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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 September 27, 2025
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-25121
_______________________________________________________________________
SLEEP NUMBER CORPORATION
(Exact name of registrant as specified in its charter)

Minnesota |  | 41-1597886
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1001 Third Avenue South |  |
Minneapolis, |  | Minnesota |  | 55404
(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 class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.01 per share |  | SNBR |  | Nasdaq 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 filer | ☐ |  | Accelerated filer | ☒
Non-accelerated filer | ☐ |  | Smaller 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 September 27, 2025, 22,790,000 s hares of the registrant’s Common Stock were outstanding.

i | 2Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
INDEX

| Page
PART I: FINANCIAL INFORMATION | 1
Item 1. | Financial Statements (unaudited) | 1
| Condensed Consolidated Balance Sheets | 1
| Condensed Consolidated Statements of Operations | 2
| Condensed Consolidated Statements of Shareholders' Deficit | 3
| Condensed Consolidated Statements of Cash Flows | 4
| Notes to Condensed Consolidated Financial Statements | 5
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28
Item 4. | Controls and Procedures | 28
PART II: OTHER INFORMATION | 29
Item 1. | Legal Proceedings | 29
Item 1A. | Risk Factors | 29
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29
Item 3. | Defaults Upon Senior Securities | 29
Item 4. | Mine Safety Disclosures | 29
Item 5. | Other Information | 29
Item 6. | Exhibits | 30
SIGNATURES | 32

1 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of contents
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)

| September 27, 2025 |  | December 28, 2024
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $1,264 |  | $1,950
Accounts receivable, net of allowances of $920 and $1,113, respectively | 13,902 |  | 17,516
Inventories | 89,831 |  | 103,152
Income taxes receivable | 11,903 |  | —
Prepaid expenses | 14,355 |  | 14,568
Other current assets | 38,545 |  | 44,098
Total current assets | 169,800 |  | 181,284
Non-current assets: |  |  |
Property and equipment, net | 95,126 |  | 129,574
Operating lease right-of-use assets | 316,959 |  | 356,641
Goodwill and intangible assets, net | 66,246 |  | 66,412
Deferred income taxes | 24,930 |  | 33,575
Other non-current assets | 76,327 |  | 93,324
Total assets | $749,388 |  | $860,810
Liabilities and Shareholders’ Deficit |  |  |
Current liabilities: |  |  |
Borrowings under credit facility | $579,500 |  | $546,600
Accounts payable | 106,967 |  | 107,619
Customer prepayments | 36,754 |  | 46,933
Accrued sales returns | 14,932 |  | 19,092
Compensation and benefits | 18,537 |  | 31,038
Taxes and withholding | 10,555 |  | 18,619
Operating lease liabilities | 82,001 |  | 82,307
Other current liabilities | 49,566 |  | 55,804
Total current liabilities | 898,812 |  | 908,012
Non-current liabilities: |  |  |
Operating lease liabilities | 279,028 |  | 307,201
Other non-current liabilities | 92,890 |  | 97,183
Total liabilities | 1,270,730 |  | 1,312,396
Shareholders’ deficit: |  |  |
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | — |  | —
Common stock, $0.01 par value; 142,500 shares authorized, 22,790 and 22,388 shares issued and outstanding, respectively | 228 |  | 224
Additional paid-in capital | 31,078 |  | 27,390
Accumulated deficit | (552,648) |  | (479,200)
Total shareholders’ deficit | (521,342) |  | (451,586)
Total liabilities and shareholders’ deficit | $749,388 |  | $860,810

See accompanying notes to condensed consolidated financial statements.

2 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

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

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net sales | $342,879 |  | $426,617 |  | $1,064,065 |  | $1,305,479
Cost of sales | 137,490 |  | 167,089 |  | 424,396 |  | 528,287
Gross profit | 205,389 |  | 259,528 |  | 639,669 |  | 777,192
Operating expenses: |  |  |  |  |  |  |
Sales and marketing | 167,430 |  | 205,480 |  | 502,997 |  | 596,392
General and administrative | 31,792 |  | 33,070 |  | 100,015 |  | 111,722
Research and development | 7,328 |  | 10,583 |  | 27,651 |  | 34,602
Restructuring costs | 39,154 |  | 1,963 |  | 47,546 |  | 14,382
Total operating expenses | 245,704 |  | 251,096 |  | 678,209 |  | 757,098
Operating (loss) income | (40,315) |  | 8,432 |  | (38,540) |  | 20,094
Interest expense, net | 12,687 |  | 12,057 |  | 35,502 |  | 36,626
Loss before income taxes | (53,002) |  | (3,625) |  | (74,042) |  | (16,532)
Income tax benefit | (13,212) |  | (489) |  | (594) |  | (863)
Net loss | $(39,790) |  | $(3,136) |  | $(73,448) |  | $(15,669)
Basic net loss per share: |  |  |  |  |  |  |
Net loss per share – basic | $(1.73) |  | $(0.14) |  | $(3.21) |  | $(0.69)
Weighted-average shares – basic | 22,964 |  | 22,643 |  | 22,858 |  | 22,588
Diluted net loss per share: |  |  |  |  |  |  |
Net loss per share – diluted | $(1.73) |  | $(0.14) |  | $(3.21) |  | $(0.69)
Weighted-average shares – diluted | 22,964 |  | 22,643 |  | 22,858 |  | 22,588

See accompanying notes to condensed consolidated financial statements.

3 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

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

| Common Stock |  | Additional Paid-in Capital |  | Accumulated Deficit |  | Total
| Shares |  | Amount |  |  |
Balance at December 28, 2024 | 22,388 |  | $224 |  | $27,390 |  | $(479,200) |  | $(451,586)
Net loss | — |  | — |  | — |  | (8,646) |  | (8,646)
Stock-based compensation | 346 |  | 3 |  | 3,948 |  | — |  | 3,951
Repurchases of common stock | (74) |  | — |  | (563) |  | — |  | (563)
Balance at March 29, 2025 | 22,660 |  | $227 |  | $30,775 |  | $(487,846) |  | $(456,844)
Net loss | — |  | — |  | — |  | (25,012) |  | (25,012)
Stock-based compensation | 149 |  | 1 |  | 1,548 |  | — |  | 1,549
Repurchases of common stock | (38) |  | — |  | (381) |  | — |  | (381)
Balance at June 28, 2025 | 22,771 |  | $228 |  | $31,942 |  | $(512,858) |  | $(480,688)
Net loss | — |  | — |  | — |  | (39,790) |  | (39,790)
Stock-based compensation | 27 |  | — |  | (789) |  | — |  | (789)
Repurchases of common stock | (8) |  | — |  | (75) |  | — |  | (75)
Balance at September 27, 2025 | 22,790 |  | $228 |  | $31,078 |  | $(552,648) |  | $(521,342)

