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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-25121
_______________________________________________________________________
a1.jpg
SLEEP NUMBER CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota41-1597886
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1001 Third Avenue South
Minneapolis,Minnesota55404
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (763) 551-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per shareSNBRNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
As of March 30, 2024, 22,326,000 shares of the registrant’s Common Stock were outstanding.


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
INDEX


i | 3Q 2023 FORM 10-Q
SLEEP NUMBER CORPORATION

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)

March 30,
2024
December 30,
2023
Assets
Current assets:
Cash and cash equivalents$2,068 $2,539 
Accounts receivable, net of allowances of $1,090 and $1,437, respectively
21,833 26,859 
Inventories100,904 115,433 
Prepaid expenses20,655 16,660 
Other current assets35,589 44,637 
Total current assets181,049 206,128 
Non-current assets:
Property and equipment, net167,037 179,503 
Operating lease right-of-use assets387,942 395,411 
Goodwill and intangible assets, net66,579 66,634 
Deferred income taxes21,181 20,253 
Other non-current assets84,685 82,951 
Total assets$908,473 $950,880 
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under revolving credit facility$523,500 $539,500 
Accounts payable125,304 135,901 
Customer prepayments50,262 49,143 
Accrued sales returns22,415 22,402 
Compensation and benefits28,296 28,273 
Taxes and withholding16,661 17,134 
Operating lease liabilities81,300 81,760 
Other current liabilities58,454 61,958 
Total current liabilities906,192 936,071 
Non-current liabilities:
Operating lease liabilities343,447 351,394 
Other non-current liabilities104,697 105,343 
Total liabilities1,354,336 1,392,808 
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
  
Common stock, $0.01 par value; 142,500 shares authorized, 22,326 and 22,235 shares issued and outstanding, respectively
223 222 
Additional paid-in capital20,262 16,716 
Accumulated deficit(466,348)(458,866)
Total shareholders’ deficit(445,863)(441,928)
Total liabilities and shareholders’ deficit$908,473 $950,880 



See accompanying notes to condensed consolidated financial statements.
1 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)

Three Months Ended
March 30,
2024
April 1,
2023
Net sales$470,449 $526,527 
Cost of sales194,275 216,262 
Gross profit276,174 310,265 
Operating expenses:
Sales and marketing208,512 230,488 
General and administrative39,079 39,401 
Research and development12,441 14,443 
Restructuring costs10,600  
Total operating expenses270,632 284,332 
Operating income5,542 25,933 
Interest expense, net12,299 9,102 
(Loss) income before income taxes(6,757)16,831 
Income tax expense725 5,366 
Net (loss) income$(7,482)$11,465 
Basic net (loss) income per share:
Net (loss) income per share – basic$(0.33)$0.51 
Weighted-average shares – basic22,506 22,296 
Diluted net (loss) income per share:
Net (loss) income per share – diluted$(0.33)$0.51 
Weighted-average shares – diluted22,506 22,583 



















See accompanying notes to condensed consolidated financial statements.
2 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited - in thousands)

Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
SharesAmount
Balance at December 30, 202322,235 $222 $16,716 $(458,866)$(441,928)
Net loss— — — (7,482)(7,482)
Exercise of common stock options— — — — — 
Stock-based compensation134 1 4,116 — 4,117 
Repurchases of common stock(43)— (570)— (570)
Balance at March 30, 202422,326 $223 $20,262 $(466,348)$(445,863)


Common StockAdditional
Paid-in
Capital
Accumulated DeficitTotal
SharesAmount
Balance at December 31, 202222,014 $220 $5,182 $(443,579)$(438,177)
Net income— — — 11,465 11,465 
Exercise of common stock options17 — 389 — 389 
Stock-based compensation271 3 4,636 — 4,639 
Repurchases of common stock(118)(1)(3,362)— (3,363)
Balance at April 1, 202322,184 $222 $6,845 $(432,114)$(425,047)














See accompanying notes to condensed consolidated financial statements.
3 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
Three Months Ended
March 30,
2024
April 1,
2023
Cash flows from operating activities:
Net (loss) income$(7,482)$11,465 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization17,487 18,218 
Stock-based compensation4,117 4,639 
Net loss on disposals and impairments of assets2,500 12 
Deferred income taxes(928)(3,252)
Changes in operating assets and liabilities:
Accounts receivable5,026 2,717 
Inventories14,529 (2,747)
Income taxes1,587 8,736 
Prepaid expenses and other assets5,473 (11,056)
Accounts payable(2,765)(574)
Customer prepayments1,119 (4,639)
Accrued compensation and benefits30 (593)
Other taxes and withholding(2,060)(711)
Other accruals and liabilities(4,888)(3,634)
Net cash provided by operating activities33,745 18,581 
Cash flows from investing activities:
Purchases of property and equipment(9,308)(15,556)
Issuance of note receivable(2,942) 
Net cash used in investing activities(12,250)(15,556)
Cash flows from financing activities:
Net decrease in short-term borrowings
(21,396)(384)
Repurchases of common stock(570)(3,363)
Proceeds from issuance of common stock 389 
Net cash used in financing activities(21,966)(3,358)
Net decrease in cash and cash equivalents(471)(333)
Cash and cash equivalents, at beginning of period2,539 1,792 
Cash and cash equivalents, at end of period$2,068 $1,459 




See accompanying notes to condensed consolidated financial statements.
4 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)


1. Business and Summary of Significant Accounting Policies

Business & Basis of Presentation

The Company prepared the condensed consolidated financial statements as of and for the three months ended March 30, 2024 of Sleep Number Corporation and its 100%-owned subsidiaries (Sleep Number or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly its financial position as of March 30, 2024 and December 30, 2023, and the consolidated results of operations and cash flows for the periods presented. The historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the most recent audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 and other recent filings with the SEC.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods and could be material. The Company’s critical accounting policies consist of stock-based compensation, warranty liabilities and revenue recognition.

