Good morning, ladies and gentlemen, and welcome to the Tempur Sealy Fourth Quarter 2017 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. I would now like to introduce your host for today's conference, Ms. Aubrey Moore, Investor Relations. You may begin.

Thank you, operator. Good morning, everyone, and thank you for participating in today's call. Joining me in our 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 adjusted EBITDA, and anticipated performance for 2018 and subsequent periods, and product launches, involve uncertainties. Actual results may differ due to a 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 the Form 10-K and the company's Quarterly Reports on 10-Q under the heading 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 information. The press release contains reconciliations of these non-GAAP financial information to the most directly comparable GAAP information except as otherwise discussed in the press release, as well as information regarding the methodology used in our constant currency presentation. We have posted the press release on the company's investor website at investor.tempursealy.com and have also filed it with the SEC. Our comments will supplement the detailed information provided in the press release. And now, with that introduction, it is my pleasure to turn the call over to Scott.

Thank you, Aubrey. Good morning and thank you for joining us on our 2017 fourth quarter and full year earnings call. Today, I will start by highlighting a few items from our fourth quarter results, and then Bhaskar will take us through the detailed financial results for the quarter and year. Then, I'll conclude when then updating you on our long-term corporate initiatives. Now, turning to our financial highlights. 2017 adjusted EBITDA was $449 million, which is at the top end of our earnings guidance. I'm proud of how the team managed the short-term deleverage associated with the termination of our largest customer, Mattress Firm, a subsidiary of Steinhoff International. Additionally, the team also continued setting an important foundation to the long-term growth of the company, strengthening relationships with our key retail partners, building the company's direct-to-consumer capabilities, and remaining laser-focused on new product development. To succeed in today's environment, whether we're talking about bedding or any other consumer product, the key success factors are the same: develop great products and improve customers' lives, clearly communicate the benefit of these products, and then make these products available in whichever channel the consumer wants to purchase them. We remain laser-focused on these three key success factors. We expect they will deliver significant growth in shareholder value. Now, for some details on the fourth quarter, all amounts are excluding Mattress Firm from the prior numbers. Tempur Sealy performed in line with our expectations in North America, growing 19%. This is particularly encouraging given that the current Tempur-Pedic lineup is in the fourth year and is nearing a refresh point. In a traffic-challenged retail environment, the Tempur-Pedic brand is more important than ever to our retailers because it allows them to raise their average ticket price. The Sealy brand sales declined 3% in…

Thank you, Scott. I'd like to start with a few key fourth quarter highlights. Global net sales were $648 million. Adjusted gross margin increased 100 basis points to 42.7%. Adjusted operating margin was 13%. Adjusted EBITDA was $112 million, and adjusted earnings per share for the quarter was $0.79. Our leverage ratio, as calculated under our senior credit facility, was 3.9 times, which is in the range of our 3 to 4 times debt target. We expect to be slightly above this range in the first quarter of 2018, which we believe will be our highest leverage ratio as is seasonally expected. And this will be the last quarter we lap Mattress Firm termination. We expect to be back within our target range within 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 4%, driven by strong Tempur growth of 19%. Sealy branded sales declined 3% in the fourth quarter, excluding Comfort Revolution which declined over 30% compared to the prior year. Comfort Revolution sales tend to be lumpy depending on specific customer orders. Our North American wholesale channel increased 1% and the direct channel increased a robust 56%. We expect our direct channel to continue to have strong growth in 2018. North American adjusted gross margin increased 30 basis points to 39.8% as compared to the prior year. I would like to note that our North American gross margins have returned to the same level as we had prior to the Mattress Firm termination. This was driven by operational improvements, lower floor model discounts, and favorable product and channel mix. This was partially offset by significant commodity cost inflation and fixed cost deleverage on lower unit volume. Tempur gross margin was up…

