Good day, ladies and gentlemen, and welcome to the Tempur Sealy Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. I would now like to hand the floor over to Aubrey Moore, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for participating in today's call. Joining me in Lexington headquarters are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A. Forward-looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements, including the company's expectations regarding sales, earnings, net income, and adjusted EBITDA, and anticipated performance for 2017 and subsequent periods, involve uncertainties. Actual results may differ due to the variety of factors that could adversely affect the company's business. The factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating, and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings including, but not limited to, annual reports on Form 10-K and the company's quarterly reports on 10-Q under the headings Special Note Regarding Forward-Looking Statements and/or Risk Factors. 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 statements. This morning's commentary will include non-GAAP financial measures. The press release contains reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, except as otherwise discussed in the press release as well as information regarding the methodology used in our constant currency presentations. We have posted the press release on the company's investor website at investor.tempursealy.com and have filed it with the SEC. Our comments will supplement the detailed information provided in the press release. And now, with that introduction, it's my pleasure to turn the call over to Scott.

Thank you, Aubrey. Good morning, and thank you for joining us on our 2017 third quarter earnings call. Before I begin, I want to formally congratulate Bhaskar on his recent appointment as the company's EVP and Chief Financial Officer. Over Bhaskar's 13 years at Tempur Sealy, he has earned a great deal of respect within the organization, and he will certainly be an asset as our CFO. I'll begin this morning by providing some overall color on the quarter's operating performance, including highlighting a few key items in the quarter. Then I'll have Bhaskar review our quarterly financial performance with you in detail. Finally, I'll conclude with our prepared remarks by updating you on our long-term corporate objectives, and then we'll take some questions. We are now seven months into our transformation of our distribution model. As I'm sure you recall, in April, we terminated our relationship with our largest customer, Mattress Firm, who previously represented over 20% of our worldwide sales. We knew it would be a challenge to offset the loss of earnings associated with these sales. However, we believe that over time, we would recapture the lost earnings because of the strength of our industry leading brands, our commitment and skill of our loyal retail partners, and because of our own direct sales efforts. It's still very early, but we are encouraged by our initial progress. From where we sit today, we are confident that we will not only fully recover our lost earnings, but we will transform Tempur Sealy into a stronger, healthier and more profitable company with a diversified customer base built on a balanced omni-channel distribution model. Turning to the third quarter, I'm proud of the team's effort during a challenging quarter that not only included the loss of $172 million of Mattress Firm…

Thank you, Scott. Before going into the details, a few key highlights from the third quarter. Worldwide net sales for the third quarter were $725 million, a decline of $108 million, or 13%, versus the prior year quarter. Adjusted gross margin declined 30 basis points to 43.2%. Adjusted operating margin was 13.8% of net sales and adjusted EBITDA was $129 million. Adjusted earnings per share for the quarter was $1. We generated $110 million of free cash flow in the quarter, making this one of the strongest cash flow quarters in the company's history. Our leverage ratio, as calculated based on the senior credit facility, was 3.7 times, which is slightly above our long-term target of 3.5 times. As Scott mentioned, we will continue to use excess cash to pay down debt, and we anticipate that we may resume our share repurchase program sometime in 2018. My comments going forward on net sales will be excluding Mattress Firm from the prior period. On a segment basis, sales in North America increased 10%, driven by growth across all of our brands. Tempur led the way with sales in North America growing a robust 26% compared to the third quarter last year. Sealy sales increased low single-digits, but excluding the impact of their previously mentioned department store, Sealy sales in North America increased high single-digits. Sales in Canada were up a solid 10%, and on a constant currency basis, were up 6%. Our North American wholesale channel increased 7%, and the direct channel increased 149% in the quarter, including an increase in web sales of over 200%. On a dollar basis, our wholesale channel was still the largest contributor of sales growth. The vast majority of this growth is with existing retailers leaning into our brands to capitalize on the competitive advantage…