| Common Stock |  | Additional Paid-in Capital |  | Accumulate d Deficit |  | Total
| Shares |  | Amount |  |  |
Balance at December 30, 2023 | 22,235 |  | $222 |  | $16,716 |  | $(458,866) |  | $(441,928)
Net loss | — |  | — |  | — |  | (7,482) |  | (7,482)
Stock-based compensation | 134 |  | 1 |  | 4,116 |  | — |  | 4,117
Repurchases of common stock | (43) |  | — |  | (570) |  | — |  | (570)
Balance at March 30, 2024 | 22,326 |  | $223 |  | $20,262 |  | $(466,348) |  | $(445,863)
Net loss | — |  | — |  | — |  | (5,051) |  | (5,051)
Stock-based compensation | 32 |  | 1 |  | 3,991 |  | — |  | 3,992
Repurchases of common stock | (3) |  | — |  | (42) |  | — |  | (42)
Balance at June 29, 2024 | 22,355 |  | $224 |  | $24,211 |  | $(471,399) |  | $(446,964)
Net loss | — |  | — |  | — |  | (3,136) |  | (3,136)
Stock-based compensation | 24 |  | — |  | 1,432 |  | — |  | 1,432
Repurchases of common stock | (8) |  | — |  | (116) |  | — |  | (116)
Balance at September 28, 2024 | 22,371 |  | 224 |  | 25,527 |  | (474,535) |  | (448,784)

See accompanying notes to condensed consolidated financial statements.

4 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)

| Nine Months Ended
| September 27, 2025 |  | September 28, 2024
Cash flows from operating activities: |  |  |
Net loss | $(73,448) |  | $(15,669)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |  |
Depreciation and amortization | 42,631 |  | 50,379
Stock-based compensation | 4,712 |  | 9,541
Loss on impairment of strategic investment asset | 16,134 |  | —
Loss on disposal and impairment of leased assets | 19,753 |  | 2,457
Deferred income taxes | 8,645 |  | (7,014)
Changes in operating assets and liabilities: |  |  |
Accounts receivable | 3,614 |  | 9,833
Inventories | 13,321 |  | 22,394
Income taxes | (18,267) |  | 1,708
Prepaid expenses and other assets | 3,159 |  | (8,012)
Accounts payable | 10,157 |  | 4,980
Customer prepayments | (10,179) |  | (5,629)
Accrued compensation and benefits | (12,491) |  | 788
Other taxes and withholding | (1,701) |  | (1,157)
Other accruals and liabilities | (11,199) |  | (13,775)
Net cash (used in) provided by operating activities | (5,159) |  | 50,824
Cash flows from investing activities: |  |  |
Purchases of property and equipment | (11,888) |  | (17,218)
Payment to secure contractual rights | (3,280) |  | —
Issuance of note receivable | — |  | (2,942)
Proceeds from sales of property and equipment | — |  | 156
Net cash used in investing activities | (15,168) |  | (20,004)
Cash flows from financing activities: |  |  |
Net increase (decrease) in short-term borrowings | 22,219 |  | (31,039)
Repurchases of common stock | (1,019) |  | (728)
Debt issuance costs | (1,559) |  | —
Net cash provided by (used in) financing activities | 19,641 |  | (31,767)
Net decrease in cash and cash equivalents | (686) |  | (947)
Cash and cash equivalents, at beginning of period | 1,950 |  | 2,539
Cash and cash equivalents, at end of period | $1,264 |  | $1,592

See accompanying notes to condensed consolidated financial statements.

5 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
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 and nine months ended
September 27, 2025 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, including the elimination of all significant intra-entity
balances and transactions, necessary to present fairly its financial position as of September 27, 2025 and December 28,
2024, 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 28, 2024 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.
Accounting Pronouncements Issued But Not Yet Effective
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures" to enhance the transparency and
decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories
in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.
Additionally, under the amendment, entities are required to disclose the amount of income taxes paid disaggregated by
federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment
requires entities to disclose income from continuing operations before income tax expense disaggregated between
domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The
new rules are effective for annual periods beginning after December 15, 2024. The adoption of this standard is not
expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense
Disaggregation Disclosures (Subtopic 220-40)", which requires public business entities to disclose in the notes to the
financial statements more detailed information about the types of expenses included in certain expense captions in the
consolidated financial statements, including purchases of inventory, employee compensation, and depreciation and
amortization. The amendments are effective for the Company beginning with the 2027 annual period and in interim
periods beginning in 2028. Early adoption is permitted. The ASU may be adopted prospectively or retrospectively. The
Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related
disclosures.
In July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses for Accounts Receivable and Contract Assets”, which provides a practical expedient related to the estimation of

6 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for
under Topic 606, including those assets acquired in a business combination. The practical expedient permits an entity to
assume that current conditions as of the balance sheet date do not change for the remaining life of the current accounts
receivable and current contract assets. This guidance is effective for the Company for its fiscal year and all interim periods
beginning January 4, 2026 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the
impact of the adoption of this guidance on its condensed consolidated financial statements.
Currently, management does not believe that any other recently issued, but not yet effective accounting pronouncements,
if adopted in their current form, would have a material impact on the Company’s consolidated financial statements.
Other Investments
The Company made a payment of $3.3 million during the second quarter of 2025 to secure contractual rights from a
strategic product-development partner. This payment was included in prepaid expenses in the Company’s condensed
consolidated balance sheet and as an investing activity in the Company’s condensed consolidated statement of cash
flows. In the third quarter of 2025, the Company made the decision to end business operations with the strategic-
development partner. In connection with this decision, the Company evaluated the recoverability of assets associated with
those operations and determined that the carrying amounts of those assets were unlikely to be recoverable and recorded
an impairment charge of $16.1 million, which are included in restructuring costs in the consolidated statements of
operations.
2. Fair Value Measurements
At September 27, 2025 and December 28, 2024, the Company had $20 million and $19 million, respectively, 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 $20 million and $19 million, respectively, at
September 27, 2025 and December 28, 2024 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.
3. Inventories
Inventories consisted of the following (in thousands):

| September 27, 2025 |  | December 28, 2024
Raw materials | $2,917 |  | $11,434
Work in progress | 137 |  | 130
Finished goods | 86,777 |  | 91,588
| $89,831 |  | $103,152