Thanks, Bhaskar. Great job. Turning to our long-term corporate initiatives. First, developing innovative bedding products in all the markets we serve. We are launching new products in North America across the Tempur-Pedic and Sealy brands. On the Sealy side, we're introducing a new Sealy Hybrid line with dramatically improved feel and aesthetics. As a reminder, a year ago, we began to roll out our new Sealy products under Master brand. We simplified our product portfolio by clearly differentiating product lines to create easier selling processes for retailers, while also being designed for manufacturability, driving improved product quality and efficiency. You can see it in our results as the Sealy four-wall margin continued to expand in the fourth quarter. 2018 Tempur-Pedic launch is immense and is the most integrated product offering in the brand's history. It encompasses the entire revamped line of mattresses, pillows, and adjustable bases. With both the retailer and consumer in mind, Tempur 2018 was designed to ease the shopping experience, improve the productivity at each SKU, and increase our unit market share. As we've dramatically simplified the product portfolio, simplification helped both the consumer and the RSA understand the differentiation and step ups between our various Tempur beds. The launch will take us 18 months to fully roll out. The first phase of our roll-out is concentrated on the entry level, Adapt models. The mid-level, ProAdapt models, which will be followed by our premium ProAdapt Luxe and Breeze models in late 2018 and early 2019. The new TEMPUR-ARP (sic) [TEMPUR-APR], advanced pressure relief, is a breakthrough formula that we have been working on for over three years. We're using new manufacturing techniques to deliver revolutionary pressure relief power. TEMPUR material already delivers two times the pressure relief benefits of ordinary memory foam. APR continues that tradition while…

Thank you. Thank you. Our first question comes from Curtis Nagle with Bank of America Merrill Lynch. Your line is open.

Great. Thanks very much. So, Scott, I'm just curious if you guys could maybe give an update in terms of potentially new slotting, new contracts. It looks like – I think you gained some increased penetration, at least a few of your retailers, and just wondering if you could comment on that and how the new product lines maybe helping.

Sure. Thanks for the question. I mean, first of all, obviously, the Sealy Hybrid has been very well received. And I would expect that we would have a reasonable number to significant incremental slots coming from the Sealy Hybrid launch. The Tempur launch, as we've talked about, Tempur 2018, we're not really looking for new slots because Tempur's well-distributed. What we're looking for there is additional slot velocity. As far as just the normal give-and-take in the marketplace between customers, I think we're doing very well in gaining placement just overall in the marketplace based on my review of our activity post Las Vegas Bedding show.

Thank you. Our next question comes from Bob Drbul with Guggenheim Securities. Your line is open.

Hi. Good morning. I guess, one of the numbers that I'd be interested in knowing is, when you look at the sales now ex-Mattress Firm, your top five wholesale partners, could you give us that number in terms of where you ended 2017? And I just wondered if you could comment a little bit more on just the online bed-in-a-box, where you see that from a competition perspective and how you guys are fitting in with what's happening there. Thank you.

Sure. Thank you. Thank you for the question. I guess the first question was what Bhaskar?

It was top five.

Top five? Okay. On the top five – it's interesting, our top five are no longer material, so they aren't separated out in our disclosures like they were previously. But if you aggregate the top five, in total, they are less than 20% of our business. But I think the more important point, or at least the one that I have looked at, is if you look at our direct business, our direct business right now is our largest customer, and I think that's very healthy. You asked about kind of what we're thinking about bed-in-a-box. Yeah. I'd start always with the Internet, because people get a little confused, when I talk about bed-in-a-box, I think I'm talking about Internet bedding. Our perspective is Internet bedding is growing and is taking share from the brick-and-mortar side. We are benefiting from that. As you can see, our direct businesses, online 56%, the majority of that would be the online stuff is growing. Within the category of online bedding, okay, there's a subsection called bed-in-a-box. The bed-in-a-box group is probably growing some, but it looks like that growth rate has slowed significantly. It looks like the traditional retailers are beginning to push back, and we certainly are helping them push back with capabilities online.

Thank you. Our next question comes from Bobby Griffin with Raymond James. Your line is open. Robert Griffin - Raymond James & Associates, Inc.: Good morning, guys. I appreciate you taking my questions. Scott, I was hoping, when you gave us a little color about how we should think about ASPs in 2018 and really I'm looking for in reference to the 3% price increase that's coming in March. And then also the possible mix issue that might happen because you guys are focused on kind of the lower-end Tempur first during the new product launch.

Okay. Let me try that and then Bhaskar will probably need to clean it up a little bit. Clearly, we expect ASP to go up because of the price increase as you mentioned that goes into effect at the end of March. We're also mixing up on Sealy as we talked about, that spoke from a strategy standpoint, we're moving to higher value product. And then in the department store chains, there's been some pressure, so under $1,000 beds are a little weaker. So, we're going to mix up on Sealy. On Tempur, you are right. The way we've got the launch scheduled, the entry level Tempur beds hit the floor first which generally have slightly lower margins than the higher-end Tempur beds. So we expect with the success of the launch that we'll have a merchandising mix issue in Tempur, and that will mix down. So, Sealy mix is up, Tempur mix is down until we get the complete launch out over the next 18 months. I know there's some puts and takes. Bhaskar, would you add anything to that?