The condensed consolidated financial statements include the accounts of Sleep Number Corporation and its 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.

2. Fair Value Measurements

At both March 30, 2024 and December 30, 2023, the Company had $19 million, of debt and equity securities that fund the deferred compensation plan and are classified in other non-current assets. The Company also had corresponding deferred compensation plan liabilities of $19 million at both March 30, 2024 and December 30, 2023, which are included in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities.

5 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

3. Inventories

Inventories consisted of the following (in thousands):
March 30,
2024
December 30,
2023
Raw materials$8,074 $9,092 
Work in progress101 92 
Finished goods92,729 106,249 
$100,904 $115,433 

4. Goodwill and Intangible Assets, Net

Goodwill and Indefinite-lived Intangible Assets

Goodwill was $64 million at March 30, 2024 and December 30, 2023. Indefinite-lived trade name/trademarks totaled $1.4 million at March 30, 2024 and December 30, 2023.

Definite-lived Intangible Assets

Patents were $2.0 million at both March 30, 2024 and December 30, 2023. Accumulated amortization was $0.8 million at March 30, 2024 and December 30, 2023. Amortization expense for both the three months ended March 30, 2024 and April 1, 2023, was $55 thousand.

Annual amortization for Patents for subsequent years are as follows (in thousands):
2024 (excluding the three months ended March 30, 2024)$166 
2025226 
2026222 
2027222 
2028155 
202999 
Thereafter46 
Total future amortization for definite-lived intangible assets$1,136 

6 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

5. Credit Agreement

As of March 30, 2024, the Company’s credit facility had a total commitment amount of $683 million. The credit facility is for general corporate purposes, to meet seasonal working capital requirements and to repurchase its stock. The Credit Agreement includes an accordion feature which allows the Company to increase the amount of the credit facility from $683 million to $1.0 billion, subject to lenders’ approval. The Credit Agreement provides the lenders with a collateral security interest in substantially all of the Company’s assets and those of its subsidiaries and requires the Company to comply with, among other things, a maximum net leverage ratio and a minimum interest coverage ratio.

The maximum net leverage ratio permitted by the Credit Agreement is 5.00 to 1.00 for the quarterly period ended March 30, 2024; 5.50 to 1.00 for the quarterly reporting period ending June 29, 2024; 5.00 to 1.00 for the quarterly reporting period ending September 28, 2024; 4.80 to 1.00 for the quarterly reporting period ending December 28, 2024; and 4.00 to 1.00 for each quarterly reporting period occurring thereafter.

The minimum interest coverage ratio permitted by the Credit Agreement is 1.50 to 1.00 for the quarterly period ended March 30, 2024; 1.25 to 1.00 for the quarterly reporting period ending June 29, 2024; 1.50 to 1.00 for the quarterly reporting periods ending September 28, 2024 and December 28, 2024; and 3.00 to 1.00 for each quarterly reporting period occurring thereafter.

The carrying amount of the outstanding borrowings under the Credit Agreement approximates fair value because interest rates approximate the current rates available to the Company. Under the terms of the Credit Agreement, the Company pays a variable rate of interest and a commitment fee based on its leverage ratio. The Credit Agreement matures in December 2026. The Company was in compliance with all financial covenants as of March 30, 2024.

The following table summarizes the Company’s borrowings under the credit facility ($ in thousands):

March 30,
2024
December 30,
2023
Outstanding borrowings
$523,500 $539,500 
Outstanding letters of credit$7,147 $7,147 
Additional borrowing capacity$151,853 $138,353 
Weighted-average interest rate8.4 %8.5 %

6. Leases

The Company leases its retail, office and manufacturing space under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. While the Company’s local market development approach generally results in long-term participation in given markets, the retail store leases generally provide for an initial lease term of five to 10 years. The Company’s office and manufacturing leases provide for an initial lease term of up to 15 years. In addition, the Company’s mall-based retail store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. The Company’s lease agreements do not contain any material residual value guarantees. The Company also leases vehicles and certain equipment under operating leases with an initial lease term of three to six years.

The Company’s operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease commencement date or the date the Company takes possession of the property. During lease renewal negotiations that extend beyond the original lease term, the Company estimates straight-line rent expense based on current market conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated.

7 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

At March 30, 2024, the Company’s finance right-of-use assets and lease liabilities were not significant.

Lease costs were as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Operating lease costs(1)
$26,826 $28,289 
Variable lease costs(2)
$(49)$56 
___________________________
(1)Includes short-term lease costs which are not significant.
(2)Variable lease costs include adjustments to percentage rent.

The maturities of operating lease liabilities as of March 30, 2024, were as follows(1) (in thousands):
2024 (excluding the three months ended March 30, 2024)$80,181 
202599,566 
202687,575 
202771,617 
202859,845 
202940,157 
Thereafter70,786 
Total operating lease payments(2)
509,727 
Less: Interest84,980 
Present value of operating lease liabilities$424,747 
___________________________
(1)Future payments for real estate taxes and certain building operating expenses for which the Company is obligated are not included in the operating lease liabilities. Total operating lease payments exclude $13 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)Includes the current portion of $81 million for operating lease liabilities.

Other information related to operating leases was as follows:
March 30,
2024
December 30,
2023
Weighted-average remaining lease term (in years)5.85.9
Weighted-average discount rate6.6 %6.5 %

Three Months Ended
(in thousands)March 30,
2024
April 1,
2023
Cash paid for amounts included in present value of operating lease liabilities$27,222 $26,538 
Right-of-use assets obtained in exchange for operating lease liabilities$12,990 $14,717 

7. Repurchases of Common Stock

For the three months ended March 30, 2024 and April 01, 2023, we repurchased $1 million and $3 million, respectively, of common stock in connection with the vesting of restricted stock grants. We made no purchases under the Board-approved stock purchase plan in either period. As of March 30, 2024, the remaining authorization under the Board-approved $600 million share repurchase program was $348 million.

