Hello, everyone. Thank you for joining us and welcome to the Somni Group Business Update Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I'll now hand the conference over to Lauren Averitt, Director of Investor Relations. Lauren, please go ahead.

Thank you, Operator. Good morning and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President, and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the state charter provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filing, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statement. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release which has been posted on the company's website at www.somnigroup.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. And with that, it's my pleasure to turn the call over to Scott.

Good morning. Thank you for joining us on our third quarter 2026 earnings call. I'll begin with a review of the quarterly highlights before turning the call over to Bhaskar who will discuss our financial results and our 2026 earnings outlook in greater detail. Although a bit below our expectations, we are pleased to report that in the third quarter, against a cautious consumer backdrop and ongoing macroeconomic uncertainties, we delivered record net sales of $2.4 billion, record adjusted EBITDA of $448 million and record adjusted EPS of $1.04 a share. a 10% increase from the third quarter of 2025. These results reflect our brand strength, our diversified global business model, and consistent disciplined execution across the global operations. Our first highlight is the successful combination of Leggett and Platt in late August, an important milestone that deepened our vertical integration, secured a critical part of our supply chain, and further strengthened Somni Group's competitive position. Building on nearly 50 years of collaboration, we've unified complementary businesses that share a commitment to serving customers and advancing product innovation. The combination brings together Leggett & Platt's deep expertise in component engineering with Somni Group's scale, consumer reach and portfolio of industry-leading brands. creating new opportunities to accelerate innovation and capture opportunities across the supply chain. The addition of Leggett and Platt also further diversifies Somni Group's global sales and enhances our manufacturing capacity with a combined 160 manufacturing facilities across 35 countries worldwide. Our second highlight is the performance of Leggett and Platt, which delivered solid results during the step period through operational execution and discipline cost management. The business generally held up well against a challenging demand backdrop. We experienced strength in trade, rod, and wire, and geotextiles, which offset ongoing softness across residential end markets and automotive. Our third highlight is our mattress innovation pipeline, showcasing several upcoming launches that we believe will enhance Tempur-Sealy's portfolio, support our retail partners, and further differentiate our brands in the betting category. We continue to invest in innovative features and benefits in order to deliver insight-driven solutions that elevate our brands. The new Stearns and Foster lineup launched in the third quarter builds on the 180-year legacy of superior comfort, quality, and craftsmanship by introducing new innovative features across the portfolio along with an expanded product lineup. The collection incorporates enhancements across cooling, coil support, and hybrid construction. In addition to the new technology, Stearns and Foster will continue to feature the proprietary IntelliCoil inner spring made by Leggett and Platt to create greater transparency and confidence for consumers at the point of purchase We're incorporating Leg & Platte Interspring branding on the exterior of the new mattress products. We believe this approach helps to highlight the value of the technologies inside the mattress, helping customers better understand the quality of the components beneath the surface and reinforce that what is inside the mattress truly matters. We've also evolved the Stearns and Foster assortment to create greater differentiation across our brand portfolio and a more natural transition between Sealy and Stearns and Foster while preserving differentiation and Tempur-Pedic. We believe these changes will strengthen Stearns and Foster's position in the luxury segment, support higher average selling price for our wholesale partners, and create additional opportunities to expand the brand's presence across the retail landscape. The collection has generated significant excitement among our retail partners, and the launch began in the late third quarter and will continue through early 2027. We're supporting the launch with new national marketing creative that highlights the brand's heritage, elevates design, and the important role quality materials are to improving sleep and plays well into the health and wellness trend. While advertising has moderated across the broader betting category, we continue to see significant value in keeping our brands top of mind with consumers and driving traffic to our retail partners. It's early in the launch, but where Stearns and Foster products have been placed, we're seeing strong retail sales. We expect a total estimated slot gain of approximately 6% from competitive brands. returning to our 2027 product pipeline. In addition to the core collection that we launched the third quarter, we are preparing to launch a new Stearns and Foster Heritage Collection in late 2027. Positioned above the national line, this ultra premium collection is designed to widen the brand's appeal among luxury consumers. Price range for a queen is $7,499 to $10,000 999, and is expected to be margin accretive in terms of rate and dollars. We're also preparing to launch our next generation Tempur-Pedic Breeze in March, supported by New Marketing Creative. Breeze is the industry leader in premium cooling and sleep performance, and the new lineup expands our leadership with significant new innovation. Most importantly, the new temper material innovation called Temper Cool Relief. which brings together our advanced pressure relieving and all-night temperature regulation. The new breeze is designed to be the coolest and most pressure relieving ever. Early retail response in the lineup is very positive and initial production is already underway. Our next highlight is the continued strength of our legacy Tempur International business which delivered high single-digit growth outperforming the broader industry. Our legacy international business delivered another quarter of strong performance, benefiting from the continued strength of the Tempra brand, disciplined investments in marketing and product innovation, and strong execution across the market. Our business continues to benefit from the strategic investments we've made over the last couple of years in expanding our addressable market, broadening our consumer reach, and increasing our overall distribution. Let me take a minute to address DREAM's performance during the quarter, which we are fully accountable for. DREAM's experienced an unexpected decline in reported sales of approximately 35%. Effective July 1, DREAM's completed the rollout of a new ERP platform, replacing 25-year-old legacy system across manufacturing, warehousing, and retail operations. Think of this as a total replacement of the enterprise IT system. In some cases, moving off Excel worksheets to a modern IT system. Following the system go live, the platform required typical post-implementation fine tuning, while teams adjusted to new workflows and reporting processes. This resulted in temporary operational disruption, including manufacturing delays, extended delivery times, which caused conversion rates to decline both in-store and online and of course resulted in poor customer satisfaction and lost orders. Transitioning from a legacy infrastructure to a modern ERP system was necessary for long-term growth and enhanced security but the near-term execution fell short of our plan. We've reallocated resources to get things back on track These and other efforts have resulted in meaningful progress to date. All in all, we estimate the cost of about 50 million in sales and 25 million in adjusted EBITDA versus prior year. We expect to have this behind us in early first quarter 2027 and return to historical operating levels subject to market conditions. We routinely execute technology transitions across for Global Business, investing to maintain and enhance security of our systems to build capabilities to facilitate future growth and efficiencies. The vast majority of these transitions are completed without disruption. This one was an outlier. I was in the UK with the SGI CIO a few weeks ago, and we feel good about the team's progress. Turning to our fifth highlight, Mattress Room continues to perform well. supported by its leading retail brand awareness, established operating infrastructure, and proven retail model. The strategic merchandising actions that we've taken this year, including the recent expansion of Kingsdown to 800 stores nationwide, continues to resonate with consumers. Combined with the investments in refreshing selective stores, the installation of temper brand walls across all 2100 locations, and ongoing enhancements to our differentiated selling process. These initiatives have elevated the customer experience and further strengthened Mattress Firm's competitive position. Building on our commitment to improve the consumer experience, Mattress Firm has announced enhanced component qualification standards designed to ensure consumers receive high quality products. Under this initiative, key materials and components are evaluated against more rigorous performance and durability standards. And Leggett & Platt's Innerspring Systems and ECS's Foams are among some others have been qualified under these enhanced requirements. As consumers become increasingly informed about the quality and the construction of the products they purchase, we believe this approach provides greater transparency, reinforces confidence, and the sleep solution offered on our floor and helps ensure customers receive the quality and value that they expect at that price point. In addition to our relentless focus on improving the consumer's experience within the existing doors, we see a compelling opportunity to begin in 2027 to leverage Mattress Firm's proven retail model and strong brand awareness to pursue a disciplined multi-year store expansion strategy that will further extend mattress firms' retail footprint. Our approach will be methodical and data-driven, with a focus on optimizing store placement and strengthening our presence in attractive markets, beginning with a modest number of openings and steadily ramping up in the years ahead. We see the opportunity to grow over time are Mattress Firm store count to more than 2,500 locations. Beyond the benefit to Mattress Firm as a standalone business, expanding our footprint also creates incremental sales opportunities for brands carried on the Mattress Firm floor, including Kemper, Stearns and Foster, and Sealy, as well as the component manufacturer, including Leggett Platt. We estimate an average payback period per store of approximately One year and a half when you look at the benefits on an enterprise-wide basis. Our final highlight is the strength of our temporary North America business, which continues to perform well. Our strong product portfolio, disciplined brand investment, focused on execution, and growing share of distribution within mattress firms help drive another quarter of solid performance. Our well-positioned portfolio of premium brands and products continue to experience solid consumer demand. We continue to see encouraging improvement in our direct channel performance benefiting from initiatives implemented earlier this year to simplify the customer journey, increase conversion, and enhance our overall shopping experience. These efforts, together with the strength of our portfolio, contributed to our improved performance. We were especially encouraged by the performance of our temporary retail stores during the quarter, which delivered low double digit same store sales growth and demonstrated the continued appeal of the temporary retail experience. We remain focused on supporting our third party retail partners through continued investment in advertising, product innovation, customer engagement. Importantly, we continue to invest behind our brands helping to keep our brands top of mind with consumers and drive traffic to our retail partners.