I think that's fair. Sealy, expect to mix up and Tempur would be down for those reasons that you mentioned.

Thank you. Our next question comes from Keith Hughes with SunTrust. Your line is open.

Thank you. Your growth at non-Mattress Firm stores have been pretty consistent all this year in the 10% range, it decelerated down here in the fourth quarter. Is there any kind of detail you can give us on what happened in the quarter at non-Mattress Firm? Were there any retailers that you lost slots? Or just any kind of detail would be great.

No. I mean, we talked about the pressure on Sealy, and we kind of called that out in the prepared remarks. We're still looking at the fourth quarter data. It takes us a while to get all the sources of data, and we end up reporting earnings before we get all the data. But I think my early gut indication on the fourth quarter from what I've been able to derive from, both our numbers and then other sources, is that I don't think the fourth quarter was that strong in bedding. And we felt some of that. I think when you look at the traditional brands, I think Sealy is going to look like it performed pretty well compared to the other traditional brands from my research. And I think Tempur's performance at 19% growth, in what I think is going to be a kind of a sluggish fourth quarter bedding market, is going to look outstanding on the high end. And you asked about major customer losses or anything. The only significant customer loss is Conn's which is a public company, which has been disclosed previously. Other than that, we've been net wins, and quite a few net wins, and it's done particularly well in the hospitality side of the business.

Thank you. And our next question comes from William Reuter with Bank of America Merrill Lynch. Your line is open.

Hey, guys. Good morning. I'd like to ask a question about your capital allocation. You mentioned that you may revisit share repurchases during the year. I guess, can you talk about what things you are going to like to see before you revisit those, and I guess, how you guys are thinking about that in the context of other capital allocation options such as reducing debt or M&A?

Sure. Great. Great question. As you probably remember, when I first got here, we did a lot of stress testing of the business model. And ultimately, came up with a leverage ratio of 3.5 times. And then when we came up with that point, we kind of ranged it as, call it, 3 to 4 times is the range we'd be comfortable in. Then we had the Mattress Firm situation in that that got us out of our target range, and we've been in what I will call debt pay-down mode, we are at 3.9, I think on the reported numbers today, but we have some seasonality that's going to hit us in the first quarter, and then we drop off the last quarter of Mattress Firm sales. And so, we expect to tick up, as Bhaskar mentioned in his prepared remarks, a tad bit over 4. So, what we're expecting is, based on our 2018 outlook is that during 2018, we're going to get comfortably into our normalized range for leverage. Once we're in our normalized range for leverage, we'll be throwing off excess cash flow, and that cash flow we'll have to find home for it because we don't want to deleverage too much. We always give the business units first call on cash and to the extent that they can use the cash at a high return on invested capital, the business gets it first. We constantly are looking at small acquisitions here and there. If we found something that had a high return on invested capital, we would think about it more aggressively, but we haven't seen anything. But assuming that the business doesn't need the cash flow and assuming there's not a highly accretive or strategic acquisition that we see on the horizon, we'll be probably buying back stock. That's been the history of the company and been the strategy and that capital allocation I just kind of walked through has been foundational for the company since I got here.

Thank you. And our next question comes from Michael Lasser with UBS. Your line is open.

Good morning. Thanks a lot for taking my questions, two-parter. Number one, Scott, you seemed to attribute the revenue shortfall versus where the market was expecting to some softness in December and some softness in the Sealy brand. Could it be that maybe just the bed-in-a-box guys are starting to have a little bit more of an impact on the industry because they've reached critical mass and is that pushing up customer acquisition costs? And the second part of my question is how will you look to try and take advantage of some of the issues that the Mattress Firm parent company and potential store closures and the dynamics of that situation in the year ahead? Thank you so much.