8 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

8. Revenue Recognition

Deferred contract assets and deferred contract liabilities are included in the condensed consolidated balance sheets as follows (in thousands):
March 30,
2024
December 30,
2023
Deferred contract assets included in:
Other current assets$29,189 $28,567 
Other non-current assets54,015 54,795 
$83,204 $83,362 

March 30,
2024
December 30,
2023
Deferred contract liabilities included in:
Other current liabilities$37,134 $36,421 
Other non-current liabilities67,971 69,098 
$105,105 $105,519 

Deferred revenue and costs related to SleepIQ® technology are currently recognized on a straight-line basis over the product's estimated life of 4.5 to 5.0 years because the Company’s inputs are generally expended evenly throughout the performance period. During both the three months ended March 30, 2024 and April 1, 2023, the Company recognized revenue of $10 million, that was included in the deferred contract liability balances at the beginning of the respective periods.

Revenue from goods and services transferred to customers at a point in time accounted for approximately 98% of revenues for both the three months ended March 30, 2024 and April 1, 2023.

Net sales were as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Retail stores$414,755 $458,663 
Online, phone, chat and other55,694 67,864 
Total Company$470,449 $526,527 

Obligation for Sales Returns

The activity in the sales returns liability account was as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Balance at beginning of year$22,402 $25,594 
Additions that reduce net sales25,470 29,843 
Deductions from reserves(25,457)(31,366)
Balance at end of period$22,415 $24,071 

9 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

9. Stock-based Compensation Expense

Total stock-based compensation expense was as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Stock awards (1)
$3,144 $3,855 
Stock options973 784 
Total stock-based compensation expense (1)
4,117 4,639 
Income tax benefit910 1,253 
Total stock-based compensation expense, net of tax$3,207 $3,386 
___________________________
(1) Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance targets.

10. Profit Sharing and 401(k) Plan

Under the Company’s profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, the Company makes a contribution equal to a percentage of the employee’s contribution. During the three months ended March 30, 2024 and April 1, 2023, the Company’s contributions, net of forfeitures, were $2.0 million and $2.4 million, respectively.

11. Net Income per Common Share

The components of basic and diluted net (loss) income per share were as follows (in thousands, except per share amounts):
Three Months Ended
March 30,
2024
April 1,
2023
Net (loss) income$(7,482)$11,465 
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding22,506 22,296 
Dilutive effect of stock-based awards 287 
Diluted weighted-average shares outstanding22,506 22,583 
Net (loss) income per share – basic$(0.33)$0.51 
Net (loss) income per share – diluted$(0.33)$0.51 

For the three months ended March 30, 2024, otherwise dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share. Additional potential dilutive stock-based awards totaling 1.3 million and 1.1 million for the three months ended March 30, 2024 and April 1, 2023, respectively, have been excluded from the diluted net (loss)/income per share calculations because these stock-based awards were anti-dilutive.

10 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

12. Restructuring Costs

In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate gross margin initiatives, and recognized $15.7 million of restructuring costs in that quarter. In addition to the costs incurred in 2023, the Company incurred an additional $10.6 million of restructuring costs in the first quarter of 2024. Charges incurred related to this initiative were comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and asset impairment charges and are included in the restructuring costs line in the Company’s consolidated statement of operations. The Company expects an additional $3 million of restructuring costs to be incurred through the remainder of 2024.

During the first quarter of fiscal 2024, the Company recognized $10.6 million of restructuring costs, as follows (in thousands):
Three Months Ended
March 30,
2024
Cash restructuring costs:
Contract termination costs (1)
$4,413 
Severance and employee-related benefits841 
Professional fees and other2,846 
Total cash restructuring costs8,100 
Non-cash restructuring costs:
Asset impairments (2)
2,500 
Total restructuring costs$10,600 
____________________
(1) Primarily comprised of lease termination costs.
(2) Primarily comprised of impairments of property and equipment.

The following table provides the activity in the Company’s restructuring related liabilities, which are included within accounts payable, compensation and benefits and other current liabilities on the consolidated balance sheet (in thousands):
Three Months Ended
March 30,
2024
Balance at the beginning of year$8,720 
Expenses8,100 
Cash payments(11,391)
Balance at the end of the period$5,429 


11 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

Since the initiation of cost reduction actions in the fourth quarter of 2023, the Company has recognized a cumulative $26.3 million of restructuring costs, as follows (in thousands):
Cumulative
March 30,
2024
Cash restructuring costs:
Contract termination costs (1)
$11,823 
Severance and employee-related benefits5,807 
Professional fees and other3,956 
Total cash restructuring costs21,586 
Non-cash restructuring costs:
Asset impairments (2)
4,742 
Total restructuring costs$26,328 
____________________
(1)Primarily comprised of lease termination costs.
(2) Includes impairments of both lease right-of-use assets and property and equipment.
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SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

13. Commitments and Contingencies

Warranty Liabilities

The activity in the accrued warranty liabilities account was as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Balance at beginning of period$8,503 $8,997 
Additions charged to costs and expenses for current-year sales4,551 4,371 
Deductions from reserves(4,535)(4,325)
Changes in liability for pre-existing warranties during the current year, including expirations231 (88)
Balance at end of period$8,750 $8,955 

Legal Proceedings

The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S. generally accepted accounting principles, the Company records a liability in its consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If a material loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. With respect to currently pending legal proceedings, the Company has not established an estimated range of reasonably possible material losses either because it believes that is has valid defenses to claims asserted against it, the proceeding has not advanced to a stage of discovery that would enable it to establish an estimate, or the potential loss is not material. The Company currently does not expect the outcome of pending legal proceedings to have a material effect on its consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against the Company could adversely impact its consolidated results of operations, financial position or cash flows. The Company expenses legal costs as incurred.