With that, I'll turn the call over to Bhaskar. Thank you, Scott. Before discussing our financial results, I would like to briefly address our updated reporting structure following the completion of the Leggett acquisition. Leggett will be reported as a single consolidated reportable segment with Insomnia Group. consistent with our other reporting segments, Tempur-Sealy, North America, Tempur-Sealy International, and Mattress Firm. Additionally, to better reflect how we manage and evaluate Somnigroup, we have updated our channel reporting framework. Going forward, we will report results across three channels, direct bedding, wholesale bedding and furnishings, and specialized products. The direct bedding channel includes sales to consumers through our company-owned retail stores and websites consisting of branded and private label bedding products. The wholesale bedding and furnishing channel includes sales to third-party bedding retailers and other manufacturers consisting of branded bedding products, private label bedding products and components, as well as furniture components, private label furniture, textile and geo components and flooring products. The specialized products channel includes sales to automotive manufacturers and material handling and heavy construction industries consisting of automotive comfort and in-car motion systems, hydraulic cylinders, and other engineered products. With that background, let me turn to our record third quarter financial results. In the third quarter of 2026, Consolidated sales were a record $2.4 billion. And adjusted earnings per share was $1.04, up 10% over the prior year. This was the best performing quarter in the company's history. We have approximately $82 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are largely comprised of professional fees and transaction-related costs associated with the acquisition of Leggett, including transition and other one-time costs incurred to support the combination. Since the transaction closed on August 26, our third quarter results include Leggett's financial and operating performance from the closing date through the end of the third quarter. As a reminder, we have now fully lapped The mattress firm acquisition in the first quarter of this year. And we have lapped the related divestitures of Sleep Outfitters and mattress firm retail locations in the second quarter of this year. For comparative purposes, we will present like-for-like commentary for Tempur-Sealy North America on a standalone basis, which will include intercompany sales to mattress firm. We will also present like-for-like commentary for Leggett on a standalone basis, which will include the intercompany sales to other Somni Group segments. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $1 billion in the third quarter and same-source sales declined 2% and on a reported basis declined 6% primarily driven by software online sales. Mattress Firm adjusted gross margins decreased 100 basis points to 34.6% driven by investments in mattress firm stores and consumer financing costs, partially offset by cost synergies. Mattress firm adjusted operating margins increased approximately 20 basis points to 9.6%, driven by increased cooperative advertising dollars, partially offset by declining gross margin. Turning to Leggett's results. Net sales through Leggett were $373 million in the third quarter, which reflects a partial quarter following the acquisition close in late August, net of the elimination of sales to other Somni Group business segments. Sales through the wholesale bedding and furnishings channel were $272 million and sales through the specialized channel were $101 million. For the full quarter, including the period prior to the acquisition, Leket's sales were $973 million on a like-for-like basis. including sales to other Somni Group business segments. For the partial quarter following the acquisition, Leggett's reported adjusted gross margin was 21.9% and Leggett's reported adjusted operating margin was 11%. I should note that September is a seasonally high period for Leggett, turning to Tempur-Sealy, North America. Sales declined 4% on a like-for-like basis. like-for-like net sales through the wholesale betting and furnishings channel declined 5%, and net sales through our direct betting channel increased 2%. We achieved $25 million of net benefit from sales and cost synergies from mattress firm acquisition in the third quarter. We also received approximately $20 million in tariff refunds, which reduced cost of goods sold. The timing of these refunds was accelerated relative to our original expectation that they would be received in the fourth quarter. This benefit effectively offset the unexpected performance of dreams that Scott discussed earlier, resulting in a neutral enterprise-wide impact for these one-time items. Our third quarter was also pressured by elevated transportation costs, resulting in a headwind of approximately $5 million to our third quarter results relative to our expectations. North America adjusted gross margins increased a robust 690 basis points to 65.5%, principally driven by tariff refunds and the achievement of synergies, partially offset by the elevated transportation costs I mentioned a moment ago. North America adjusted operating margins improved 450 basis points to 34%, driven by the improvement in gross margin, partially offset by investments in cooperative advertising. Now turning to Tempur-Sealy International results, international net sales declined 12% on a reported basis and a constant currency basis, largely due to transitory ERP disruptions, a dream. As Scott mentioned a moment ago, our international results excluding the transitory ERP issue reflect the continued strength of our legacy international business. Our international gross margins declined 360 basis points to 45.5%, principally driven by the transitory dreams, headwind, and mix. Our international operating margin declined 870 points to 9.4%, driven by the deleverage and the decline in gross margin. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the third quarter, consolidated debt, less cash with $5 billion, and our leverage ratio was 2.7 times, reflecting our strong cash generation, disciplined approach to capital allocation and the deleveraging impact of acquiring Leggett with 100% stock. Turning to cash flow performance. In a muted market, we delivered robust operating cash flow of $349 million and free cash flow of 290, even after approximately $35 million of cash transaction costs. Now turning to our 26 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Tempur-Sealy and Mattress Firm, which we expect to represent approximately 24% of global Tempur-Sealy 2026 sales. Our guidance also considers the elimination of intercompany sales between Leggett and other Somni Group segments, which we expect to represent 6.5% of Leggett's 2026 sales. Intercompany eliminations in accordance with GAAP will reduce temporary sales but will be margin accretive and neutral to dollars of operating profit. We expect adjusted earnings per share to be between $2.85 and $2.95 for the full year. This guidance range contemplates a sales midpoint of approximately $8.65 billion after intercompany eliminations. Our annual guidance also reflects our updated expectation that the global betting industry will be down mid-single digits in the back half of the year. At Tempur-Sealy North America, like-for-like sales are flattish. International business sales are flattish with expected sequential improvement in dreams trends from the third to fourth quarter. Like-for-like matches firm sales down low single digits. and for like-for-like Leggett sales in the fourth quarter to be approximately $875 million after intercompany elimination. Legacy SGI gross margin is expected to be approximately 45% driven by operational efficiencies including synergies and operating leverage, partially offset by the impact of pricing. With the inclusion of Leggett, we expect reported gross margin slightly above 41%. Somnigroup expects to occur approximately $50 million of annualized non-cash expense from the adjustment to fair value of the acquired legate business, which will primarily impact cost of goods sold, and approximately $10 million of annualized non-cash expense from the adjustment to fair value of the acquired legate bonds, which will impact interest expense. The company anticipates these non-cash items will be financial adjustments in accordance with the terms of our credit facility and computing adjusted EPS. Our 2026 outlook also contemplates our assumption for temporary sealing brands and private labels to be in the mid 60% of mattress firms total sales. This represents about an incremental $65 million of adjusted EBITDA benefit for 26 compared to 25. and approximately $680 million of advertising investment. This all results in an estimated adjusted EBITDA for 2026 of $1.4 billion at the midpoint of our guidance. Regarding capital expenditures, we expect 26 CapEx of approximately $255 million, including CapEx of $75 million under our Mattress Firm Store Refresh and Brand Wall program. We expect CapEx to normalize to $300 million in future years. We believe this level of investment is appropriate to support continued growth, innovation, and operational excellence across our portfolio of businesses. Now I'd like to flag a few modeling items. For the full year 26, we expect DNA of approximately $330 million, interest expense of approximately $240 million, a tax rate of 25%, with a diluted share count of 220 million shares for the full year and 233 million shares for the fourth quarter. With that, I will turn the call back over to Scott.