Well, first of all, you did a great job to get 18 questions in on one call. I tried to write them down, so I'm going to probably have to ask Bhaskar to list off the questions because I'm not smart enough to remember them all. But let me try to get to some of them. First of all, we manage the entire income statement and we really don't focus on sales. We've hit our guidance three years in a row, and we're at the top end of our guidance this year. And rightfully or wrongfully, I manage the entire income statement. So, I don't get that wound up on the sales forecast. What's more important to this business model rather than the gross sales, which I know that's what's the Street is focused on, is where those sales come from, which product do they come from. And even within that product, do they come from the high-end product where there's more margin or the low-end product. And then what channel those sales come through. That's really more important. I want to point out one thing on Sealy. Even though the Sealy revenues declined, and I don't think we're walking away from them. They're down 3% when you take Comfort Rev out of it. But if you look at the contribution profit of Sealy, the contribution profit from Sealy increased in the fourth quarter even though the sales slightly decreased. That is kind of what I'll call proof positive of the way we think about the business. It means that we successfully merchandised the product. You asked the question is this bed-in-a-box guys? I don't think so. I mean, look they're a competitor out there and they're selling some units, so they have some impact. But no, I mean, when…

Correct.

Look, it's a dynamic situation across the world, and I'll start with Steinhoff because you got to kind of get the whole answer on it. Steinhoff has run into some challenges. I've got great empathy for the over 100,000 people whose lives have some uncertainty in them. I've been in difficult situations before and your first thing is, it's tough on the workforce. But having said that, internationally Steinhoff is a very good customer of ours. We are working very closely with every one of their international non-U.S. subsidiaries to help them wherever we can to drive their business. We are watching our credit exposure closely. But, look, we're doing everything we can to help Steinhoff internationally. When you talk about U.S. and Mattress Firm, we are doing everything we can to compete very aggressively with Mattress Firm. They are our competitor. And our new product is designed to win at retail with retailers that support us. Our advertising is designed that way, and all of our direct initiatives are pointed at Mattress Firm who don't carry our products. They're a competitor. They're clearly going to close some stores. I would suspect that there is some benefit to us in closing stores as there will be some incremental sales that will move through other channels, and those channels, certainly we have a balance of share. It's impossible to figure out exactly what that number is, because you don't know what the stores are, what the size are, and what the performance will be. But, look, anything that is a headwind for Mattress Firm, by definition is a positive for us, and we're working to put as many headwinds in front of them as we can.

Thank you. And our next question comes from John Baugh with Stifel. Your line is open. John Allen Baugh - Stifel, Nicolaus & Co., Inc.: Good morning. If I'm not mistaken, we haven't had a question yet on the international side of your business which is a third of your business. Could you talk about demand trends, talk about inflation of commodities versus pricing internationally, and then sort of the direct versus wholesale outlook across the world outside of North America? Thank you.

Sure. My international team will be thrilled that you asked the question because they've also noticed sometimes I don't get to talk about the international operations. Like we always say on international, it's complicated because you've kind of got to go by country, so you have to kind of stop and figure out how to talk about it without going into country-by-country. Clearly, we had a hiccup in Latin America. We own it. It's been around since before we acquired them in 2013. We've got our arms around it. And we're moving forward there. And we don't expect to have a significant impact going forward. If you look at Europe, Europe's in pretty good shape. I mean, the European economy feels pretty good. European consumer feels pretty good. We've got growth in Germany, which is one of our major markets, which you probably remember maybe a year ago we were having some problems in. So, we've got some growth coming in in Germany. Our new products are out and they seem to be performing, what I'd call, okay. So, we feel good about Germany. Where the long term growth, if you're talking about just growth, and the dollars are probably in Europe, but the growth rate is in Asia. And all of the Asian markets, I'm looking at Bhaskar, I think all the Asian markets are performing what I would call very well. And we also participate in Asia through our Asian joint venture, and our Asian joint venture which primarily is focused in China, is doing very well. You don't see the consolidated numbers. It comes through as a one line. But overall, ex a hiccup down in Latin America, international is performing well.

Thank you. And our next question comes from Carla Casella with JPMorgan. Your line is open.

Can you hear me?

Yeah.

Hi. Earlier you talked about inflation. Can you just talk about the elements of it, how much of the inflation expectation is transportation versus commodity?

Sure. I mean, first of all, we clearly have some inflation in the system, and we've dealt with the vast majority of it through price increases. And the industry in general has had a history of being able to pass on commodity increases and specifically, Tempur-Pedic has demonstrated pricing power. Bhaskar, I'll let you talk about the guidance and commodity in just a second. You also mentioned transportation, which doesn't pop-up very often, but we should talk about. In the transportation area or logistics area, there's clearly also some inflation that we're working through, but that is all taken into consideration in the guidance. But there is also some inflation rolling through the logistics area. Anything else Bhaskar you can think of on that?

