Sleep Number Corporation (SNBR) Earnings Call Transcript & Summary

Welcome to the Sleep Number Corporation Annual Meeting of Shareholders. I would now like to turn the conference over to Sam Hellfeld.

Good morning and welcome to the Sleep Number Corporation Annual Meeting of Shareholders. I am Sam Hellfeld. My Sleep Number setting is 65, and my average SleepIQ score is 76. I'm the Chief Legal and Risk Officer, and I will serve as secretary for this meeting. Thank you for attending our virtual Annual Meeting. This is the fourth year for this virtual format. I am here today at our headquarters in Minneapolis, Minnesota with Shelly Ibach, our President and CEO; David Callen, our Chief Financial Officer; and Dave Schwantes, our Vice President of Investor Relations. We are maintaining appropriate social distancing. I am happy to be joined today virtually by our full Board of Directors and senior management team. I want to thank our Board members for their stewardship of our company throughout the year and their ongoing commitment to long-term shareholder value. For today's meeting, we will begin with formal shareholder business and voting followed by a business presentation by Shelly. After the business presentation, we will conclude with a question-and-answer session. The 2020 Annual Meeting of Shareholders of Sleep Number Corporation is called to order. Our record date was March 18, 2020. Shareholders as of that date are entitled to vote at this meeting. The polls are currently open. Shareholders with valid control numbers may vote through our virtual meeting site at this time. The polls will be closing shortly. Notice of this meeting was mailed to shareholders of record on or about March 31, 2020. Holders of more than 84% of our outstanding shares are represented at this meeting. Therefore, a quorum is present and the meeting is properly convened. Tony Carideo from the Carideo Group has been appointed to serve as our independent inspector of elections. Mr. Carideo has signed the oath of inspector, and the oath will be placed in the corporate record books. We will now present the matters to be voted on by shareholders, and then the polls will be closed. The first matter to be voted on is the election of directors. The Board has nominated Julie M. Howard, Kathleen L. Nedorostek and Jean-Michel Valette, each to serve a term of 3 years expiring at the 2023 Annual Meeting. Our second proposal is the approval of the Sleep Number Corporation 2020 Equity Incentive Plan. Our third proposal is the advisory vote on executive compensation. And our fourth and final proposal is the advisory vote on the ratification of Deloitte & Touche to serve as the company's independent auditors for the 2020 fiscal year. That concludes the items to be voted on by shareholders. We will be closing the polls momentarily. Based on a preliminary count of the votes received in advance of this meeting, each of the company's nominees for director received the affirmative vote of more than 87% of the shares voted. The approval of the Sleep Number Corporation 2020 Equity Incentive Plan has been approved by more than 77% of the shares voted. The advisory vote on executive compensation has been approved by more than 86% of the shares voted. And the advisory vote on the ratification of our independent auditors has been approved by more than 99% of the shares voted. Shortly after the election is certified by the independent inspector, we will report the final results on a Form 8-K filed with the SEC. All items of business have been presented. The polls are now closed, and the formal portion of our meeting is now adjourned. We will now proceed with the business presentation by Shelly Ibach, our President and CEO. Please note that both the commentary presented today as well as our responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties outlined in our public filings. The company's actual future results may vary materially. Shareholders with valid control numbers may submit questions through our virtual meeting site. If you wish to ask a question, please provide your name and firm name, if applicable. I will now turn the meeting over to Shelly for her comments.

Good morning and welcome to our 2020 Annual Shareholders' Meeting. My SleepIQ score was 78 last night. In only a few months, the coronavirus pandemic has dramatically altered our life and disrupted the global economy, creating a health and financial crisis that is testing the resilience of individuals and companies. In the face of this significant challenge, I am inspired by our Sleep Number team's dedication to our mission and values of passion, integrity, innovation, courage and teamwork. I am proud of the strong relationships we have built with customers and the beneficial impact we have on their lives through our innovative products and processes that leverage digital technology. I am thankful to our Board for their strategic consistency, wisdom and support, and I appreciate the ongoing trust and confidence of our shareholders. Our team's high engagement, broad experience and perseverance are evident in the speed and decisiveness of our actions during the past 2 months. Amid unbelievable constraint, we have been innovative and agile in reaching consumers who are drawn to our brand. We are converting them to Sleep Number loyalists, helping them achieve higher-quality sleep and optimizing outcomes for our business. Despite the difficulties caused by the pandemic, we are making operational and strategic progress and further advancing our mission to improve lives by individualizing sleep experiences. As concerns about immunity have grown, consumers have been increasingly focused on health and wellness for themselves and their loved ones. Research shows that more than half of Americans say their sleep has been negatively affected by the stress of the coronavirus. Yet, SleepIQ sleepers are benefiting from 11 more minutes of restful sleep each night since the pandemic began. We've established a strong connection between quality sleep and wellness. The life-changing benefits of our 360 smart bed are of vital importance to society now more than ever. earlier this year, we entered an extensive collaboration with the Mayo Clinic, the nation's #1 hospital, to further sleep science and research with an emphasis on cardiovascular medicine. In addition to this groundbreaking agreement, we recently announced our advisory board of sleep science and health experts who are providing consults on innovations and technology advancements. This month, we introduced 2 new features of our Sleep Number 360 smart bed software: sleep circadian rhythm analytics and personalized SleepIQ wellness reports. Using data and research from more than 700 million sleep sessions, our proprietary digital health platform is linking quality sleep to individualized health and wellness. Our long-term perspective, differentiated consumer innovation strategy and the investments we have made to strengthen our competitive advantages have produced exceptional long-term results, culminating in record 2019 performance. Our top decile results for the year included: 11% increase in net sales to $1.7 billion, 21% increase in net operating profit, 41% growth in earnings per diluted share to $2.70 and 17.8% return on invested capital. And despite this severe adverse impact of the pandemic on consumer demand late in the first quarter, we delivered an extraordinary first quarter 2020 performance, including 11% increase in net sales 61% increase in net operating profit and 70% growth in earnings per diluted share to $1.36. Through our team's purpose-driven commitment, Sleep Number is making a difference for each other, our customers, our company and our shareholders. We have awakened consumers to the importance of high-quality sleep and its benefits to overall wellness, and we are proud that we have improved the lives of more than 12 million people to date. Quality sleep contributes positively to society's well-being. We are doing everything in our power financially, strategically and operationally to effectively navigate through this crisis, keep our teams safe and help our customers and communities achieve higher-quality sleep. In closing, I would like to thank our long-time Board member, Michael Peel, for his dedicated service, leadership and significant contributions. Mike will be retiring from the Board when his term expires at the end of the shareholder meeting. I also want to welcome Julie Howard as our newest member of the Board of Directors. Julie brings significant strategic, financial and global expertise from her tenure as the former Chief Executive Officer of Navigant Consulting. I will now turn the meeting back to Sam.

Thank you, Shelly. We will now open the meeting to questions. Shareholders with valid control numbers may submit questions through our virtual meeting site. If you wish to submit a question, please provide your name and the firm name, if applicable. Please note that we may not answer all questions. We may follow up directly with shareholders with respect to questions submitted. With no questions submitted, our Q&A session has now concluded. Thank you all for joining us, and thank you for your support. The meeting is now adjourned. Sleep well, and be well.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.