generally for 2019 and subsequent periods and
the Company's expectations for product launches and market testing
over the new few quarters, increasing sales growth, improving
market position and innovation, expanding direct to consumer
business and ongoing productivity initiatives and relating to the
performance and operational integration of assets acquired by Sleep
Outfitters. Any forward-looking statements contained herein are
based upon current expectations and beliefs and various
assumptions. There can be no assurance that the Company will
realize these expectations, meet its guidance, or that these
beliefs will prove correct.
Numerous factors, many of which are beyond the Company's
control, could cause actual results to differ materially from any
that may be expressed herein as forward-looking statements. These
risk factors include the impact of the macroeconomic environment in
both the U.S. and internationally (including the impact of highly
inflationary economies) on the Company's business segments and
expectations regarding growth of the mattress industry;
uncertainties arising from global events; the effects of strategic
investments on the Company's operations, including efforts to
expand its global market share; the ability to develop and
successfully launch new products; the efficiency and effectiveness
of the Company's advertising campaigns and other marketing
programs; the ability to increase sales productivity within
existing retail accounts and to further penetrate the retail
channel, including the timing of opening or expanding within large
retail accounts and the timing and success of product launches; the
ability to continuously improve and expand the Company's product
line, maintain efficient, timely and cost-effective production and
delivery of products, and manage growth; the effects of
consolidation of retailers on revenues and costs; competition in
the Company's industry; consumer acceptance of the Company's
products; the effects of discontinued operations on the Company's
operating results and future performance; general economic,
financial and industry conditions, particularly conditions relating
to the financial performance and related credit issues present in
the retail sector; financial distress among the Company's business
partners, customers and competitors; financial solvency and related
problems experienced by other market participants; the Company's
ability to execute on its strategy to optimize and integrate iMS
assets acquired by Sleep Outfitters; the Company's reliance on
information technology and associated risks involving potential
security lapses and/or cyber-based attacks; the outcome of pending
tax audits or other tax, regulatory or investigation
proceedings and pending litigation; changes in foreign tax rates
and changes in tax laws generally, including the ability to utilize
tax loss carryforwards; the Company's capital structure and debt
level, including its ability to meet financial obligations and
continue to comply with the terms and financial ratio covenants of
its credit facilities; changes in interest rates; effects of
changes in foreign exchange rates on the Company's reported
earnings; changing commodity costs; disruptions in the supply of
raw materials, or loss of suppliers; expectations regarding our
target leverage and the Company's share repurchase program; sales
fluctuations due to seasonality; the effect of future legislative
or regulatory changes, including changes in international trade
duties, tariffs and other aspects of international trade policy;
the Company's ability to protect its intellectual property; and
disruptions to the implementation of the Company's strategic
priorities and business plan caused by abrupt changes in its
executive management team.
Other potential risk factors include the risk factors discussed
under the heading "Risk Factors" under ITEM 1A of Part 1 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 2018. There may be other factors that may cause
the Company's actual results to differ materially from the
forward-looking statements. The Company undertakes no obligation to
update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made.
About Tempur Sealy International, Inc.
Tempur Sealy International, Inc. develops, manufactures and
markets mattresses, foundations, pillows and other products.
The Company's brand portfolio includes many highly recognized
brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®
featuring Posturepedic® Technology, and Stearns & Foster®.
World headquarters for Tempur Sealy International is in
Lexington, KY. For more
information, visit http://www.tempursealy.com or call
800-805-3635.