4. Goodwill and Intangible Assets, Net
Goodwill and Indefinite-lived Intangible Assets
Goodwill was $64.0 million at September 27, 2025 and December 28, 2024. Indefinite-lived trade name/trademarks
totaled $1.4 million at both September 27, 2025 and December 28, 2024.
Definite-lived Intangible Assets
Patents were $2.0 million at both September 27, 2025 and December 28, 2024. Accumulated amortization was
$1.2 million at September 27, 2025 and $1.0 million at December 28, 2024. Amortization expense was $55 thousand for

7 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
both the three months ended September 27, 2025 and September 28, 2024, and $0.2 million for both the nine months
ended September 27, 2025 and September 28, 2024.
Annual amortization for patents for subsequent years is as follows (in thousands):

2025 (excluding the nine months ended September 27, 2025 ) |  | $60
2026 |  | 222
2027 |  | 222
2028 |  | 155
2029 |  | 99
2030 |  | 45
Total future amortization for definite-lived intangible assets |  | $803

5. Credit Agreement
As of September 27, 2025, the Company’s credit facility had a total commitment amount of $670 million. The credit facility,
as amended, is for general corporate purposes and to meet seasonal working capital requirements. The Amended and
Restated Credit and Security Agreement, dated February 14, 2018, among the Company, U.S. Bank National Association
and the several banks and other financial institutions from time to time party thereto (as amended, the Credit Agreement).
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 (as defined in the Credit Agreement).
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 the amended terms below.
On November 4, 2025, the Company amended the Credit Agreement. The amendment, among other things: (a) extends
the maturity date of the Credit Agreement to December 3, 2027; (b) reduces the revolving credit facility from $485 million
to $475 million, which decreases further to $465 million on July 31, 2026; (c) replaces the leverage-based pricing grids
used to determine the Applicable Margin and Applicable Commitment Fee Rate (each as defined in the Credit Agreement)
in favor of (I) with respect to Applicable Margin for Term SOFR Loans, (x) 4.0% until December 31, 2026 and (y) 4.25%
starting January 1, 2027 and continuing thereafter, and (II) with respect to the Applicable Commitment Fee Rate, (x)
0.50% until December 31, 2026 and (y) 0.75% starting January 1, 2027 and continuing thereafter; (d) on each Regularly
Scheduled Payment Date (as defined in the Credit Agreement) occurring on and after March 31, 2027, increases the
amortization of outstanding term loans an additional $1,250,000 (for an aggregate scheduled principal payment of
$3,750,000); (e) terminates the accordion feature; (f) adjusts the permissible maximum Net Leverage Ratio (as defined in
the Credit Agreement) to (I) 5.25 to 1.00 for the quarterly reporting period ended September 27, 2025, (II) 4.50 to 1.00 for
the quarterly reporting period ending January 3, 2026, (III) 4.75 to 1.00 for the quarterly reporting period ending April 4,
2026, (IV) 4.80 to 1.00 for the quarterly reporting period ending July 4, 2026, and (V) 4.00 to 1.00 for each quarterly
reporting period thereafter; (g) adjusts the Liquidity financial covenant so that the Company must ensure that liquidity is no
lower than $30 million until September 30, 2026, and $40 million for each monthly reporting period thereafter; (h) adjusts
the permissible minimum Interest Coverage Ratio to (I) 1.50 to 1.00 for the quarterly reporting period ended September
27, 2025, (II) 2.10 to 1.00 for the quarterly reporting periods ending January 3, 2026 and April 4, 2026, (III) 1.80 to 1.00 for
the quarterly reporting period ending July 4, 2026, (IV) 2.10 to 1.00 for the reporting period ending October 3, 2026, and
(V) 2.20 to 1.00 for each quarterly reporting period occurring thereafter; (i) adds a new quarterly minimum EBITDA
covenant test that begins for the quarterly reporting period ending April 4, 2026; (j) adjusts the consolidated EBITDA
calculation to include an addback for certain expenses and costs incurred for the trailing twelve months for discontinued
operations, downsized functions and employment expenses for laid-off employees; and (k) provides for additional and
more frequent reporting requirements. Following such amendment, the Company was in compliance with all covenants.
In connection with the amendment, the Company also agreed to pay the lenders certain amendment fees and to
reimburse the lenders for certain expenses.

8 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the Company’s borrowings under the credit facility ($ in thousands):

| September 27, 2025 |  | December 28, 2024
Outstanding borrowings | $579,500 |  | $546,600
Outstanding letters of credit | $8,847 |  | $7,147
Additional borrowing capacity | $81,653 |  | $123,753
Weighted-average interest rate | 7.9% |  | 7.6%

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 ten years. The Company’s office and
manufacturing leases provide for an initial lease term of up to fifteen 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. Future
payments for real estate taxes and certain building operating expenses for which the Company is obligated are not
included in operating lease costs.
At September 27, 2025, the Company’s finance right-of-use (ROU) assets and lease liabilities were not significant.
The Company evaluates its operating lease ROU assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. During the three months ended September 27,
2025, certain retail locations have ceased operations or plan to cease in the near term (“go-dark stores”) but remain under
lease obligations. As a result, the Company recorded impairment charges of $19.8 million, which are included in
restructuring costs in the consolidated statements of operations and cash flows. The Company continues to monitor its
real estate footprint and may incur additional impairment charges in future periods.
Lease costs were as follows (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Operating lease costs(1) | $26,203 |  | $26,445 |  | $79,389 |  | $80,180
Variable lease costs(2) | $37 |  | $42 |  | $178 |  | $1

___________________________
(1)Includes short-term lease costs which are not significant.
(2)Variable lease costs include adjustments to percentage rent.