Thank you, Bhaskar. Great job. In closing, there's no doubt the industry is not yet normalized. The headwinds were a bit more than we expected, plus we had an unexpected IT implementation issue at Dreams. Even so, our third quarter results reflect the strength of our business model, the dedication of our teams, and the benefits of our strategic investments we've made across the organization. Our competitive advantages and investment thesis are strong, and we believe we're well-positioned for long-term success. I think it's clear to see that we're using the industry's downturn to build a global powerhouse in betting that we believe is uniquely positioned for significant success as the industry normalizes. While the industry remains pressured by global conflicts and the related impact on consumer confidence, we are generating significant free cash flow, enhancing our competitive position, and driving efficiencies. Importantly, we're not just waiting for the industry to recover. We're looking ahead. We have a clear set of initiatives largely within our control that we expect will drive adjusted EPS growth in 2027. First, we expect the IT operational disruption and dreams to correct. Second, we expect to continue to gain share across our businesses. At Tempur-Sealy, we're launching innovative new products, including new Stearns and Foster lineup and the next generation Tempur-Pedic Breeze. At Mattress Firm, We expect to continue to drive same-store outperformance and to ramp our new store growth strategy. And as part of Somnigroup, we believe Leggett & Platt is well positioned to outperform its markets. As just one example, we expect their share of U.S. spring market to expand in 2027. Third, we have meaningful synergies and efficiency opportunities ahead of us. Our synergy opportunities for 2027 and beyond represent approximately 125 million of incremental adjusted EBITDA with additional legged opportunities that we're just now starting to quantify. We also expect to capture meaningful savings as we execute the redesign of our U.S. logistics network. Lastly, we're continuing to carefully consider acquisition opportunities. The current environment has certainly created more opportunities. Taken together, these strategic programs and our core competitive advantages position us to continue growing earnings, even if there is a flattish industry environment, all while we build an enterprise that has meaningful additional upside as the industry normalizes. That concludes our prepared remarks. Operator, please open the call up for questions.