Thank you, Bhaskar. Great job. Turning to our long-term corporate initiatives. First initiative, develop the most innovative bedding products in all the markets we serve. As we are approaching the end of 2017, the team is aggressively working towards 2018. We've not yet announced the details about the products that we'll be launching, but I can tell you that 2018 will be an exciting year for both Sealy and for Tempur-Pedic in North America. Within Sealy, we'll be completing the master brand line by launching a new hybrid line, which will bring together the best of both innerspring and foam materials with a striking look and feel. The big news of the year will be the replacement of the entire North American Tempur-Pedic line starting in 2018. We're following the same winning strategy we implemented in our prior launches for Stearns & Foster 2016 and Sealy in 2017, investing heavily in the products with consumer-desired innovation and support with new products with great service and compelling marketing. We'll be providing our Tempur-Pedic retailers with a significant competitive product advantage, both in features and customer value. This will be the first new formulation of Tempur-Pedic material since 2010 and only the fourth in the history of the company. Feedback from some of our key retail partners who have experienced the product has been overwhelmingly positive. We're very excited to once again lead the way in offering life-changing sleep to consumers. Our retail partners understand that providing customers with real value at a higher ASP is essential to growing their profitability. As one of the world's leading premier bedding manufacturers, we are uniquely positioned to help our retail partners achieve success. The second long-term initiative is to invest significant marketing dollars to promote our worldwide brands. Direct advertising spend in North America…

Certainly. And our first questioner for today is from the line of William Reuter with Bank of America. Please go ahead, sir.

Hey, guys. I just wanted to start talking a little bit about how you're thinking about the additional input costs with regard to next year. You mentioned that you may have some conversations with retailers regarding price increases. Can you talk a little bit about what you're expecting to do there and how you'll deal with those costs?

Sure. Thank you for your question. Clearly, in the prepared remarks, we called out commodities as the headwind in the third quarter, an expected headwind in the fourth quarter, and it's quite frankly an expected headwind into 2018. As you know, historically we've passed on the majority of those kind of cost to the customer. We're continuing to look at that and we'll look at the market conditions and look at what we think the future commodity prices are going to be and make some decision in the fourth quarter, and work with our retail partners during that period or maybe early first quarter.

Okay. And then just as a follow-up, you mentioned that you will consider returning to more shareholder-friendly activities next year. Can you talk about how you guys will view that in light of your leverage target? I guess what we should be thinking about in terms of what we need to see before you guys will return to some of those activities?

Sure. First of all, we always like to be shareholder friendly. So we think we had some shareholder-friendly activities this year also. But I understand what you're talking about. Look, we've been very clear from the beginning that our target was 3.5 times from a EBITDA standpoint for debt. We got a little bit over that and we're working it down. And I think we're at 3.7 times as we've reported. We'll get back in line. They will continue to do the strategy that we talked about originally, which is the business gets the first call on the capital. And if the business can't use the capital, then we will distribute it back to the shareholders. Thank you for your questions.

Thank you.

Thank you. And our next question comes from the line of Bob Drbul with Guggenheim Securities.

Hi and good morning.

Good morning.

I was just wondering on the Internet business and the online business, where do you see that shaking out this year? I think for the industry, and I guess as you look at your business, can you talk around what that is doing to pricing in both brands of your business?

Sure. There's quite a bit in that question. Let me kind of unpack it just a little bit. First of all, we obviously got a pretty robust business at tempur.com. We see that business continuing to grow. I should point out that on our online business, this quarter, our margins grew again this quarter. And I make that point because we're not overspending on customer acquisition cost. We're simply taking our fair share of the marketplace. But I would expect, over time, and I'm not going to say the whole direct business and count the stores, we might grow on Tempur to 25% of the Tempur business in North America. When you look across the board in the web business, you have to kind of break it and talk to the whole web business. Some people get confused and just talk about bed-in-the-box, and bed-in-the-box is really just a subcategory of web business. So, when I talk about it, I'm really talking about the entire web business. We see quite a few of our retail customers having great success in their web business, and we're participating in that success. We also see the bed-in-the-box companies continuing to be in the marketplace. Their growth looks like it has slowed, but we can't confirm that because none of them are public. But we expect overall web business in bedding certainly is going to probably increase faster than store fronts.