9 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The maturities of operating lease liabilities for subsequent years are as follows(1) (in thousands):

2025 (excluding the nine months ended September 27, 2025) | $26,412
2026 | 101,086
2027 | 85,382
2028 | 71,833
2029 | 50,763
2030 | 36,733
Thereafter | 52,841
Total operating lease payments(2) | 425,050
Less: Interest | 64,021
Present value of operating lease liabilities | $361,029

___________________________
(1)T otal operating lease payments exclude $3 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)Includes the current portion of $82 million for operating lease liabilities.
Other information related to operating leases was as follows:

|  | September 27, 2025 |  | December 28, 2024
Weighted-average remaining lease term (in years) |  | 5.1 |  | 5.4
Weighted-average discount rate |  | 6.7% |  | 6.6%

|  | Nine Months Ended
(in thousands) |  | September 27, 2025 |  | September 28, 2024
Cash paid for amounts included in present value of operating lease liabilities |  | $79,535 |  | $81,089
Right-of-use assets obtained in exchange for operating lease liabilities |  | $12,048 |  | $29,390

7. Repurchases of Common Stock
For both the three months ended September 27, 2025 and September 28, 2024, we repurchased $0.1 million of common
stock in connection with the vesting of restricted stock grants. For the nine months ended September 27, 2025 and
September 28, 2024, we repurchased $1.0 million and $0.7 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 September 27, 2025, the remaining authorization under the Board-approved $600 million share repurchase program
was $348 million.
8. Revenue Recognition
Deferred contract assets and deferred contract liabilities are included in the condensed consolidated balance sheets as
follows (in thousands):

| September 27, 2025 |  | December 28, 2024
Deferred contract assets included in: |  |  |
Other current assets | $28,362 |  | $30,154
Other non-current assets | 44,039 |  | 48,988
| $72,401 |  | $79,142

10 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

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

| September 27, 2025 |  | December 28, 2024
Deferred contract liabilities included in: |  |  |
Other current liabilities | $36,726 |  | $38,129
Other non-current liabilities | 56,308 |  | 60,988
| $93,034 |  | $99,117

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 the three months ended September 27, 2025 and September 28, 2024, the Company
recognized revenue of $7 million and $10 million, respectively, that was included in the deferred contract liability balances
at the beginning of the respective periods. During the nine months ended September 27, 2025 and September 28, 2024,
the Company recognized revenue of $28 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 a pproximate ly 97% and 98%
of revenues for the three months ended September 27, 2025 and September 28, 2024, respectively. Revenue from goods
and services transferred to customers at a point in time accounted for approximately 98% of revenues for both the nine
months ended September 27, 2025 and September 28, 2024.
Net sales were as follows (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Retail stores | $301,194 |  | $374,593 |  | $933,609 |  | $1,147,931
Online, phone, chat and other | 41,685 |  | 52,024 |  | 130,456 |  | 157,548
Total Company | $342,879 |  | $426,617 |  | $1,064,065 |  | $1,305,479

Obligation for Sales Returns
The activity in the sales returns liability account was as follows (in thousands):

| Nine Months Ended
| September 27, 2025 |  | September 28, 2024
Balance at beginning of year | $19,092 |  | $22,402
Additions that reduce net sales | 53,373 |  | 69,391
Deductions from reserves | (57,533) |  | (72,105)
Balance at end of period | $14,932 |  | $19,688

9. Stock-Based Compensation Expense
Total stock-based compensation expense was as follows (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Stock awards (1) | $(1,035) |  | $774 |  | $2,962 |  | $7,212
Stock options | 247 |  | 658 |  | 1,750 |  | 2,329
Total stock-based compensation expense (1) | $(788) |  | $1,432 |  | $4,712 |  | $9,541

11 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
___________________________
(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 September 27, 2025 and September 28,
2024, the Company’s contributions, net of forfeitures, were $1.6 million and $1.9 million, respectively and during the nine
months ended September 27, 2025 and September 28, 2024, were both $5.1 million. Effective October 10, 2025, the
Company suspended the 401(k) matching contribution due to current business performance.
11. Net Loss per Common Share
The components of basic and diluted net loss per share were as follows (in thousands, except per share amounts):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net loss | $(39,790) |  | $(3,136) |  | $(73,448) |  | $(15,669)
Reconciliation of weighted-average shares outstanding: |  |  |  |  |  |
Basic weighted-average shares outstanding | 22,964 |  | 22,643 |  | 22,858 |  | 22,588
Dilutive effect of stock-based awards | — |  | — |  | — |  | —
Diluted weighted-average shares outstanding | 22,964 |  | 22,643 |  | 22,858 |  | 22,588
Net loss per share – basic | $(1.73) |  | $(0.14) |  | $(3.21) |  | $(0.69)
Net loss per share – diluted | $(1.73) |  | $(0.14) |  | $(3.21) |  | $(0.69)

For the three and nine month periods ende d September 27, 2025 and September 28, 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
1.2 million for the both three months ended September 27, 2025 and September 28, 2024, respectively, and 1.6 million
and 1.3 million for the nine months ended September 27, 2025 and September 28, 2024, respectively, have been
excluded from the diluted net loss per share calculations because these stock-based awards were anti-dilutive.
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 $33.8 million of restructuring costs through December 28, 2024. The Company
has incurred an add itional $47.5 million a nd of restructuring costs during the nine months ended September 27, 2025.
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 restructuring costs in the
Company’s condensed consolidated statement of operations. The Company expects approximately $3 million of additional
restructuring costs to be incurred through the remainder of 2025, primarily due to severance and employee-related
benefits, contract termination costs, and asset impairment charges.

12 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table provides a summary of the Company’s restructuring costs during the three and nine months ended
September 27, 2025 and September 28, 2024 (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Cash restructuring costs: |  |  |  |  |  |  |
Contract termination costs (1) | $5,878 |  | $300 |  | $7,173 |  | $4,483
Severance and employee-related benefits | 2,923 |  | 1,663 |  | 9,415 |  | 2,905
Professional fees and other | 801 |  | — |  | 818 |  | 4,494
Total cash restructuring costs | 9,602 |  | 1,963 |  | 17,406 |  | 11,882
Non-cash restructuring costs: |  |  |  |  |  |  |
Asset impairments (2) | 29,552 |  | — |  | 30,140 |  | 2,500
Total restructuring costs | $39,154 |  | $1,963 |  | $47,546 |  | $14,382

____________________
(1) Primarily comprised of strategic-development partner contract termination costs and lease termination costs.
(2) Primarily comprised of impairments of strategic-development partner l ong-lived assets, right-of-use assets and 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 condensed consolidated balance sheet
(in thousands):

| September 27, 2025 |  | December 28, 2024
Balance at the beginning of year | $3,341 |  | $8,720
Expenses | 17,406 |  | 14,888
Cash payments | (12,735) |  | (20,267)
Balance at the end of the period | $8,012 |  | $3,341

Since the initiation of cost reduction actions in the fourth quarter of 2023, the Company has recognized a cumulative
$81.3 million of restructuring costs, as follows (in thousands):

|  | Cumulative
|  | September 27, 2025
Cash restructuring costs: |  |
Contract termination costs (1) |  | $21,610
Severance and employee-related benefits |  | 17,608
Professional fees and other |  | 6,562
Total cash restructuring costs |  | 45,780
Non-cash restructuring costs: |  |
Asset impairments (2) |  | 35,560
Total restructuring costs |  | $81,340