We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. Once your question has been answered, you may press star one to rejoin the queue. To withdraw your question, press star one again. We ask that you pick up your handset with asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Susan McCleary from Goldman Sachs. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Thanks for all the details on the call. I want to focus a bit on the consumer Can you talk about how the business performed in the quarter? And are you seeing any changes since we've moved past the midterm elections? And what that could mean for Black Friday and demand into the end of this year and maybe even early into 2027?

Thank you, Susan, for your question. And Bhaskar wrote them all down to remind me of your five questions you slipped in. Talking about the third quarter, third quarter started relatively weak, then improved during the quarter to result in the numbers that you've seen. So a little improvement throughout the quarter. If you're talking about post close at the end of third quarter into the fourth quarter, I think we would describe our order book and same store sales at mattress firm Slightly better than we reported, but that's generally because it's a weaker comp in the fourth quarter. So no significant change in business, but a little bit of a weaker comp. On the really near term, and we'll call it post-election impact and obviously significant changes in Washington, I think it's too early. I can't say we've seen anything significant. I do think that the foundation of the last part of your questions is very good because I do think that it's a possible good for the marketplace to have a change in Washington, probably a focus on housing. And I think that may benefit us in 27. And obviously any positive impact on the wars that are going on globally. certainly have an impact on the Fed and interest rates. So I would say slightly more positive incrementally with some of the near-term changes from a business standpoint, but can't say we've really seen anything in the marketplace.

Your next question comes from Pedro Gill with Morgan Stanley. Your line is open. Please go ahead.