Investor Relations Contact:
Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Income
(in millions,
except percentages and per common share amounts)
(unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
March
31,
|
|
Chg
%
|
|
2019
|
|
2018
|
|
|
Net sales
|
$
|
690.9
|
|
|
$
|
637.4
|
|
|
8.4%
|
Cost of
sales
|
409.1
|
|
|
372.7
|
|
|
|
Gross
profit
|
281.8
|
|
|
264.7
|
|
|
6.5%
|
Selling and marketing
expenses
|
153.5
|
|
|
145.4
|
|
|
|
General,
administrative and other expenses
|
70.7
|
|
|
67.5
|
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(2.9)
|
|
|
(3.9)
|
|
|
|
Operating
income
|
60.5
|
|
|
55.7
|
|
|
8.6%
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
Interest expense,
net
|
22.4
|
|
|
22.7
|
|
|
|
Other income,
net
|
(7.8)
|
|
|
(2.6)
|
|
|
|
Total other expense,
net
|
14.6
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income taxes
|
45.9
|
|
|
35.6
|
|
|
28.9%
|
Income tax
provision
|
(16.9)
|
|
|
(10.0)
|
|
|
|
Income from
continuing operations
|
29.0
|
|
|
25.6
|
|
|
13.3%
|
Loss from
discontinued operations, net of tax
|
(0.4)
|
|
|
(2.8)
|
|
|
|
Net income before
non-controlling interest
|
28.6
|
|
|
22.8
|
|
|
25.4%
|
Less: Net income
(loss) attributable to non-controlling interest
|
0.2
|
|
|
(0.3)
|
|
|
|
Net income
attributable to Tempur Sealy International, Inc.
|
$
|
28.4
|
|
|
$
|
23.1
|
|
|
22.9%
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
Earnings per share
for continuing operations
|
$
|
0.53
|
|
|
$
|
0.48
|
|
|
|
Loss per share for
discontinued operations
|
(0.01)
|
|
|
(0.05)
|
|
|
|
Earnings per
share
|
$
|
0.52
|
|
|
$
|
0.43
|
|
|
20.9%
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
Earnings per share
for continuing operations
|
$
|
0.52
|
|
|
$
|
0.47
|
|
|
|
Loss per share for
discontinued operations
|
(0.01)
|
|
|
(0.05)
|
|
|
|
Earnings per
share
|
$
|
0.51
|
|
|
$
|
0.42
|
|
|
21.4%
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
|
54.7
|
|
|
54.3
|
|
|
|
Diluted
|
55.7
|
|
|
54.9
|
|
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(in
millions)
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
39.6
|
|
|
$
|
45.8
|
|
Accounts
receivable, net
|
356.4
|
|
|
321.5
|
|
Inventories
|
239.7
|
|
|
222.3
|
|
Prepaid
expenses and other current assets
|
217.3
|
|
|
215.8
|
|
Total Current
Assets
|
853.0
|
|
|
805.4
|
|
Property, plant and equipment, net
|
418.5
|
|
|
420.8
|
|
Goodwill
|
725.5
|
|
|
723.0
|
|
Other
intangible assets, net
|
646.9
|
|
|
649.3
|
|
Operating lease
right-of-use assets
|
191.9
|
|
|
—
|
|
Deferred
income taxes
|
21.9
|
|
|
22.6
|
|
Other
non-current assets
|
108.0
|
|
|
94.3
|
|
Total
Assets
|
$
|
2,965.7
|
|
|
$
|
2,715.4
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
245.7
|
|
|
$
|
253.0
|
|
Accrued
expenses and other current liabilities
|
401.8
|
|
|
359.2
|
|
Current
portion of long-term debt
|
55.5
|
|
|
47.1
|
|
Income
taxes payable
|
22.5
|
|
|
9.7
|
|
Total Current
Liabilities
|
725.5
|
|
|
669.0
|
|
Long-term debt, net
|
1,604.1
|
|
|
1,599.1
|
|
Long-term operating
lease obligations
|
157.2
|
|
|
—
|
|
Deferred
income taxes
|
115.5
|
|
|
117.5
|
|
Other
non-current liabilities
|
109.9
|
|
|
112.3
|
|
Total
Liabilities
|
2,712.2
|
|
|
2,497.9
|
|
|
|
|
|
Total Stockholders'
Equity
|
253.5
|
|
|
217.5
|
|
Total Liabilities and
Stockholders' Equity
|
$
|
2,965.7
|
|
|
$
|
2,715.4
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(in
millions)
(unaudited)
|
|
|
|
Three Months
Ended
|
|
March
31,
|
|
2019
|
|
2018
|
CASH FLOWS FROM
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Net income before
non-controlling interest
|
$
|
28.6
|
|
|
$
|
22.8
|
|
Loss from
discontinued operations, net of tax
|
0.4
|
|
|
2.8
|
|
Adjustments to
reconcile net income from continuing operations to net cash
provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
21.5
|
|
|
20.8
|
|
Amortization of
stock-based compensation
|
6.6
|
|
|
6.3
|
|
Non-cash lease
expense
|
0.8
|