____________________
(1)Primarily comprised of strategic-development partner contract termination costs and lease termination costs.
(2) Primarily comprised of impairments of strategic-development partner long-lived assets, right-of-use assets and property and equipment.
13. Income Taxes

13 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Income tax benefit was $13.2 million for the three months ended September 27, 2025, compared with $0.5 million for the
same period one year ago. Income tax benefit totaled $0.6 million for nine months ended September 27, 2025, compared
with $0.9 million for the same period one year ago.
The Company evaluates its deferred income taxes quarterly to determine if valuation allowances are required. As part of
this evaluation, the Company assess whether valuation allowances should be established for any deferred tax assets that
are not considered more likely than not to be realized, using all available evidence, both positive and negative. This
assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of future
profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,
significant weight is given to evidence that can be objectively verified. During the nine months ended September 27, 2025,
the Company recorded a change in valuation allowance of $14 million on the basis of management’s reassessment of the
amount of its deferred tax assets primarily related to interest expense that are more likely than not to not be realized. The
Company continues to assess the need for the valuation allowance and will make adjustments when appropriate.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law. The OBBBA makes permanent key
elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the
business interest expense limitation. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on
deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of
enactment, and during the third quarter of 2025, the Company evaluated all deferred tax balances under the newly
enacted tax law and identified any other changes required to its financial statements as a result of the OBBBA.
14. Segments
The Company’s chief operating decision maker (CODM), who is the Chief Executive Officer, assesses company-wide
performance and allocates resources based on consolidated financial information. Consequently, the Company views the
entire organization as one reportable segment and the strategic purpose of all operating activities is to support that one
segment.
The CODM manages the Company’s business activities as a single operating and reportable segment at the consolidated
level. The CODM uses consolidated earnings and losses, as reported on the Company’s condensed consolidated
statement of operations, in evaluating performance of the Company in determining how to allocate resources of the
Company as a whole, including investing in the Company’s product development, sales and marketing campaigns, and
employee compensation. The measure of segment assets that is reviewed by the CODM is reported within the condensed
consolidated balance sheet as consolidated total assets. The CODM also uses consolidated earnings or losses before
interest, taxes, depreciation and amortization (Adjusted EBITDA) as the basis to evaluate the performance of the
Company.

14 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following i s a summary of the significant expense categories and consolidated net loss details provided to the CODM
(in thousands):

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net Sales | $342,879 |  | $426,617 |  | $1,064,065 |  | $1,305,479
Less: |  |  |  |  |  |  |
Cost of sales | (137,490) |  | (167,089) |  | (424,396) |  | (528,287)
Marketing expenses | (79,116) |  | (113,573) |  | (239,484) |  | (312,086)
Selling expenses | (88,314) |  | (91,907) |  | (263,513) |  | (284,306)
General and administrative | (31,792) |  | (33,070) |  | (100,015) |  | (111,722)
Research and development | (7,328) |  | (10,583) |  | (27,651) |  | (34,602)
Restructuring costs | (39,154) |  | (1,963) |  | (47,546) |  | (14,382)
Interest expense | (12,687) |  | (12,057) |  | (35,502) |  | (36,626)
Income tax benefit | 13,212 |  | 489 |  | 594 |  | 863
Net loss | $(39,790) |  | $(3,136) |  | $(73,448) |  | $(15,669)

15. Commitments and Contingencies
Warranty Liabilities
The activity in the accrued warranty liabilities account was as follows (in thousands):

| Nine Months Ended
| September 27, 2025 |  | September 28, 2024
Balance at beginning of period | $6,947 |  | $8,503
Additions charged to costs and expenses for current-year sales | 8,881 |  | 9,981
Deductions from reserves | (8,335) |  | (11,546)
Changes in liability for pre-existing warranties during the current year, including expirations | (1,674) |  | 511
Balance at end of period | $5,819 |  | $7,449

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.
GAAP, 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 it 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.

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SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Purported Class Action Complaint
On January 14, 2025, purported customers served a putative class action complaint on behalf of themselves and a
putative class of California consumers against Sleep Number in the United States District Court for the Central District of
California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The Plaintiff sought
injunctive relief, damages and attorney’s fees. Sleep Number brought a motion to dismiss for failure to state a claim and a
motion to transfer or, alternatively, dismiss based on the first-to-file doctrine (citing the purported class action complaint
filed on September 27, 2024 as described below). On April 8, 2025, the Court granted Sleep Number’s motion to transfer
or, alternatively, dismiss and dismissed the matter in its entirety based on the first-to-file doctrine. The plaintiffs did not
appeal the dismissal.
Purported Class Action Complaint
On September 27, 2024, a purported customer served a putative class action complaint on behalf of themself and a
putative class of California consumers against Sleep Number in the United States District Court for the Eastern District of
California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The plaintiff seeks
injunctive relief, damages and attorney’s fees.

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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
•Critical Accounting Policies
Forward-looking Statements and Risk Factors
The discussion in this Quarterly Report on Form 10-Q 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;
•Interest rates remain elevated, and may further increase and impact the cost of servicing the Company’s
indebtedness;
•Ability to remain in compliance with the financial covenants in the credit agreement governing the Company’s credit
facility, which will depend on the Company’s ability to execute its business plans, and if the Company cannot remain in
compliance with such financial covenants, the Company must seek alternative financing options, access to which may
depend on factors beyond the Company’s control or require the Company to accept unfavorable terms;
•Availability of attractive and cost-effective consumer credit options;
•Ability to achieve cost savings, efficiencies and other benefits from its business restructuring actions and to avoid
adverse effects;
•Effectiveness and efficiency of the Company’s marketing strategy and promotions;
•Ability to execute Sleep Number’s Total Retail distribution strategy;
•Ability to compete effectively;
•Ability to achieve and maintain high levels of product and service quality;
•Ability to improve and expand the product line and execute new product introductions;
•Ability to protect the Company’s technology, trademarks and brand, and the adequacy of its intellectual property
rights;
•Dependence on, and ability to maintain working relationships with key suppliers and third parties, including some that
are the only source of supply or services currently used by the Company;
•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, 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;
•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 effectively complete potential future acquisitions and business combinations;