Good morning. Scott Bhaskar. Thank you for taking my question. I'd like to ask you about the launch of Stearns and Foster. How is the launch tracking relative to your expectations? What is the best way for us to think about the opportunity in terms of the incremental floor slots next year, the revenue contribution? And is it possible that some of the weakness that we've seen in the third quarter in wholesale in Denver City, North America wholesale is related to retailers perhaps holding back the orders a little bit in anticipation of the new product in the fourth quarter. And some of that may get recaptured as we go into the end of the year.

Sure. Thank you for your question. Stearns and Foster launch is going well to what I call very well. Where it's placed, its velocity has been very good and it's come out of the gate strong. It's a Not fully placed. It'll be placed in the fourth quarter and probably finished by the early first quarter-ish, give or take, Bhaskar. At Mattress Firm, it has record balance of share. So, you know, from just an execution standpoint, an early sell-through looks very good. Yeah, there's no question, you know, when you do these launches, retailers have to burn through the old stock. And so there is some weakness there. that you would expect to be felt in the third quarter relative anticipation of the launch. As far as I think, and it's one of the more interesting things, we can point to incremental slots. And these aren't slots trading between Seeley and Stearns and Foster. These are incremental slots from competition that we've been assigned from third-party retailers and call it 6% is on the books today. And I think with the strength of the launch and advertising support from Mattress Firm, it's possible that the incremental slots increase, which is great to see because Stearns and Foster is not fully distributed in the U.S. where Sealy and Tempur really are fully distributed. So seeing incremental gains there is good for the brand. It's also addresses some people's issues that bring up whether or not we're getting support from third-party retailers. I think we have clear evidence of that standpoint. As far as the incrementality of the product, Bhaskar, do you have any comments on that?

We're very excited about the opportunity. As Scott said, it's about 6% lift from a slot standpoint. We'd also anticipate some slot velocity improvement on the existing slots. And if you think about it just holistically is, Many years ago, we identified Sterns as a white space opportunity being the next billion-dollar brand, and this is a good continuation from a strategy standpoint. There's a consumer out there that wants a high-end sleeping experience, but with more traditional feel.

And the other thing we should highlight, it was in the prepared remarks, is we'll call it the premium products coming out in Sterns later in 2027. and that's really a new area that's getting us some called almost super premium products that we don't really address in spring format. We address it in the temper brand, but not in the springs market. So that's going after the super high end and that should be incremental business and should be incremental slots that we'll be talking about later in 2027.

Your next question comes from Bobby Griffin with Raymond James. Your line is open. Please go ahead.

Good morning, guys. Thanks for taking the questions. I was hoping Bhaskar or Scott or both you guys could spend a little time maybe just unpacking what changed versus two months ago. I think there was about a 20 cent reduction at the midpoint for the guys. and then Bhaskar as we think about next year I understand you don't you know I'm not asking you to call the industry yet it's almost impossible to call but there is a lot of moving parts that wrap in the next year so I just want to make sure we have those you have the legate accretion which I think you guys previously talked about 30 to 40 cents with 10 cents this year you got additional mattress from synergies at 50 million you got some legate synergies that we could pick a number on and then you have the ERP issue that I think you said you expect to largely get back. Is there anything else there when we're trying to think about this bridge to EPS growth that we should be considering and anything you could put around that?

Yeah, let me start with the bridge, Bobby, and great, great question. You know, if you look at the midpoint of the 26 guidance, we'll call that $2.90. and then I think you as you called out then there's the wraparound effect of the accretion from the legate combination and incrementally that wraparound another 25 cents onto the 290 for 26 and then the scheduled realization of the synergies that we've talked about that is about another 25 cents in 27 And so the way I think about it is it's basically 290 plus 25 for wraparound leg at 25 cents for synergies and so-called a run rate exit that we're targeting for 27 of $3.40. And that's the way we're thinking about the reconciliation of it. And I'll go ahead and address the question because someone's going to ask about the 515, which is our targeted aspirational EPS for 2028. And somebody will put in their calculator $3.40 and work off the compound growth rate to get to the 515. And that's a 23% growth rate over the two-year period. If you go back and look at the 515, you know, we gave revenue assumptions during that. And it was built off of, we'll call it a 24% EPS growth to start with. So we're still kind of tracking to the 550. But clearly, we're having to use different levers in the business to hit those numbers. And it's good because in the original projection, we had some conservative assumptions on capital allocation and expense reductions. And our revenue assumption ended up being a little sporty. So we're going to continue to work on those levers. But I think that's the reconciliation. Bobby's asking about guide to guide. Do you want to walk into that?