Thank you. And our next question comes from the line of Robert Friedner with Piper Jaffray. Robert A. Friedner - Piper Jaffray & Co.: Hi, guys. Thanks for taking my question. Just wanted to talk a little more about the sales and recapture trends. Looking at the quarter minus the hurricanes, it seems like non-Mattress Firm sales were up around mid-high-teens. It seems like a little slowdown from the implied growth coming out of June. So, I'm wondering, what was the tone in business like during the quarter? Do you feel like you're gaining doors and slots either on the Tempur Sealy side? And then, finally, if you could just discuss some of those same business and recapture trends running in Q4 that would be great. Thank you.

Okay. Let me see if I can do some of that off the top of my head, and I probably might have a couple of numbers a tad off and, Bhaskar, correct me if I'm wrong. But, look, we exited the second quarter with expectations, I remember somewhere around 17%. We delivered 10% today. I think if you adjust it for the hurricane, give us a couple of points for the hurricane, give us about 4 points for one department store that had a significant decline in sales, although our balance of share did not decrease. I think that we've kind of reconciled what I'll call a 16% growth rate today in the third quarter when we're expecting something in excess of 17%. So, we're probably 2% or 3% below where we exited the second quarter. Now, the obvious point is why, and we don't know yet whether that was market conditions. Overall, it takes us, I don't know, 45 days after we report to get all the industry data we need. On early indications, what we've been able to look at so far, it would look like the industry was not that robust in the third quarter, and then our performance will ultimately look very strong relative to others in the sector. When you look at post quarter end and going into the fourth quarter, I got to break it up a little bit. Let's do North America first. Overall, North America trends going into the fourth quarter, I would say, were similar to the third quarter from a wholesale standpoint. When you look at the direct business, primarily the web business, which grew at 200% in the third quarter, we are going to start comping against some tougher comps starting in the fourth quarter. So I would expect the web business, although very robust, to be less than the 200% that we reported in the third quarter. Turning to International. International has generally been in the fourth quarter similar to the third quarter, with a little bit of headwind from the UK – I'll call that Brexit. And then Germany has been a tad bit more competitive.

Thank you. And our next question comes from the line of Michael Lasser with UBS.

Good morning. This is Atul Maheswari filling in for Mike Lasser. Thanks a lot for taking our questions. So of the department store, of that one department store where you saw some headwinds this quarter, is that going to be a headwind that will persist going forward, or do you think that was just a one-quarter event?

Yeah. First of all, I always hate to talk about a customer, but in this case, the decline was so large, and they were a large customer. It's impossible to understand the overall trend of our business without calling out the one customer that has some well-publicized issues. You never know what the future is, but my expectation is that that will continue to be a headwind going forward from that customer. I think one of the key points is is that our balance of share has not changed in that customer; it's the customer's overall sales trends have changed significantly.

Okay. Thank you. And just the second one on the web business. Can you quantify how much of the growth is due to Cocoon and how much of it is due to the Tempur-Pedic branded products?

No. We usually don't – we don't split that out. What I would tell you is that we're very happy with both brands, Tempur at the high-end and then Cocoon, which is a true bed-in-the-box, at the lower end or mid-price range. And both brands are doing what we expected them to do and consistent with our strategy.

Okay. Thank you.

Thank you. Our next question comes from the line of John Baugh with Stifel. John Allen Baugh - Stifel, Nicolaus & Co., Inc.: Good morning. Thanks for taking my question. I was curious, and I know you don't want to give 2018 guidance, but a significant re-launch of Tempur. Will it be the normal cadence where in Q1 you sell off some floor models or whatever at discounts, or your retailers do, and then are there sample sales that muck up the margin a little in Q2? Any color around a significant new launch. Thank you.

Sure. Sure. Appreciate your question and, look, we called out what we're doing in 2018 a little early. Obviously, you're experienced in this because you know these major launches kind of whipsaw the numbers quite a bit. Look, this is a major launch. This is every SKU in Tempur. This is significant. This is expensive. And we believe it sets us up for the future in a great way. I mean, this is not a minor launch. It's probably 30,000 plus beds. If you go back to Oslo and use Oslo (38:34) as kind of your thinking, it's going to take us four or five quarters to roll through the launch, some of that timing will be dependent on our retail partners and what's best for them. So, I can't give you very much from a granular standpoint, but I would say, starting late first quarter, certainly in the second quarter you should expect four or five quarters worth of significant Tempur launch.