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•Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and
effective personnel;
•Ability to comply with existing and changing government regulations and laws, and to commercialize new products
and innovations that meet those existing and changing government regulations and laws;
•Ability to identify and withstand cyber threats that could compromise the security of the Company’s systems or those
of third parties upon which it relies and could result in a data breach or business disruption;
•Risks associated with advancements in or adoption of artificial intelligence technologies;
•Adequacy of the Company’s and third-party information systems, and costs and disruptions related to upgrading or
maintaining these systems;
•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;
•Unfavorable tax treatment;
•Environmental, social and governance risks, including increasing scrutiny and evolving regulatory and stakeholder
expectations; and
•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 company and market leader in the design, manufacturing, marketing and distribution of highly
innovative sleep solutions. The Company’s purpose is to improve lives by personalizing sleep; to date, it has improved the
lives of over 16 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 sleep wellness 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 each sleeper 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, digital
sleep wellness platform, a network of millions of highly engaged Smart Sleepers who are loyal brand advocates, a
vertically integrated operating model and a culture of individuality, with an ambitious vision to become one of the world’s
most beloved brands.
The Company’s 3,200 mission-driven team members are focused on driving value creation, including our exclusive direct-
to-consumer selling in 611 stores and online, which meets customers whenever and wherever they choose to provide an
exceptional experience and a lifelong relationship. Additionally, the Company partners with world-leading institutions to
bring the power of 36 billion hours of longitudinal sleep data to sleep science and research.
The bedding industry has been in a sector level recession for three years with mattress industry unit volumes returning to
an estimated 24 million units in 2024, the lowest level since 2015. Consumer sentiment remains well below historical
averages, and high interest rates are putting ongoing pressure on the housing market. Consumers continue to scrutinize
spending, with inflation and other factors weighing on their purchasing power. In November 2025, the Company
introduced its turnaround strategy, a focused, company-wide effort to reposition the brand, expand reach to new customer
groups, and reignite growth. The aim is to drive value for shareholders, customers and team members with efforts rooted
in the consumer through all dimensions of the business.

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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 September 27, 2025 were as follows:
•Net sales for the three months ended September 27, 2025 of $343 million decreased 20% from $427 million for the
same period one year ago driven by lower volume and reduced store count.
•The net sales change resulted from a 19% Total Retail comparable sales decrease. For additional details, see the
components of total net sales change on page 21.
•Average 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 September 27, 2025 totaled $2.3 million, compared with $2.7 million
for the same period one year ago.
•Operating loss for the three months ended September 27, 2025 was $40 million, compared with operating income of
$8 million for the same period one year ago. The $49 million decrease in operating income was driven by the lower
gross profit, partially offset by a $5 million reduction in operating expenses.
•Adjusted EBITDA for the three months ended September 27, 2025 was $13 million, compared to $28 million for the
same period one year ago. The decrease was primarily due to a lower gross profit when compared to the same period
one year ago, offset by higher restructuring costs.
•Gross profit rate of 59.9% for the three months ended September 27, 2025 compared to 60.8% for the same period
one year ago. See the gross profit discussion on page 21 for additional details.
•The $5 million year-over-year reduction in the Company’s operating expenses was due to lower sales and marketing
expenses, general and administrative expenses, and research and development expenses, partially offset by higher
restructuring costs.
•Net loss for the three months ended September 27, 2025 was $40 million, compared with $3 million for the same
period one year ago. Net loss per diluted share was $1.73, compared with $0.14 for the same period one year ago.
•The Company’s adjusted return on invested capital (Adjusted ROIC) was (2.0)% on a trailing twelve-month basis for
the period ended September 27, 2025, compared with 4.5% for the comparable period one year ago.
•The Company used $5 million in cash from operating activities for the nine months ended September 27, 2025,
compared with cash provided of $51 million for the same period one year ago.
•Free cash flow used $17 million for the nine months ended September 27, 2025, compared with providing $34 million
for the same period one year ago.
•As of September 27, 2025, the Company had $580 million of borrowings under its credit facility.

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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 |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net sales | $342.9 |  | 100.0% |  | $426.6 |  | 100.0% |  | $1,064.1 |  | 100.0% |  | $1,305.5 |  | 100.0%
Cost of sales | 137.5 |  | 40.1% |  | 167.1 |  | 39.2% |  | 424.4 |  | 39.9% |  | 528.3 |  | 40.5%
Gross profit | 205.4 |  | 59.9% |  | 259.5 |  | 60.8% |  | 639.7 |  | 60.1% |  | 777.2 |  | 59.5%
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing | 167.4 |  | 48.8% |  | 205.5 |  | 48.2% |  | 503.0 |  | 47.3% |  | 596.4 |  | 45.7%
General and administrative | 31.8 |  | 9.3% |  | 33.1 |  | 7.8% |  | 100.0 |  | 9.4% |  | 111.7 |  | 8.6%
Research and development | 7.3 |  | 2.1% |  | 10.6 |  | 2.5% |  | 27.7 |  | 2.6% |  | 34.6 |  | 2.7%
Restructuring costs | 39.2 |  | 11.4% |  | 2.0 |  | 0.5% |  | 47.5 |  | 4.5% |  | 14.4 |  | 1.1%
Total operating expenses | 245.7 |  | 71.7% |  | 251.1 |  | 58.9% |  | 678.2 |  | 63.7% |  | 757.1 |  | 58.0%
Operating (loss) income | (40.3) |  | (11.8%) |  | 8.4 |  | 2.0% |  | (38.5) |  | (3.6%) |  | 20.1 |  | 1.5%
Interest expense, net | 12.7 |  | 3.7% |  | 12.1 |  | 2.8% |  | 35.5 |  | 3.3% |  | 36.6 |  | 2.8%
Loss before income taxes | (53.0) |  | (15.5%) |  | (3.6) |  | (0.8%) |  | (74.0) |  | (7.0%) |  | (16.5) |  | (1.3%)
Income tax benefit | (13.2) |  | (3.9%) |  | (0.5) |  | (0.1%) |  | (0.6) |  | (0.1%) |  | (0.9) |  | (0.1%)
Net loss | $(39.8) |  | (11.6%) |  | $(3.1) |  | (0.7%) |  | $(73.4) |  | (6.9%) |  | $(15.7) |  | (1.2%)
Net loss per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic | $(1.73) |  |  |  | $(0.14) |  |  |  | $(3.21) |  |  |  | $(0.69) |  |
Diluted | $(1.73) |  |  |  | $(0.14) |  |  |  | $(3.21) |  |  |  | $(0.69) |  |
Weighted-average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic | 23.0 |  |  |  | 22.6 |  |  |  | 22.9 |  |  |  | 22.6 |  |
Diluted | 23.0 |  |  |  | 22.6 |  |  |  | 22.9 |  |  |  | 22.6 |  |

The percentage of total net sales, by dollar volume, was as follows:

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Retail stores | 87.8% |  | 87.8% |  | 87.7% |  | 87.9%
Online, phone, chat and other | 12.2% |  | 12.2% |  | 12.3% |  | 12.1%
Total Company | 100.0% |  | 100.0% |  | 100.0% |  | 100.0%

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The components of total net sales change, including comparable net sales changes, were as follows:

| Three Months Ended |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Sales change rates: |  |  |  |  |  |  |
Retail comparable-store sales (1) | (19%) |  | (7%) |  | (17%) |  | (9%)
Online, phone and chat | (20%) |  | (18%) |  | (17%) |  | (17%)
Total Retail comparable sales change (1) | (19%) |  | (9%) |  | (17%) |  | (10%)
Net opened/closed stores and other | (1%) |  | (1%) |  | (1%) |  | 0%
Total Company | (20%) |  | (10%) |  | (18%) |  | (10%)

___________________________
(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 |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Average sales per store (1) (in thousands) | $2,276 |  | $2,670 |  |  |  |
Average sales per square foot (1) | $735 |  | $863 |  |  |  |
Stores > $2 million in net sales (2) | 42% |  | 60% |  |  |  |
Stores > $3 million in net sales (2) | 10% |  | 20% |  |  |  |
Average revenue per smart bed unit – Total Retail (3) | $5,995 |  | $5,771 |  | $5,958 |  | $5,778

___________________________
(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 |  | Nine Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Beginning of period | 630 |  | 646 |  | 640 |  | 672
Opened | 2 |  | 1 |  | 5 |  | 11
Closed | (21) |  | (4) |  | (34) |  | (40)
End of period | 611 |  | 643 |  | 611 |  | 643

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Comparison of Three Months Ended September 27, 2025 with Three Months Ended September 28, 2024
Net sales
Net sales for the three months ended September 27, 2025 of $343 million decreased 20% from $427 million for the same
period one year ago driven by lower volume and reduced store count. The net sales change consisted primarily of a 19%
Total Retail comparable sales decrease.
The $84 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a
$69 million decrease in Retail comparable net sales; (ii) a $10 million decrease from online, phone and chat; and (iii) a
$5 million decrease from net store closings and other. Total Retail smart bed unit sales decreased 23% compared with the
prior year. Total Retail average revenue per smart bed unit increased by 4% to $5,995, compared with $5,771 in the prior-
year period.
Gross profit
Gross profit of $205 million for the three months ended September 27, 2025 decreased by $54 million, or 21%, compared
with $260 million for the same period one year ago. The gross profit rate totaled 59.9% of net sales for the three months
ended September 27, 2025, compared to 60.8% in the prior-year comparable period.
The current-year gross profit rate decrease of 0.9 ppt was affected by the following items: (i) higher manufacturing costs
driven primarily by unit deleverage decreased the rate by 1.4 ppt; (ii) unfavorable logistic and home delivery costs due to
lower unit volume decreased the rate by 0.5 ppt; partially offset by (iii) favorable product mix increased the rate by 0.7 ppt;
and (iv) lower promotional activity increased the rate by 0.3 ppt.
Sales and marketing expenses
Sales and marketing expenses for the three months ended September 27, 2025 were $167 million, or 48.8% of net sales,
compared with $205 million, or 48.2% of net sales, for the same period one year ago. The current-year sales and
marketing expenses rate increase of 0.6 ppt. was primarily due to the deleveraging impact of an 20% net sales decline,
partially offset by a 19% decrease in sales and marketing expenses including a 32% lower media spend.
General and administrative expenses
General and administrative (G&A) expenses totaled $32 million, or 9.3% of net sales, for the three months ended
September 27, 2025, compared with $33 million, or 7.8% of net sales, in the prior-year period. The changes in G&A
expenses consisted mainly of: (i) a $1.5 million decrease in stock-based compensation; and (ii) a $1.3 million decrease in
depreciation and amortization; offset by (iii) a $1.1 increase in company-wide, performance-based incentive compensation
due to an adjustment recorded during the prior year period, and (iv) a $0.7 million increase in professional and consulting
fees. The G&A expenses rate decreased by 1.5 ppt. in the current-year period, compared with the same period one year
ago due to the items discussed above offset by the deleveraging impact of lower net sales.
Research and development expenses
Research and development (R&D) expenses totaled $7 million for the three months ended September 27, 2025,
compared with $11 million with the same period one year ago. The changes in R&D expenses were primarily due to lower
headcount and outside services. Moving forward, the Company’s innovation agenda will focus on maintaining and
improving the Company’s core technologies and introducing additional advancements, while driving costs out of the
product.
Interest expense, net
Interest expense, net totaled $13 million for the three months ended September 27, 2025, compared to $12 million for the
same period one year ago. The increase was due to an increase in the average debt outstanding compared to the same
period one year ago offset slightly by a lower weighted-average interest rate.

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Restructuring Costs
Restructuring costs for the three months ended September 27, 2025 were $39 million, compared with $2 million for the
same period one year ago. 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 condensed consolidated statement of operations. The Company expects an
additional $3 million of restructuring costs to be incurred through the remainder of 2025, primarily due to severance and
employee-related benefits, contract termination costs, and asset impairment charges. See Note 12, Restructuring Costs,
of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Information, of this
Quarterly Report on Form 10-Q for further information on restructuring costs.
Income tax benefit
Income tax benefit was $13.2 million for the three months ended September 27, 2025, compared with $0.5 million for the
same period one year ago. The change in income tax benefit was primarily due to the impact of the loss before income tax
levels.
The Company evaluates its deferred income taxes on a quarterly basis to determine if valuation allowances are required.
As part of this evaluation, the Company assess whether valuation allowances should be established for any deferred tax
assets that are not considered more likely than not to be realized, using all available evidence, both positive and negative.
This assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of
future profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,
significant weight is given to evidence that can be objectively verified. The Company did not record any additional
valuation allowance during the three months ended September 27, 2025. The Company continues to assess the need for
the valuation allowance and will make adjustments when appropriate.
Comparison of Nine Months Ended September 27, 2025 with Nine Months Ended September 28, 2024
Net sales
Net sales for the nine months ended September 27, 2025 decreased by $241 million, or 18%, to $1.1 billion, compared
with $1.3 billion for the same period one year ago driven by lower volume and reduced store count.
The net sales decrease consisted primarily of a 17% comparable sales decrease in Total Retail. For additional details, see
the components of total net sales change on page 20.
The $241 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a
$193 million decrease in Retail comparable net sales; (ii) a $27 million decrease in online, phone and other sales; and (iii)
a $21 million decrease resulting from net store closings. Total smart bed unit sales declined 21% compared with the same
period one year ago. Average revenue per smart bed unit in Total Retail increased by 3% to $5,958, compared with
$5,778 in the prior-year period.
Gross profit
Gross profit of $640 million for the nine months ended September 27, 2025 decreased by $137 million, or 18%, compared
with $777 million for the same period one year ago. The gross profit rate increased to 60.1% of net sales for the nine
months ended September 27, 2025, compared to 59.5% in the prior-year comparable period.
The current-year gross profit rate increase of 0.6 ppt was affected by the following items: (i) favorable product mix
increased the rate by 0.8 ppt; (ii) strategic pricing actions partially offset by increased promotional activity increased the
rate by 0.2 ppt; (iii) year-over-year product cost reductions through value engineering and ongoing supplier negotiations
increased the rate by 0.1 ppt; partially offset by (iv) logistic and home delivery costs decreased the rate by 0.5 ppt.
Sales and marketing expenses
Sales and marketing expenses for the nine months ended September 27, 2025 were $503 million, or 47.3% of net sales,
compared with $596 million, or 45.7% of net sales, for the same period one year ago. The current-year sales and
marketing expenses rate increase of 1.6 ppt. was primarily due to deleveraging impact of an 18% net sales decline offset
by a 16% decrease in expenses including 19% lower media spend.