|
|
—
|
|
Amortization of
deferred financing costs
|
0.6
|
|
|
0.6
|
|
Bad debt
expense
|
1.6
|
|
|
1.3
|
|
Deferred income
taxes
|
(1.8)
|
|
|
0.1
|
|
Dividends received
from unconsolidated affiliates
|
1.3
|
|
|
1.6
|
|
Equity income in
earnings of unconsolidated affiliates
|
(2.9)
|
|
|
(3.9)
|
|
Loss on disposal of
assets
|
0.2
|
|
|
0.2
|
|
Foreign currency
adjustments and other
|
(6.7)
|
|
|
(3.9)
|
|
Changes in operating
assets and liabilities
|
(45.6)
|
|
|
(47.8)
|
|
Net cash provided by
operating activities from continuing operations
|
4.6
|
|
|
0.9
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Purchases of
property, plant and equipment
|
(19.1)
|
|
|
(21.8)
|
|
Debtor-in-possession
financing arrangement
|
(9.5)
|
|
|
—
|
|
Other
|
8.3
|
|
|
4.2
|
|
Net cash used in
investing activities from continuing operations
|
(20.3)
|
|
|
(17.6)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
212.6
|
|
|
417.1
|
|
Repayments of
borrowings under long-term debt obligations
|
(198.7)
|
|
|
(394.8)
|
|
Proceeds from
exercise of stock options
|
2.4
|
|
|
1.9
|
|
Treasury stock
repurchased
|
(3.7)
|
|
|
(2.9)
|
|
Other
|
(1.6)
|
|
|
(1.8)
|
|
Net cash provided by
financing activities from continuing operations
|
11.0
|
|
|
19.5
|
|
|
|
|
|
Net cash (used in)
provided by continuing operations
|
(4.7)
|
|
|
2.8
|
|
|
|
|
|
CASH USED IN
DISCONTINUED OPERATIONS:
|
|
|
|
Operating cash flows,
net
|
(0.7)
|
|
|
(10.6)
|
|
Investing cash flows,
net
|
—
|
|
|
—
|
|
Financing cash flows,
net
|
—
|
|
|
—
|
|
Net cash used in
discontinued operations
|
(0.7)
|
|
|
(10.6)
|
|
|
|
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(0.8)
|
|
|
0.4
|
|
Decrease in cash and
cash equivalents
|
(6.2)
|
|
|
(7.4)
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
45.8
|
|
|
41.9
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
39.6
|
|
|
34.5
|
|
LESS: CASH AND CASH
EQUIVALENTS OF DISCONTINUED OPERATIONS
|
—
|
|
|
1.1
|
|
CASH AND CASH
EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
39.6
|
|
|
$
|
33.4
|
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by business segment, for the three months ended March 31, 2019 and 2018:
|
Three Months Ended
March 31,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Wholesale
(a)
|
$
|
615.9
|
|
|
$
|
583.1
|
|
|
$
|
501.8
|
|
|
$
|
454.0
|
|
|
$
|
114.1
|
|
|
$
|
129.1
|
|
Direct
(b)
|
75.0
|
|
|
54.3
|
|
|
42.2
|
|
|
31.0
|
|
|
32.8
|
|
|
23.3
|
|
|
$
|
690.9
|
|
|
$
|
637.4
|
|
|
$
|
544.0
|
|
|
$
|
485.0
|
|
|
$
|
146.9
|
|
|
$
|
152.4
|
|
|
|
(a)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality and healthcare.
|
(b)
|
The Direct channel
includes company-owned stores, e-commerce and call
centers.
|
TEMPUR SEALY INTERNATIONAL, INC. AND
SUBSIDIARIES
Reconciliation of Non-GAAP Financial
Measures
(in millions, except percentages, ratios and
per common share amounts)
The Company provides information regarding adjusted net income,
adjusted EPS, adjusted operating income (expense), adjusted
operating margin, EBITDA, adjusted EBITDA, consolidated funded debt
and consolidated funded debt less qualified cash, which are not
recognized terms under GAAP and do not purport to be alternatives
to net income, earnings per share, operating income (expense) and
operating margin as a measure of operating performance or an
alternative to total debt as a measure of liquidity. The Company
believes these non-GAAP financial measures provide investors with
performance measures that better reflect the Company's underlying
operations and trends, providing a perspective not immediately
apparent from net income, operating income (expense) and operating
margin. The adjustments management makes to derive the non-GAAP
financial measures include adjustments to exclude items that may
cause short-term fluctuations in the nearest GAAP financial
measure, but which management does not consider to be the
fundamental attributes or primary drivers of the Company's
business.