Absolutely. So versus prior expectations, where we were leaving the second quarter, just a couple of things. One is, again, as Scott mentioned, completely accountable, but dreams. Dreams was worse than expected. From a quantification standpoint, it's about $25 million of EBITDA for the entirety of the back half. And that's, again, versus expectations. In addition to that, we've called out some transportation inflation in all of our BUs, principally associated with the price of gasoline, petroleum, diesel, and how that runs through our supply chain versus our previous expectations. That is about $15 million when you think about all of our BUs. And then as I think about transportation inflation and this inflation overall, as we always do, the industry always does, is that we evaluate where we are. Is this a transitory item or is this something that's going to stick around for a while? To the extent it sticks around for a while, what the industry has historically done is put price in the system and we'll go through that evaluation. And then finally, what I would call out is just around the edges, the industry just a bit softer than what we had expected. So you put all that together, you get to where we were versus where we are. Again, principally, it's around dreams and a bit of transportation inflation.

Your next question comes from Raif Jadrozic with Bank of America. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my question. I just wanted to follow up on that last one on some of the cost inflation. Can you talk about how price costs trended basically through the year, like where you were in 2Q, 3Q, what you're expecting for 4Q? Do you expect to announce additional pricing to offset that incremental inflation that you talked about? And if I know commodities are moving around a lot, but heading into next year, are we now covered going into next year where you expect price costs to be neutral or would that take additional pricing? Thank you.

I'll let Bhaskar clean me up a little bit on some of the details, but I guess the way I think about it is right now we're incurring some extra costs that we have not passed on to customers, which is normal. You know the industry well. We absorb costs for a while. If those costs stick, then we have a price increase, and that's consistent with both us and the industry. So as we sit here today, we've got some extra costs that haven't been passed on. If something doesn't change, and obviously things could change rapidly with some of the global issues, then I would anticipate that we would have a price increase sometime in the first half of next year. But that decision hasn't been made yet as we watch it.

But it's likely, I would say, at this point. Is that fair, Bhaskar? That is. And just put some numbers around that just as we enter the back half of the year. is that we had anticipated there would be about a $10 million benefit versus the cost that we were seeing. And that was to make up for what we incurred in the first half. What has come to pass is that because of principally what's happening from a petroleum standpoint is that we've lost that benefit and incurred a bit on top of it. So as Scott said, we thought that we're a little bit behind. as it relates to cost price and that we evaluate that as we get in and out of 26.

Your next question comes from Marius Marar with Zellman. Your line is open. Please go ahead.

Hello. You may be on mute.

I think you may have opened the line for Michael Lasser with UBS.

The line is open for Michael Lasser with UBS.

Good morning. Thank you so much for taking my question. Given how demand has unfolded, my question is twofold. First, is there any evidence that you're simply seeing a function of affordability with mattresses becoming increasingly an issue and or some increase in the rise of imported mattresses that are interfering with the domestic ability to see a recovery. And then the second part of this is if this is the condition into next year, you already framed 340 as the starting point How should we sensitize our models to a potential either recovery in mattress demand from that 340 or further languishing of mattress demand in that case next year? Thank you so much.

Thank you for your question. I'm going to let Bhaskar do the modeling at the end, and let me see if I can knock out the question and let him do the modeling. You know, first of all, from the import standpoint, no, there's no evidence that we have imports flooding in the market. And in fact, all of our data, and I think everybody's data, I've heard them report, would say that imports are down. So I don't think we've got an import issue and for tariff reason and other reasons. I don't see that currently as an issue. From a cost standpoint or price of product or price people out of the market, that one's a really interesting issue and one we watch closely. and I would tell you, I don't think there's an issue there. And let me tell you why I think there's not an issue there. Because people really don't know what a mattress should cost them. And I think if there was a problem with affordability, we would see it in closing rates. I.e. the people that actually come into the marketplace, go into a store, interact with an RSA, look at the bed and then go, oh my gosh, it costs this much. And then the closing rates would go down. And we are not seeing any issues anywhere in the industry, both in the stores that we run or our third-party retailers, where closing rates are declining. In fact, closing rates are going up. So I don't think there's an affordability issue because they don't really know the price. Are we having issues at the low end of the marketplace or the entry-level customer? Without question. They're just not in the market, but I don't think it's an affordability mattress. I think those customers are under some financial stress, and they're just not in the market to buy anything. And I don't think they're particularly the price is the issue. I think it's also interesting when you look at our detail from the U.S. I'm speaking to. The brands that are the strongest were Temper and Stearns and Foster. So from a brand standpoint, we're not seeing any trade down or issues on pricing. So I think we've got that one pretty covered up. And I think the last thing I really should point to is our Temper stores, which are super high price premium stores. It's growing at double digits. So that part I feel good about. And then he asked a question about the 340 in his model, and I don't do models, you do. Absolutely.

So what's implicit in the math, the algorithm that Scott went through was just building blocks on top of 2026. So no necessarily industry, either growth or going backwards. So one of the items that we've pointed to historically, as you think about a point of growth, a point of industry growth would give us about 10 cents. from an EPS standpoint. If you get outside of this most recent trend that we've gone through from an industry standpoint, the industry was very dependable, growing anywhere between 3% to 6%, half coming from price, half coming from ASB. There's nothing out there that would indicate that the industry should be thought about differently. So there is a recovery coming. It's just a matter of when. We do believe that we're uniquely positioned to take advantage of that. I would further say that we have the demonstrated ability to think about from a cost standpoint. Every day, it's not only to Your next question comes from Brad Thomas with eBank Capital Markets. Your line is open. Please go ahead. Hi, good morning, Scott. Good morning, Bhaskar. One of the key topics that regularly comes up in our investor conversations is

push back around some of the risks of the scale that Somnigroup is getting with the two big acquisitions over the last few years. So, Scott, I was hoping you could maybe talk to, for one, performance at the non-mattress firm stores, how that channel's going, and then for two, early thoughts on the customer retention or potential growth of customers for the Leggett business. Thanks.