Overall, from our perspective is prior we had seen and with what we were seeing for 2018 was approximately $30 million. Since that time, we have seen incremental pressure on that amount. But as I noted in my prepared remarks, between the combination of the price increase as well as the operational initiatives we have, we believe that will fully offset.

Thank you. And our next question comes from Peter Keith with Piper Jaffray. Your line is open. Robert A. Friedner - Piper Jaffray & Co.: Hi, yeah. Good morning. It's actually Bobby Friedner on for Peter this morning. Just want to circle back to some of the Sealy questions. Can you give us more color on the growth outlook for Sealy this year and any insight on share capture rate. I think you touched on competition and mix. Seems like there's been a lot of moving parts the past few quarters, but it does seem like there are structural challenges at the lower end. So, any detail how you're thinking about the growth for the coming year would be great. Thank you.

Yeah. Let me work on it a little bit and see if I can give you some color that'll help, and we'll get Bhaskar to chip in a little bit. We're not going to give revenue guidance in total and certainly not going to give revenue guidance by brand. You're absolutely right there are a lot of moving parts. There's a lot of change going on in distribution. And some of that distribution kind of whipsaws us both positive and negatively. And we're working through it. I think we said it – we kind of said in the prepared remarks that the under the $1000 is clearly there's some change and that distribution's moving around, and where it actually lands I'm not sure, but we're working through it. And it's combined in our numbers and strategically we continue to move and try to mix up with the Sealy brand. But I suspect that we're going to see, as I said, I think in my closing sentence, we're expecting a change in retail environment, and we're planning for a change in retail environment. But I'm not in a position today to tell you exactly what that change is going to be because we're working through it as the market works through it. You can think of anything else?

One thing I would add is, is that from a strategic standpoint, we want to be where the consumer is willing to consume that product. And just to close it out, the Hybrid, the new Sealy Hybrid has been received very favorably.

Yeah. And I think you could look at the Sealy number or something and think it's – you can pinpoint where there are distribution changes, when you look through our customer base. It's one or two customers that that distribution is moving around. There's a lot of customers that have pretty good growth to significant growth in the Sealy brand.

Thank you. And we have a follow-up from Curtis Nagle with Bank of America Merrill Lynch. Your line is open.

Thank you very much. Just curious kind of on the comments that the new stores for this year, I think you might be targeting around 40 by year-end. I guess, why they wouldn't be material just given how many you're adding and given the comments that the payback period is only six months?

Yeah, I mean, when you look at the total of our revenues, I mean, 40 stores is not going to be material. Now, strategically they're very important. And I probably should add that on the stores that we've opened, they are running ahead of our budgeted pro forma by a pretty good bit. But 40 stores is not going to be material to the base of business that we have. I think as you get into 2019, when you look at the direct stores, and you look at the growth online, it probably begins to be something that I would call material. But developing those capabilities is certainly significant. And I think that's our primary goal in 2018, is to continue to develop our capabilities on direct. But our primary focus is clearly third-party retailers.

Okay. Fair enough.

Thank you. And our next question comes from Keith Hughes with SunTrust. Your line is open.

Yeah. Just one follow-up. We're two months into the quarter, and just came through a big holiday weekend, what's kind of your view on the selling landscape to start 2018?

Well, I'm sitting here wondering whether you guys are going to let me get off the call without asking about current trends, and I'm glad because you didn't disappoint me. Look, as we said in the prepared remarks, December slowed, so as you might guess, and as you've probably heard from others, January started out a little bit slow. And we saw the same things we saw in the fourth quarter, in the start – the first quarter and that Tempur is stronger than Sealy. Having said that, I've also always said this, this industry is more volatile than I would have thought, and it's volatile. And even though January started off slow, if I look at Presidents' weekend, and I could have just answered your direct question about Presidents' weekend, but that would have been kind of misleading. Presidents' weekend looks to be very solid. We're still in the middle of our promotion. It doesn't end yet, so we're not through, but it's looking like Presidents' weekend is going to be very solid. And the first information I've received from our retailers, it looks like it's solid. If I just look at our direct business, which we get that information very timely because it's our business, we're up over 100% for the four-day period of Presidents' weekend. So, again, the way I'd summarize it is January started out slow, Presidents' weekend looks very solid.

Thank you. And I'm showing no further questions at this time. I would like to turn the call back to Mr. Scott Thompson for any closing remarks.

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 and lenders, thank you for your confidence in Tempur Sealy's leadership team and its board of directors. This ends the call today, operator. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.