The Company believes that exclusion of these items assists in
providing a more complete understanding of the Company's underlying
results from continuing operations and trends, and management uses
these measures along with the corresponding GAAP financial measures
to manage the Company's business, to evaluate its consolidated and
business segment performance compared to prior periods and the
marketplace, to establish operational goals and to provide
continuity to investors for comparability purposes. Limitations
associated with the use of these non-GAAP financial measures
include that these measures do not present all of the amounts
associated with the Company\'s results as determined in accordance
with GAAP. These non-GAAP financial measures should be considered
supplemental in nature and should not be construed as more
significant than comparable financial measures defined by GAAP.
Because not all companies use identical calculations, these
presentations may not be comparable to other similarly titled
measures of other companies. For more information about these
non-GAAP financial measures and a reconciliation to the nearest
GAAP financial measure, please refer to the reconciliations on the
following pages.
Constant Currency Information
In this press release the Company refers to, and in other press
releases and other communications with investors the Company may
refer to, net sales, earnings or other historical financial
information on a "constant currency basis," which is a non-GAAP
financial measure. These references to constant currency basis do
not include operational impacts that could result from fluctuations
in foreign currency rates. To provide information on a constant
currency basis, the applicable financial results are adjusted based
on a simple mathematical model that translates current period
results in local currency using the comparable prior corresponding
period's currency conversion rate. This approach is used for
countries where the functional currency is the local country
currency. This information is provided so that certain financial
results can be viewed without the impact of fluctuations in foreign
currency rates, thereby facilitating period-to-period comparisons
of business performance.
Adjusted Net Income and Adjusted EPS
A reconciliation of GAAP net income to adjusted net income and a
calculation of adjusted EPS are provided below. Management believes
that the use of these non-GAAP financial measures provides
investors with additional useful information with respect to the
impact of various adjustments as described in the footnotes at the
end of this release.
The following table sets forth the reconciliation of the
Company's GAAP net income to adjusted net income and a calculation
of adjusted EPS for the three months ended March 31,
2019 and 2018:
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
March 31,
2019
|
|
March 31,
2018
|
GAAP net
income
|
$
|
28.4
|
|
|
$
|
23.1
|
|
Loss from
discontinued operations, net of tax (1)
|
0.4
|
|
|
2.8
|
|
Gain on sale
(2)
|
(7.2)
|
|
|
—
|
|
Acquisition-related
costs and other (3)
|
3.3
|
|
|
—
|
|
Tax adjustments
(4)
|
4.9
|
|
|
(0.8)
|
|
Adjusted net
income
|
$
|
29.8
|
|
|
$
|
25.1
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
0.54
|
|
|
$
|
0.46
|
|
|
|
|
|
Diluted shares
outstanding
|
55.7
|
|
|
54.9
|
|
Adjusted Operating Income (Expense) and Operating
Margin
A reconciliation of GAAP operating income (expense) and
operating margin to adjusted operating income (expense) and
adjusted operating margin, respectively, are provided below.
Management believes that the use of these non-GAAP financial
measures provides investors with additional useful information with
respect to the impact of various adjustments as described in the
footnotes at the end of this release.