Sure. Let me do Leggett first because it's real easy. Leggett's performed very well. since the acquisition. When I look at their business units or sub-business units, however you want to speak to them, I think they're all performing well considering their market conditions. When I look at the betting piece, and it's called out in the script, I would expect their balance of share, we'll call it, in the U.S. springs to increase and for them to begin to gain market share. after a number of years of losing market share, and for a variety of reasons, one being to lean in from the family brands, related family brands, some tariff issues, and just the quality of the product. When you go to, and I think you're talking about U.S. bedding, non-mattress firm, otherwise known as our other other for short, because that's a lot of words to use to describe a subset, If you look at that particular market, I would say we held share in that marketplace. What do you think, down six? That's right, down six. Down five or six in the term other-other. If you really get into other-other, which is more detailed than you asked for, but maybe since people ask about it, I'll give them a little bit more. If you look at the top 30, I would tell you I think we're gaining share in the top 30 other-other. and below that there's some pressure. Some of that could be launch relationships in that some of the competition had a lot of launches right before the third quarter and we did not and now we're launching so there's a little bit of launch apple and orange but in general holding share. I think I called it out in the script specifically because people keep focused on it and we're gaining incremental slots in Stearns and Foster. which is not insignificant. So, no, I'm not seeing any significant issues in the other-other. We have to perform every day for those retailers and help drive their business and their profitability, and we're doing that and we're fine there. And then on Leggett, I haven't seen any issues in customer churn, either non-betting or betting that would be material to them.

Your next question comes from Peter Keith with Piper Sandler. Your line is open. Please go ahead.

Hi, thanks. Good morning, everyone. Hope you're doing well. I wanted to ask a question that's been perking up around the bit of change in consumer shopping behavior with AI. And I guess the question would relate to agentic AI searches and how those can recommend different mattress brands and companies that are large have to use a totally different approach than you would traditionally use with Google search words. What are you guys doing at this point to optimize yourself for AI-agentic search? And maybe on a related basis, could you just talk about why the total ad spend continues to come down a bit?

Yeah, so first of all, your question is very astute, and I would actually agree with The wording of how you worded your question. AI has changed some of the searches and there are some competitive advantages and disadvantages for various companies because of that. And certainly strategies and marketing need to change and move with the times. I'm not going to go into a lot of detail about what we're doing because we kind of like to keep it a little bit quiet. but first of all, let me assure you that we've noticed it, noticed it for about a year and a half or two and are working on it. But it gets to be what I call the scrape and how AI scrapes information and then makes its decisions. And we're spending significant time and effort in that area. And I think, you know, if you need to give us a couple more quarters, I think we'll have some more concrete things we could talk about cleanly without being too transparent to do competition stuff. But no, I think it's an exciting area. I do think it's an area that at first the smaller companies probably have an advantage because historically they have advertised in a way that is advantaged compared to the larger companies. But I'm confident that over time that actually the changes that have been made and are going on in AI are going to benefit the larger companies as they move and have the resources to do what they need to do and make changes. Much like the internet did, if you remember, in the bed-in-the-box era. At first, the smaller companies were very advantaged compared to the large companies, and it took a little while for the larger companies to get fully in the game, and once they did, had a devastating effect on the bed-in-the-box industry. I think this is kind of the same thing and it's a top priority for us. Then on advertising spin, look it's variable and it moves around with demand and efficiency and we're constantly pushing the marketing teams for efficiency and they're doing a great job and you should expect that it's going to It's going to move somewhat in line with revenues, and some of it's co-op. So it's kind of automatic. And so if sales are pressured some places, it ratchets down with the co-op agreements with the non-Mattress Firm retailers. Well, and Mattress Firm, actually, because it has the same advertising co-op program as everybody else.

Just added to that is that we are, the leadership at Dreams is mindful while they are going through something, just managing advertising to just manage the customer's expectations. So primarily, as Scott indicated, it's variable associated with revenue, principally because of co-op and efficiency, but also with dreams, just managing the customer inflow.

Your next question comes from Marius Marar with Zellman. Your line is open. Please go ahead.

Good morning, everyone. Can you hear me now? Yes. Great. Thank you for squeezing me in. I just wanted to follow up again on the softness you called in online sales in mattress firm. And I was wondering if you can tell us more about that. Is that sort of more focused on the lower price points? Is it widespread? And do you see any of that softness in the 10% North America online sales? Thank you.