Purported Class Action Complaint

On December 15, 2023, a former Field Services team member filed a purported class action Complaint in the Superior Court of California, County of Santa Clara, alleging violations of California’s meal and rest break law and additional wage and hour derivative claims under the California Labor Code. While the representative plaintiff was in the Field Services workforce, the Complaint does not limit the purported plaintiff class to that group, but rather extends to all non-exempt Sleep Number employees in the state. The plaintiff alleges that Sleep Number failed to provide compliant meal or rest breaks, failed to pay wages owed due to alleged off the clock work, failed to pay overtime, minimum wage and wages due at termination, thus resulting in inaccurate wage statements, all in violation of California law. The Complaint seeks damages in the form of unpaid regular and premium wages, statutory penalties, pre-judgment and post-judgment interest, plaintiffs’ attorneys’ fees and costs. On February 22, 2024, the plaintiff filed a related lawsuit in the same county alleging violations of a broad range of California Labor Code wage and hour violations under the state’s Private Attorney General Act (PAGA), including the same meal and rest break, and wage and hour, violations as appear in the purported class action. The cases are set for a case management conference on May 8, 2024, after which we expect a scheduling order will be issued.

Shareholder Class Action Complaints

On December 14, 2021, purported Sleep Number shareholder, Steamfitters Local 449 Pension & Retirement Security Funds (Steamfitters), filed a putative class action complaint in the United States District Court for the District of Minnesota (the District of Minnesota) on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen, the Company’s former
13 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

Executive Vice President and Chief Financial Officer. Steamfitters alleges material misstatements and omissions in certain of Sleep Number’s public disclosures during the purported class period, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The complaint seeks, among other things, unspecified monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by the District of Minnesota.

On February 14, 2022, a second purported Sleep Number shareholder, Ricardo Dario Schammas, moved for appointment as lead plaintiff in the action. On March 24, 2022, the District of Minnesota heard argument on Schammas’s motion, and subsequently appointed Steamfitters and Schammas as Co-Lead Plaintiffs (together, Co-Lead Plaintiffs). On July 19, 2022, Co-Lead Plaintiffs filed a consolidated amended complaint, which, like the predecessor complaint, asserts claims against Sleep Number, Shelly Ibach, and David Callen under Sections 10(b) and 20(a) of the Exchange Act. Co- Lead Plaintiffs purport to assert these claims on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021. On September 19, 2022, Defendants moved to dismiss the consolidated amended complaint, which motion was heard by the Court on January 17, 2023. On July 10, 2023, the Court issued an order dismissing the Plaintiffs’ consolidated amended complaint with prejudice.

Shareholder Derivative Complaint

On May 12, 2022, Gwendolyn Calla Moore, as the appointed representative of purported Sleep Number shareholder Matthew Gelb, filed a derivative action (the Derivative Action) in the District of Minnesota against Jean-Michel Valette, Shelly Ibach, Barbara Matas, Brenda Lauderback, Daniel Alegre, Deborah Kilpatrick, Julie Howard, Kathleen Nedorostek, Michael Harrison, Stephen Gulis, Jr., David Callen, and Kevin Brown. Moore purports to assert claims on behalf of Sleep Number for breaches of fiduciary duty, waste, and contribution under Sections 10(b) and 21(d) of the Exchange Act. Moore’s allegations generally mirror those asserted in the securities complaint described above. The Moore complaint seeks damages in an unspecified amount, disgorgement, interest, and costs and expenses, including attorneys’ and experts’ fees.

On September 13, 2022, the District of Minnesota entered a joint stipulation staying all proceedings in the Derivative Action pending the outcome of any motion to dismiss the Steamfitters consolidated amended complaint. On July 10, 023, the District of Minnesota in the Steamfitters case dismissed the consolidated amended complaint with prejudice, as noted above. The Plaintiff in the Derivative Action subsequently moved the Court to voluntarily dismiss its the Complaint and on January 22, 2024, the District of Minnesota dismissed the Derivative Action without prejudice.

Stockholder Demand

On March 25, 2022, Sleep Number received a shareholder litigation demand (the “Demand”), requesting that the Board investigate the allegations in the Steamfitters complaint and pursue claims on Sleep Number’s behalf based on those allegations. On May 12, 2022, the Board established a special litigation committee to investigate the demand.

On October 5 and October 12, 2022, Sleep Number received two additional shareholder litigation demands, which adopted and incorporated the allegations and requests in the Demand. Both of these additional litigation demands were referred to the special litigation committee.

The special litigation committee has concluded that it would not be in the best interests of Sleep Number and its shareholders to take any of the actions requested in the demands at this time.
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SLEEP NUMBER CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of the Company’s condensed consolidated financial statements with a narrative from the perspective of management on its financial condition, results of operations, liquidity and certain other factors that may affect the Company’s future results. MD&A is presented in seven sections:

Forward-Looking Statements and Risk Factors
Business Overview
Results of Operations
Liquidity and Capital Resources
Non-GAAP Data Reconciliations
Off-Balance-Sheet Arrangements and Contractual Obligations
Critical Accounting Policies

Forward-looking Statements and Risk Factors
The discussion in this Quarterly Report contains certain forward-looking statements that relate to future plans, events, financial results or performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the negative of these or similar terms. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and its present expectations or projections. These risks and uncertainties include, among others:

Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending;
Increases in interest rates, which have increased the cost of servicing the Company’s indebtedness;
Availability of attractive and cost-effective consumer credit options;
Ability to achieve savings and efficiencies from cost savings plans related to business restructuring actions and to avoid unexpected adverse effects;
Dependence on, and ability to maintain working relationships and favorable contractual terms with key suppliers and third parties;
Fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures;
Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics, labor challenges, foreign currency fluctuations, inflation, and climate or other disasters, and resulting supply shortages and production and delivery delays and disruptions;
Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages, as well as carrying excess levels of inventory for various products from time to time, which may leave the Company vulnerable to inventory obsolescence and write-downs;
The effectiveness of the Company’s marketing strategy and promotional efforts;
The execution of Sleep Number’s Total Retail distribution strategy;
Ability to achieve and maintain high levels of product quality and to improve and expand the product line;
Ability to protect the Company’s technology, trademarks, and brand and the adequacy of its intellectual property rights;
Ability to effectively compete;
Risks of disruption in the operation of any of the Company’s facilities and operations, including manufacturing, assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer service operations;
Ability to comply with existing and changing government regulations and laws;
Pending or unforeseen litigation and the potential for associated adverse publicity;
The adequacy of the Company’s and third-party information systems and costs and disruptions related to upgrading or maintaining these systems;
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SLEEP NUMBER CORPORATION

The Company’s ability to identify and withstand cyber threats that could compromise the security of its systems, result in a data breach or business disruption;
Risks associated with advancements in or adoption of artificial intelligence technologies;
Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and effective personnel;
The volatility of Sleep Number stock, its removal from various stock indices, and the potential negative effects of shareholder activism or of changes in coverage by securities analysts;
Environmental, social and governance risks, including increasing regulation and stakeholder expectations; and
The Company’s ability to adapt to climate change and readiness for legal or regulatory responses thereto.

Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk Factors” in Part I, Item 1A. in the Company’s Annual Report on Form 10-K and in Part II. Item 1A. in subsequent Quarterly Reports on Form 10-Q.

The Company has no obligation to publicly update or revise any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Business Overview

Sleep Number is a wellness technology company and market leader in the design, manufacturing, marketing and distribution of highly innovative sleep solutions. The Company’s purpose is to improve the health and wellbeing of society through higher quality sleep; to date, it has improved the lives of over 15 million people. Sleep Number’s Smart Sleepers benefit from individualized sleep experiences, night after night, and are experiencing the physical, mental and emotional benefits of life-changing sleep.

Sleep Number’s life-changing, differentiated smart beds combine physical and digital innovations, integrating unparalleled physical comfort with a highly advanced technology platform. The smart beds offer the Company’s signature firmness adjustability, enabling each sleeper adjustable comfort. Embedded digital sensors learn the sleep needs of each individual; “sense and do” technology uses the sensed data to automatically adjust the smart bed to keep the sleeper comfortable throughout the night. Active temperature balancing technology supports the ideal climate for both sleepers and solves a prevalent sleep challenge. Additionally, the smart beds are an exceptional value, with personalized sleep insights delivered daily, new features regularly added to all smart beds through over-the-air updates, and prices to meet most budgets. Sleep Number® smart beds provide unmatched features, benefits and comfort that can lead to improved sleep health and wellness for both sleepers.

The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized sleep wellness platform, a network of highly engaged Smart Sleepers, a vertically integrated operating model, and a culture of individuality, with an ambitious vision to become one of the world’s most beloved brands. Sleep Number’s exclusive distribution meets its customers whenever and wherever they choose – through digital and in-store touchpoints – to provide an exceptional experience and a lifelong relationship. The Company partners with world-leading institutions to bring the power of nearly 26 billion hours of longitudinal sleep data to sleep science and research. And Sleep Number’s 4,000 purpose-driven team members are dedicated to the Company’s mission of improving lives by individualizing sleep experiences.

Sleep Number is focused on cost improvement through broad-based restructuring actions to become a stronger, more durable company, poised for accelerating growth and superior shareholder returns as the bedding industry demand environment improves. The Company generates revenue by marketing and selling its innovative smart beds directly to new and existing customers through its vertically integrated, exclusive, direct-to-consumer retail touch points including Stores, Online, Phone, and Chat (Total Retail).

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SLEEP NUMBER CORPORATION


Results of Operations

Quarterly and Year-to-Date Results

Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in sales, timing, amount and effectiveness of advertising expenditures, changes in sales return rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/closings and related expenses, changes in net sales resulting from changes in the Company’s store base, timing of new product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity costs, disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales, consumer sentiment and general economic conditions. The extent to which these external factors will impact the Company’s business and its consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted. Therefore, the historical results of operations may not be indicative of the results that may be achieved for any future period.

Highlights

Financial highlights for the three months ended March 30, 2024 were as follows:

Net sales for the three months ended March 30, 2024 of $470 million decreased 11% from $527 million for the same period one year ago. The mattress industry is in a historic recession, while consumer sentiment is improving, consumer purchasing power remains limited, and consumers are scrutinizing their spending.
The net sales change resulted from an 11% comparable sales decrease in Total Retail. For additional details, see the components of total net sales change on page 19.
Sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a trailing twelve-month basis for the period ended March 30, 2024 totaled $2.8 million, compared with $3.2 million for the same period last year.
Operating income for the three months ended March 30, 2024 was $6 million, compared with $26 million in the prior-year period. The $20 million decrease in operating income was driven by the lower net sales and a 0.2 ppt. decrease in the gross profit rate, partly offset by a $14 million reduction in operating expenses. Operating expenses for the three months ended March 30, 2024 included $11 million of restructuring costs.
Adjusted EBITDA for the three months ended March 20, 2024 was $37 million, compared to $49 million in the prior-year period as ongoing cost reduction actions partially offset the year-over-year net sales decline.
The 0.2 ppt. gross profit rate decrease was primarily due to product mix of our FlexFit smart adjustable bases, partly offset by improvement in commodity prices and operating efficiencies. See the Gross profit discussion on page 20 for additional details.
The $14 million reduction in the Company’s operating expenses was due to lower sales and marketing and research and development expenses, partly offset by $11 million of restructuring costs.
Net loss for the three months ended March 30, 2024 was $7 million, compared with net income of $11 million for the same period one year ago. Net loss per diluted share was $0.33, compared with net income per diluted share of $0.51 last year.
The Company’s adjusted return on invested capital (Adjusted ROIC) was 4.5% on a trailing twelve-month basis for the period ended March 30, 2024, compared with 20.4% for the comparable period one year ago.
The Company generated $34 million in cash from operating activities for the three months ended March 30, 2024, compared with $19 million for the same period one year ago.
Free cash flow of $24 million for the three months ended March 30, 2024, compared with $3 million for the same period one year ago.
As of March 30, 2024, the Company had $524 million of borrowings under its revolving credit facility.


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SLEEP NUMBER CORPORATION


The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.
Three Months Ended
March 30,
2024
April 1,
2023
Net sales$470.4 100.0 %$526.5 100.0 %
Cost of sales194.3 41.3 %216.3 41.1 %
Gross profit276.2 58.7 %310.2 58.9 %
Operating expenses:
Sales and marketing208.5 44.3 %230.5 43.8 %
General and administrative39.1 8.3 %39.4 7.5 %
Research and development12.4 2.6 %14.4 2.7 %
Restructuring costs10.6 2.3 %— — %
Total operating expenses270.6 57.5 %284.354.0 %
Operating income5.5 1.2 %25.9 4.9 %
Interest expense, net12.3 2.6 %9.1 1.7 %
(Loss) income before income taxes(6.8)(1.4 %)16.8 3.2 %
Income tax expense0.7 0.2 %5.4 1.0 %
Net (loss) income$(7.5)(1.6 %)$11.5 2.2 %
Net (loss) income per share:
Basic$(0.33)$0.51 
Diluted$(0.33)$0.51 
Weighted-average number of common shares:
Basic22.5 22.3 
Diluted22.5 22.6 

The percentage of total net sales, by dollar volume, was as follows:
Three Months Ended
March 30,
2024
April 1,
2023
Retail stores88.2 %87.1 %
Online, phone, chat and other11.8 %12.9 %
Total Company100.0 %100.0 %

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SLEEP NUMBER CORPORATION


The components of total net sales change, including comparable net sales changes, were as follows:
Three Months Ended
March 30,
2024
April 1,
2023
Sales change rates:
Retail comparable-store sales (1)
(10 %)%
Online, phone and chat(19 %)(18 %)
Total Retail comparable sales change (1)
(11 %)(2 %)
Net opened/closed stores and other%%
Total Company(11 %)%
___________________________
(1)Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base.

Other sales metrics were as follows:
Three Months Ended
March 30,
2024
April 1,
2023
Average sales per store (1) (in thousands)
$2,786 $3,239 
Average sales per square foot (1)
$903 $1,060 
Stores > $2 million in net sales (2)
63 %75 %
Stores > $3 million in net sales (2)
23 %36 %
Average revenue per smart bed unit (3)
$5,765 $5,848 
___________________________
(1)Trailing-twelve months Total Retail comparable sales per store open at least one year.
(2)Trailing-twelve months for stores open at least one year (excludes online, phone and chat sales).
(3)Represents Total Retail net sales divided by Total Retail smart bed units.

The number of retail stores operating was as follows:
Three Months Ended
March 30,
2024
April 1,
2023
Beginning of period672 670 
Opened12 
Closed(17)(11)
End of period661 671 

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SLEEP NUMBER CORPORATION


Comparison of Three Months Ended March 30, 2024 with Three Months Ended April 1, 2023

Net sales

Net sales for the three months ended March 30, 2024 of $470 million decreased 11% from $527 million for the same period one year ago. The mattress industry is in a historic recession, while consumer sentiment is improving, consumer purchasing power remains limited, and consumers are scrutinizing their spending.

The net sales change consisted primarily of an 11% comparable sales decrease in Total Retail.

The $56.1 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a $44.3 million decrease in Retail comparable net sales; (ii) a $12.6 million decrease from online, phone and chat; slightly offset by (iii) a $0.8 million increase from net store openings and other. Total Retail smart bed unit sales decreased 9% compared with the prior year. Total Retail average revenue per smart bed unit decreased by 1% to $5,765, compared with $5,848 in the prior-year period.

Gross profit

Gross profit of $276 million for the three months ended March 30, 2024 decreased by $34 million, or 11%, compared with $310 million for the same period one year ago. The gross profit rate decreased to 58.7% of net sales for the three months ended March 30, 2024, compared with 58.9% for the prior-year comparable period.

The current-year gross profit rate decrease of 0.2 ppt. was mainly due to: (i) product mix of our FlexFit smart adjustable bases, which pressured the rate by 1.3 ppt.; (ii) partly offset by improvement in commodity prices and operating efficiencies, increasing the rate by 1.0 ppt. In addition, the gross profit rate may fluctuate from quarter to quarter due to a variety of other factors, including changes in warranty expenses, return and exchange costs, manufacturing and supply chain operations and performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the three months ended March 30, 2024 were $209 million, or 44.3% of net sales, compared with $230 million, or 43.8% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate increase of 0.5 ppt. was primarily due to the deleveraging impact of a 11% net sales decline. Media spend was 8% lower year-over-year.