The following table sets forth the Company's reported GAAP gross
profit and the reconciliation of the Company's reported GAAP
operating income (expense) and operating margin to the calculation
of adjusted operating income (expense) and adjusted operating
margin for the three months ended March 31, 2019. The Company
had no adjustments to GAAP gross profit for the three months ended
March 31, 2019.
|
1Q
2019
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
690.9
|
|
|
|
|
$
|
544.0
|
|
|
|
|
$
|
146.9
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
281.8
|
|
|
40.8
|
%
|
|
$
|
204.4
|
|
|
37.6
|
%
|
|
$
|
77.4
|
|
|
52.7
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
60.5
|
|
|
8.8
|
%
|
|
$
|
64.3
|
|
|
11.8
|
%
|
|
$
|
25.2
|
|
|
17.2
|
%
|
|
$
|
(29.0)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
costs and other (3)
|
3.3
|
|
|
|
|
—
|
|
|
|
|
0.3
|
|
|
|
|
3.0
|
|
Adjusted operating
income (expense)
|
$
|
63.8
|
|
|
9.2
|
%
|
|
$
|
64.3
|
|
|
11.8
|
%
|
|
$
|
25.5
|
|
|
17.4
|
%
|
|
$
|
(26.0)
|
|
The following table sets forth the Company's reported GAAP gross
profit and operating income (expense) for the three months ended
March 31, 2018. The Company had no adjustments to GAAP gross
profit or operating income (expense) for the three months ended
March 31, 2018.
|
1Q
2018
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
637.4
|
|
|
|
|
$
|
485.0
|
|
|
|
|
$
|
152.4
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
264.7
|
|
|
41.5
|
%
|
|
$
|
184.0
|
|
|
37.9
|
%
|
|
$
|
80.7
|
|
|
53.0
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
55.7
|
|
|
8.7
|
%
|
|
$
|
54.0
|
|
|
11.1
|
%
|
|
$
|
28.7
|
|
|
18.8
|
%
|
|
$
|
(27.0)
|
|
EBITDA, Adjusted EBITDA and Consolidated Funded Debt Less
Qualified Cash
The following reconciliations are provided below:
- GAAP net income to EBITDA and adjusted EBITDA
- Ratio of consolidated funded debt less qualified cash to
adjusted EBITDA
- Total debt to consolidated funded debt less qualified cash
Management believes that presenting these non-GAAP measures
provides investors with useful information with respect to the
Company's operating performance and comparisons from period to
period, as well as general information about the Company's progress
in reducing its leverage.
The following table sets forth the reconciliation of the
Company's reported GAAP net income to the calculations of EBITDA
and adjusted EBITDA for the three months ended March 31,
2019 and 2018:
|
Three Months
Ended
|
(in
millions)
|
March 31,
2019
|
|
March 31,
2018
|
GAAP net
income
|
$
|
28.4
|
|
|
$
|
23.1
|
|
Interest expense,
net
|
22.4
|
|
|
22.7
|
|
Income
taxes
|
16.9
|
|
|
10.0
|
|
Depreciation and
amortization
|
28.6
|
|
|
27.1
|
|
EBITDA
|
$
|
96.3
|
|
|
$
|
82.9
|
|
Adjustments:
|
|
|
|
Loss from
discontinued operations, net of tax (1)
|
0.4
|
|
|
2.8
|
|
Other income
(2)
|
(7.2)
|
|
|
—
|
|
Acquisition-related
costs and other (3)
|
3.3
|
|
|
—
|
|
Adjusted
EBITDA
|
$
|
92.8
|
|
|
$
|
85.7
|
|
The following table sets forth the reconciliation of the
Company's net income to the calculations of EBITDA and adjusted
EBITDA for the trailing twelve months ended March 31,
2019:
|
Trailing Twelve
Months Ended
|
(in
millions)
|
March 31,
2019
|
GAAP net
income
|
$
|
105.8
|
|
Interest expense,
net
|
92.0
|
|
Income
taxes
|
56.5
|
|
Depreciation and
amortization
|
115.2
|
|
EBITDA
|
$
|
369.5
|
|
Adjustments:
|
|
Loss from
discontinued operations, net of tax (1)
|
15.4
|
|
Restructuring costs
(5)
|
22.3
|
|
Customer-related
charges (6)
|
21.2
|
|
Supply chain
transition costs (7)
|
7.3
|
|
Other income
(2)
|
(7.2)
|
|
Acquisition-related
costs and other (3)
|
3.3
|
|
Adjusted
EBITDA
|
$
|
431.8
|
|
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,660.2
|
|
|
|
Ratio of consolidated
funded debt less qualified cash to adjusted EBITDA
|
3.84 times
|
|
Under the Company's senior secured credit agreement entered into
during 2016 ("2016 Credit Agreement"), the definition of adjusted
EBITDA contains certain restrictions that limit adjustments to GAAP
net income when calculating adjusted EBITDA. For the twelve months
ended March 31, 2019, the Company's adjustments to GAAP net
income when calculating adjusted EBITDA did not exceed the
allowable amount under the 2016 Credit Agreement.