Yeah, good question. I would say to be very transparent on the mattress firm online sales is they've underperformed. We allocated some advertising away from that particular channel and moved it more towards top of the funnel, more towards driving intenders into the marketplace to benefit both mattress firm and the industry and drive customers into the store where those sales are generally higher ASP. and we've probably overdone it and we're pivoting back some investment into the online business. So that's probably, we lean one way a little bit too much. More recently, since the third quarter, the master firm online sales have improved and are getting much closer to in line with where we would expect them to be. They're not quite there yet, but we made a change. and we've changed a little bit back. So we'll call that a little bit self-inflicted from our standpoint. As it relates to Tempur-Sealy's online sales, I would say they're pretty much slightly better than the industry. So we'll call that an inline performer. on the mattress firm side of the house. And my recollection internationally is they did well from an online perspective in the traditional international group. Yes, Scott.

Your next question comes from Jonathan Matuszewski from Jefferies. Your line is open. Please go ahead.

Great. Good morning, Scott. Good morning, Bhaskar. Thanks for the time. My question was on stores. So maybe could you just clarify what modest store growth would look like for Mattress Firm in 27 relative to the current base? And maybe just spend a second on why now is the best time to turn to unit growth and how your go-forward view of industry growth for 2027 maybe shapes your decision here. Thanks so much.

Sure. Let me give a little bit of background so we're all thinking the same way. Batches Firm at one time had, I think, over 3,400 stores, and they went through a very large store reduction. We're at 2,200-ish, 21? That's right, 2,150. 2,150 today. The store count has drifted down over the last couple of years, 150 stores-ish, guys, for talking terms. Primarily, not really by strategy, but based on, look, we just bought Mattress Firm and we wanted to make sure we fully understood their real estate strategy, what kind of tools they used to make decisions, how they looked at return on investment, how they looked at cannibalization within the store market when they opened them, and we wanted time. We wanted time to fully get aligned on a real estate strategy. So during that period, the stores have dwindled down. Probably we were a little conservative, probably shouldn't have closed, probably should have been, should have maybe not taken so much time to study it. But, you know, when you open a store, it is an investment and we think about signing a lease as, you know, deployed capital. So now we've done that. So that's the why now. The why now is we're very comfortable with the real estate team. the new CEO over there is doing a great job and we're comfortable with an expansion. There's clearly opportunity to expand and it's not to expand back to 3,400 stores and we're also clear about that is that the opportunity is more like 2,500. We don't expect the store count to shrink. We would like for it to grow modestly. So I think I got that part of the question. As far as how many exactly I can't tell you because real estate is complicated. There's zoning, there's everything else. So it takes a while to get the process kind of wound up, we'll call it. So you should think about it's going to ramp up, but it's going to ramp up with a pace in the outer years rather than the early years. Because look, we want to be cautious about deploying capital. But I think it's a great time to start that because a store that that you feel really good about in the worst betting market in North America's history. It looks like it's got a return of full payback in 18 months. You can imagine what it looks like in a good market. So I think now is the time when you do expansions as long as you have the proper controls around it.

Our final question comes from Philip B. with William Blair. Your line is open. Please go ahead.

Good morning, Scott, Bhaskar. Thanks for the question. So just wanted to touch on the two new Stearns and Foster launches over the next year. Just how much growth in ASP do you expect from expanding your assortment across some of these higher price points? What kind of acceleration volumes could this start to generate? And then just how do you think about the potential lift from cross-marketing benefits across your own brands on some of these newer products going forward? Thank you, guys.

Sure. So as you think about the velocity, what we have here now is that the incremental slots, call it about 6%, once we get fully floored starting, let's call it before President's Day, and then an improvement on a slot velocity perspective versus what we had before. So all of that should be, from an incremental standpoint, as Scott said, the 6% is completely additive, not necessarily cannibalizing from what we have. what we also anticipate is just as a reminder when we did the Posturepedic last year is that we took pricing up a bit so and so this this importance this launch is important for many reasons one is there's a consumer out there that we want to meet second is is that it removes some of that overlap that we had from Posturepedic so naturally you're going to get some ASP uh increase as a as a result of that and then finally I want to say the Heritage Line this is a long time coming again it's a The way I would think about that is, yes, we want to sell some units. Yes, we want to make some margin. But also, it's a halo project. You introduce product up there. It makes everything else more attractive, not only within the Stearns family, but broadly speaking, across the entire portfolio. So net-net, Stearns, we're very excited about it. of what it could do for us, not only within Stearns, but the entire portfolio. Scott, did I leave anything out?

No, the only thing I would add to that, it's interesting that the Heritage Step Up brand that's coming out of Stearns, that actually came from the retailers. The retailers actually asked for it. And so we're actually servicing a need that the other retailers and mattress firms asked for, which is kind of unique. So no, we're optimistic.

We have reached the end of the question and answer session. I'll now turn the call back to Scott Thompson, CEO, for closing remarks.

Thank you, operator. To our over 36,000 associates around the world, thank you for what you do every day to make the company successful. To our customers, thank you for your outstanding representation of our brands and components. To our shareholders and lenders, thank you for your confidence in the company's leadership and its board of directors. This ends our call today, operator.

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