General and administrative expenses

General and administrative (G&A) expenses totaled $39 million, or 8.3% of net sales, for the three months ended March 30, 2024, compared with $39 million, or 7.5% of net sales, in the prior-year period. The $0.3 million decrease in G&A expenses consisted mainly of a $2.3 million decrease in employee compensation on lower headcount, largely offset by an increase in miscellaneous other expenses, which benefited during the same period one year ago from legal and insurance settlements of $1.8 million. The G&A expenses rate increased by 0.8 ppt. in the current-year period, compared with the same period one year ago due to the items discussed above and the deleveraging impact of lower net sales.

Research and development expenses

Research and development (R&D) expenses decreased to $12 million for the three months ended March 30, 2024, compared with $14 million with the same period last year primarily due to lower headcount and outside services. While the Company’s consumer innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly constrained environment.

Interest expense, net

Interest expense, net increased to $12 million for the three months ended March 30, 2024, compared with $9 million for the same period one year ago. The $3 million increase was mainly driven by a higher weighted-average interest rate compared with the same period one year ago.

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SLEEP NUMBER CORPORATION


Restructuring Costs

In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate gross margin initiatives, and recognized $15.7 million of restructuring costs in that quarter. In addition to the costs incurred in 2023, the Company incurred an additional $10.6 million of restructuring costs in the first quarter of 2024. Charges incurred related to this initiative were comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and asset impairment charges and are included in the restructuring costs line in the Company’s consolidated statement of operations. The Company expects an additional $3 million of restructuring costs to be incurred throughout the remainder of 2024.

Income tax expense

Income tax expense totaled $0.7 million for the three months ended March 30, 2024, compared with $5 million for the same period last year. The change in income tax expense was primarily due to the impact of discrete tax expenses and (loss) income before income taxes levels. Discrete tax expense, primarily stock-based compensation tax shortfalls, was $2.2 million for the three months ended March 30, 2024, compared to $0.8 million for the same period last year.

Liquidity and Capital Resources

Managing liquidity and capital resources is an important part of the Company’s commitment to deliver superior shareholder value over time. The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under its $682.5 million revolving credit facility, as amended. As of March 30, 2024, the Company does not have any off-balance sheet financing other than its $7 million in outstanding letters of credit. The cash generated from ongoing operations and cash available under the revolving credit facility are expected to be adequate to maintain operations, and fund anticipated expansion, strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail stores for the foreseeable future.

Changes in cash and cash equivalents during the three months ended March 30, 2024 primarily consisted of $34 million of cash provided by operating activities, offset by a $21 million decrease in short-term borrowings which included a reduction of $16 million in the revolving credit facility, $9 million of cash used to purchase property and equipment and $3 million of cash used to issue notes receivable.

The following table summarizes cash flows (in millions). Amounts may not add due to rounding differences:
Three Months Ended
March 30,
2024
April 1,
2023
Total cash provided by (used in):
Operating activities$33.7 $18.6 
Investing activities(12.3)(15.6)
Financing activities(22.0)(3.4)
Net decrease in cash and cash equivalents$(0.5)$(0.3)

Cash provided by operating activities for the three months ended March 30, 2024 was $34 million, compared with $19 million for the three months ended April 1, 2023. Significant components of the year-over-year change in cash provided by operating activities included: (i) a $17 million fluctuation in inventory due to lower sales volumes and operational improvements; (ii) a $17 million change in prepaid expenses and other assets primarily due to the amount and timing of rebate and rent payments; and (iii) a $6 million fluctuation in customer prepayments; partly offset by (iv) a $19 million decrease in net income for the three months ended March 30, 2024 compared with the three months ended April 1, 2023; and (v) a $7 million fluctuation in income taxes payable.

Net cash used in investing activities to purchase property and equipment was $9 million for the three months ended March 30, 2024, compared with $16 million for the same period one year ago. In addition, the Company issued $3 million of notes receivable during the three months ended March 30, 2024.
Net cash used in financing activities was $22 million for the three months ended March 30, 2024, compared with net cash used in financing activities of $3 million for the same period last year. Short-term borrowings decreased by $21 million during the current-year period due to a $16 million decrease in borrowings under the revolving credit facility to
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$524 million and a $5 million decrease in book overdrafts, which are included in the net change in short-term borrowings. During the three months ended March 30, 2024, the Company repurchased $1 million of its stock compared with $3 million (based on settlement dates, in connection with the vesting of employee restricted stock awards) during the same period one year ago. The Company made no share repurchases under its Board-approved share repurchase program in either period.

In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share repurchase program. At March 30, 2024, there was $348 million remaining authorization under the Board-approved $600 million share repurchase program. There is no expiration date governing the period over which the Company can repurchase shares.

At March 30, 2024, the Company had $524 million of borrowings under its revolving credit facility, $7 million in outstanding letters of credit and net liquidity available under the credit facility of $152 million. Total availability under its revolving credit facility was $682.5 million, which amortizes by $2.5 million per quarter through December 2026. At March 30, 2024, the Company’s leverage ratio as defined in the credit agreement was 4.2x versus the permissible net leverage ratio of 5.0x, the weighted-average interest rate on borrowings under the credit facility was 8.4% and the Company was in compliance with all financial covenants.
22 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

Non-GAAP Data Reconciliations

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation, restructuring costs and asset impairments. Management believes Adjusted EBITDA is a useful indicator of its financial performance and its ability to generate cash from operating activities. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure.

Adjusted EBITDA calculations are as follows (in thousands):
Three Months EndedTrailing-Twelve
Months Ended
March 30,
2024
April 1,
2023
March 30,
2024
April 1,
2023
Net (loss) income$(7,482)$11,465 $(34,234)$46,001 
Income tax expense (benefit)725 5,366 (9,107)17,437 
Interest expense12,299 9,102 45,892 25,960 
Depreciation and amortization17,145 17,991 71,633 68,934 
Stock-based compensation4,117 4,639 14,333 13,729 
Restructuring costs10,600 — 26,328 — 
Asset impairments— 12 660 204 
Adjusted EBITDA$37,404 $48,575 $115,505 $172,265 

Free Cash Flow

The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operating activities,” or GAAP financial data. However, the Company is providing this information as it believes it facilitates analysis for investors and financial analysts.