The ratio of adjusted EBITDA under the 2016 Credit Agreement to
consolidated funded debt less qualified cash is 3.84 times for the
trailing twelve months ended March 31, 2019. The 2016 Credit
Agreement requires the Company to maintain a ratio of consolidated
funded debt less qualified cash to adjusted EBITDA of less than
5.00:1.00 times.
The following table sets forth the reconciliation of the
Company's reported total debt to the calculation of consolidated
funded debt less qualified cash as of March 31, 2019.
"Consolidated funded debt" and "qualified cash" are terms used in
the 2016 Credit Agreement for purposes of certain financial
covenants.
(in
millions)
|
March 31,
2019
|
Total debt,
net
|
$
|
1,659.6
|
|
Plus: Deferred
financing costs (8)
|
7.2
|
|
Total debt
|
1,666.8
|
|
Plus: Letters of
credit outstanding
|
23.2
|
|
Consolidated funded
debt
|
$
|
1,690.0
|
|
Less:
|
|
Domestic qualified
cash (9)
|
19.4
|
|
Foreign qualified
cash (9)
|
10.4
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,660.2
|
|
Footnotes:
|
|
(1)
|
Certain subsidiaries
in the International business segment are accounted for as
discontinued operations and have been designated as unrestricted
subsidiaries in the 2016 Credit Agreement. Therefore, these
subsidiaries are excluded from the Company's adjusted financial
measures for covenant compliance purposes.
|
(2)
|
The Company recorded
$7.2 million of other income related to the sale of its interest in
a subsidiary of the Asia-Pacific joint venture.
|
(3)
|
The Company recorded
$3.3 million of acquisition-related and other costs, primarily
related to professional fees for the acquisition of substantially
all of the assets of Innovative Mattress Solutions ("iMS") by Sleep
Outfitters.
|
(4)
|
Tax adjustments
represent adjustments associated with the aforementioned items and
other discrete income tax events.
|
(5)
|
In 2018, the Company
recorded $24.9 million of restructuring costs, including $2.6
million of depreciation expense. These costs included $11.5 million
of charges related to the operational alignment of a joint venture
that was wholly acquired in the North America business segment,
including $2.6 million of depreciation expense and $1.3 million of
other expense, net. Restructuring costs also included $8.5 million
of expenses in the International business segment related to
International simplification efforts, including headcount
reduction, professional fees and store closures, and $4.9 million
of Corporate professional fees related to restructuring
activities.
|
(6)
|
On January 11,
2019, iMS, a customer of the Company, filed a voluntary petition in
U.S. Bankruptcy Court for the Eastern District of Kentucky seeking
relief under Chapter 11 of the U.S. Bankruptcy Code. In the
fourth quarter of 2018, the Company recorded charges of
$21.2 million associated with certain iMS-related assets on
the Company's Consolidated Balance Sheet as of December 31, 2018,
primarily made up of trade and other receivables, to fully reserve
this account.
|
(7)
|
In 2018, the Company
recorded $7.3 million of supply chain transition costs which
represent charges incurred to consolidate certain manufacturing and
distribution facilities, including $0.8 million of other
expense.
|
(8)
|
The Company presents
deferred financing costs as a direct reduction from the carrying
amount of the related debt in the Condensed Consolidated Balance
Sheets. For purposes of determining total debt for financial
covenant purposes, the Company has added these costs back to total
debt, net as calculated per the Condensed Consolidated Balance
Sheets.
|
(9)
|
Qualified cash as
defined in the 2016 Credit Agreement equals 100.0% of unrestricted
domestic cash plus 60.0% of unrestricted foreign cash. For purposes
of calculating leverage ratios, qualified cash is capped at $150.0
million.
|
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SOURCE Tempur Sealy International, Inc.