The one thing I would want to highlight is when one thinks about 2018, got to keep 2017 in perspective in that from a Tempur side, we did not have any significant launches.

Good point.

Thank you. Our next question comes from the line of Keith Hughes with SunTrust.

Thank you. I guess building on that last question, will you be discontinuing the large portion of the current Tempur line or is this going to be a large launch in addition to the current line?

No. You should think of this as a replacement and an enhancement to the current line.

So, most...

So, there will be quite a few floor models that will need to be sold off.

Thank you. And our next question comes from the line of Brad Thomas with KeyBanc.

Yes. Thanks. Good morning. Scott, I was hoping to ask about just channels of distribution, your customer base more broadly. In light of your references in one department store this quarter, and I guess the way the media is kind of dubbing the world being in a retail apocalypse, could you just give us an update on what your distribution base looks like today, the health of those customers, and how you see that evolving going forward?

Sure. Great question. I think the media has missed some points when it comes to the retail footprint. There's no question retail has some headwinds, but we have a lot of retailers who are really winning. And the formula of every retailer that I see in bedding that's winning is really focused on a few things. One is, they're leaning into high ASP products and that usually means Tempur. They're very focused on the customer experience and the ease of shopping. They're driving higher closing rates to the customers that come in because the customers that come in are more educated and qualified and ready to purchase. They're grabbing their fair share of online, and in fact, we're helping them do that with a program we call Digital Edge. We think that that's critical for their success. And they have a balanced advertising budget that includes not just traditional advertising but digital. So, although I think there will be winners and losers in retail and you're going to continue to see some change in the distribution, we have quite a few retailers who have leaned in to our products that are doing very well.

And if I could follow up, Scott. I know you referenced being in the early innings of recapturing the Tempur opportunity with Mattress Firm – from the exit of Mattress Firm. Can you help think about how many of the doors you've actually really been able to address to the full extent? Or said in another way, how many contracts really haven't had a chance to roll over yet to give you more opportunity to gain floor space?

Yeah. I'm going to do it kind of in general form. If you really look at what we've done so far, there really haven't been large door gains. I mean the Tempur-Pedic growth of 26% ex-Matt Firm, that's really on the velocity increases in slots. We've talked about there are some entrepreneurs opening some new stores, that's taking a little bit longer than we thought. And I think, in 2018, we'll have some new doors open. Additionally, as you mentioned and we talked about in the prepared remarks, there are some contracts that slow down the pace of change. And I think over the next six months, we'll be able to give you some more color on our success on those particular relationships.

Thank you. And our next question comes from the line of Curtis Nagle with Bank of America Merrill Lynch.

Great. Thanks very much for taking the question. So just, I guess, a quick clarification on where North America is running. Scott, did you say around 16% going into 4Q, so adjusting out for that one big retailer and hurricane, or is it something else?

Yeah. I think the 16% I was reconciling to was really reconciling the third quarter, and then I did say that we were running the same trends going into the fourth quarter. So, I guess you could make that intellectual jump, which would be fine. I think the only thing else I should point out is, in the fourth quarter, October is the less robust month of the quarter, and the lion's share of the sales in the fourth quarter really come through the November-December timeframe. So, we started out well in the fourth quarter, but again, it's the smallest part of the quarter.

Thank you. And we have a follow-up question from the line of Keith Hughes with SunTrust.

Thank you. Just in terms of Tempur-Pedic sales, you've given us the growth rates non-Mattress Firm. Can you give us just the total brand growth in the quarter?

The total brand growth? No, we don't have that in front of us right now. So, I'm going to say no. What else can I give you? Guess we lost it. Okay. Do we have another question, operator?

That concludes our question-and-answer session. I'd like to hand things back for closing comments.

Thank you. To the 7,000-plus employees worldwide, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders, lenders, thank you for your confidence in Tempur Sealy management. Operator, that ends the call. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.