The following table summarizes free cash flow calculations (in thousands):
Three Months EndedTrailing-Twelve
Months Ended
March 30,
2024
April 1,
2023
March 30,
2024
April 1,
2023
Net cash provided by operating activities$33,745 $18,581 $6,136 $30,161 
Subtract: Purchases of property and equipment9,308 15,556 50,808 65,406 
Free cash flow$24,437 $3,025 $(44,672)$(35,245)

23 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

Non-GAAP Data Reconciliations (continued)

Return on Invested Capital (Adjusted ROIC)

Adjusted ROIC is a financial measure the Company uses to determine how efficiently it deploys its capital. It quantifies the return the Company earns on its adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. The Company computes Adjusted ROIC as outlined below. Its definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies.

The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands):
Trailing-Twelve Months Ended
March 30,
2024
April 1,
2023
Adjusted net operating profit after taxes (Adjusted NOPAT)
Operating income$2,550 $89,398 
Add: Operating lease expense (1)
27,882 26,487 
Less: Income taxes (2)
(7,479)(29,674)
Adjusted NOPAT$22,953 $86,211 
Average adjusted invested capital
Total deficit$(445,863)$(425,047)
Add: Long-term debt (3)
523,800 470,991 
Add: Operating lease obligations (4)
424,746 436,939 
Total adjusted invested capital at end of period$502,683 $482,883 
Average adjusted invested capital (5)
$505,498 $423,287 
Adjusted return on invested capital (Adjusted ROIC) (6)
4.5 %20.4 %
___________________________
(1) Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842, Leases.
(2) Reflects annual effective income tax rates, before discrete adjustments, of 24.6% and 25.6% for March 30, 2024 and April 1, 2023, respectively.
(3) Long-term debt includes existing finance lease liabilities.
(4) Reflects operating lease liabilities included in the Company’s financial statements under ASC 842.
(5) Average adjusted invested capital represents the average of the last five fiscal quarters’ ending adjusted invested capital balances.
(6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital.

Note - the Company’s adjusted ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, the Company is providing this information as it believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

GAAP - generally accepted accounting principles in the U.S.


Critical Accounting Policies

The Company discusses its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023. There were no significant changes in the Company’s critical accounting policies since the end of fiscal 2023.


24 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in market-based short-term interest rates that will impact net interest expense. If overall interest rates were one percentage point higher than current rates, annual net income would decrease by $3.9 million based on the $524 million of borrowings under the credit facility at March 30, 2024. The Company does not manage the interest-rate volatility risk of borrowings under the credit facility through the use of derivative instruments.

ITEM 4. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, its principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
25 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company’s legal proceedings are discussed in Note 12, Commitments and Contingencies, Legal Proceedings, in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

The Company’s business, financial condition and operating results are subject to a number of risks and uncertainties, including both those that are specific to the Company’s business and others that affect all businesses operating in a global environment. Investors should carefully consider the information in this report under the heading, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and also the information under the heading, Risk Factors, in the Company’s most recent Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q. The risk factors discussed in the Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q including this Quarterly Report on Form 10-Q do not identify all risks that the Company faces because its business operations could also be affected by additional risk factors that are not presently known to the Company or that it currently considers to be immaterial to its operations.
26 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) – (b) Not applicable.
(c) Issuer Purchases of Equity Securities

Period
Total Number
of Shares
Purchased(1)(2)
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3)
December 31, 2023 through January 27, 2024790 $13.47 — $348,071,000 
January 28, 2024 through February 24, 2024668 $9.87 — $348,071,000 
February 25, 2024 through March 30, 202440,902 $13.53 — $348,071,000 
Total42,360 $13.47 — $348,071,000 
___________________________
(1)The Company did not purchase any shares under its Board-approved $600 million share repurchase program (effective April 4, 2021), during the three months ended March 30, 2024.
(2)In connection with the vesting of employee restricted stock grants, the Company repurchased 42,360 shares of its common stock at a cost of $0.6 million during the three months ended March 30, 2024.
(3)There is no expiration date governing the period over which the Company can repurchase shares under its Board-approved share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plan and Non-rule 10b5-1 Trading Arrangement Adoptions, Modifications and Terminations

The Company’s Board Chair, Chief Executive Officer and President, Shelly Ibach, adopted a trading arrangement for the sale of securities of the Company’s common stock (a Rule 10b5-1 Trading Plan) that satisfied the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c). Ms. Ibach’s Rule 10b5-1 Trading Plan was adopted on February 26, 2024, provides for the sale of up to 65,000 shares of common stock pursuant to the terms of the plan, and expires on November 28, 2025 or upon the earlier termination of the plan or sale of all shares subject to the plan.

None of the Company’s other directors or officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of SEC Regulation S-K, during the quarter ended March 30, 2024.
27 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

ITEM 6. EXHIBITS
Exhibit
Number
Description
10.1*
10.2*
31.1*
31.2*
32.1*
32.2*
101.INS*Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*Filed Herein.
Management contract or compensatory plan or arrangement.

28 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


SLEEP NUMBER CORPORATION
(Registrant)
Dated:May 7, 2024By:/s/ Shelly R. Ibach
Shelly R. Ibach
Chief Executive Officer
(principal executive officer)
By:/s/ Joel J. Laing
Joel J. Laing
Chief Accounting Officer
(principal accounting officer)

29 | 1Q 2024 FORM 10-Q
SLEEP NUMBER CORPORATION