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General and administrative expenses
G&A expenses for the nine months ended September 27, 2025 totaled $100 million, or 9.4% of net sales, compared
with $112 million, or 8.6% of net sales, in the prior-year period. The $12 million decrease in G&A expenses consisted of:
(i) a $6.3 million year-over-year decrease in company-wide, performance-based incentive compensation and (ii) a $3.3
million decrease in depreciation and amortization; (iii) a $3.0 million decrease in employee compensation and (iv) a $0.3
million decrease in occupancy expenses; offset by a (v) a $1.3 million increase in professional and consulting fees
primarily related to proxy contest and CEO search costs that occurred during the first quarter of 2025. 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
deleveraging impact of the 18% net sales decrease.
Research and development expenses
R&D expenses decreased by 20% to $28 million for the nine months ended September 27, 2025, compared with $35
million for the same period one year ago on lower outside services and headcount. While the Company’s consumer
innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly constrained environment. Moving
forward, the Company’s innovation agenda will focus on maintaining and improving the Company’s core technologies and
introducing additional advancements, while driving costs out of the product.
Interest expense, net
Interest expense, net decreased to $36 million for the nine months ended September 27, 2025, compared with $37 million
for the same period one year ago. The $1 million decrease was primarily driven by a lower weighted-average interest rate
compared with the same period one year ago.
Restructuring costs
Restructuring costs for the nine months ended September 27, 2025 were $48 million, compared with $14 million for the
same period one year ago. 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 condensed consolidated statement of operations. The Company expects an
additional $3 million of restructuring costs to be incurred through the remainder of 2025, primarily due to severance and
employee-related benefits, contract termination costs, and asset impairment charges. See Note 12, Restructuring Costs,
of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Information, of this
Quarterly Report on Form 10-Q for further information on restructuring costs.
Income tax benefit
Income tax benefit totaled $0.6 million for the nine months ended September 27, 2025, compared with $0.9 million for the
same period one year ago.
The Company evaluates its deferred income taxes on a quarterly basis to determine if valuation allowances are required.
As part of this evaluation, the Company assess whether valuation allowances should be established for any deferred tax
assets that are not considered more likely than not to be realized, using all available evidence, both positive and negative.
This assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of
future profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,
significant weight is given to evidence that can be objectively verified. A valuation allowance of $14 million that was
recorded during the nine months ended September 27, 2025. The valuation allowance primarily related to deferred tax
assets on interest expense that are more likely than not to not be realized. The Company continues to assess the need for
the valuation allowance and will make adjustments when appropriate.

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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
r evolving credit facility, as amended. As of September 27, 2025, the Company does not have any off-balance sheet
financing other than its $9 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.
Cash and cash equivalents totaled $1.3 million and $2.0 million at September 27, 2025 and December 28, 2024,
respectively. Significant changes in cash and cash equivalents during the nine months ended September 27, 2025
primarily consisted of $5 million of cash used in operating activities, $15 million of cash used in investing activities, and
$20 million of cash provided by financing activities.
The following table summarizes cash flows (in millions). Amounts may not add due to rounding differences:

| Nine Months Ended
| September 27, 2025 |  | September 28, 2024
Total cash (used in) provided by: |  |  |
Operating activities | $(5.2) |  | $50.8
Investing activities | (15.2) |  | (20.0)
Financing activities | 19.6 |  | (31.8)
Net decrease in cash and cash equivalents | $(0.7) |  | $(0.9)

Net cash used in operating activities for the nine months ended September 27, 2025 was $5 million, compared with net
cash provided by operating activities of $51 million for the nine months ended September 28, 2024. Significant
components of the year-over-year change in cash provided by operating activities included: (i) a $58 million year-over-
year increase in net loss; (ii) a $20 million fluctuation in income taxes, and (iii) a $13 million fluctuation in the amount of
compensation and benefits accrued and timing of the related payments resulting from year-over-year changes in
Company-wide performance-based incentive compensation; offset by (iv) a $33 million fluctuation in the impairment of
lease and store related assets and strategic investment assets, (v) a $16 million fluctuation in deferred income taxes, and
(vi) a $11 million fluctuation in prepaid expenses.
Net cash used in investing activities for the nine months ended September 27, 2025 was $15 million, compared with
$20 million for the nine months ended September 28, 2024. Cash used to purchase property and equipment was
$12 million for the nine months ended September 27, 2025, compared with $17 million for the same period one year ago.
In addition, the Company used $3 million cash for payment to secure contractual rights during the nine months ended
September 28, 2024.
Net cash provided by financing activities was $20 million for the nine months ended September 27, 2025, compared with
net cash used in financing activities of $32 million for the same period one year ago. Short-term borrowings increased by
$22 million during the current-year period due to an $33 million increase in borrowings under the revolving credit facility to
$580 million and a $11 million decrease in book overdrafts, which are included in the net change in short-term borrowings.
During the nine months ended September 27, 2025, the Company used $2 million of cash for debt issuance costs related
to the credit facility amendment during the first quarter of 2025. During both the nine months ended September 27, 2025
and September 28, 2024, the Company repurchased $1 million of its stock in connection with the vesting of employee
restricted stock awards.
In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share
repurchase program. At September 27, 2025, 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. The Company made no share repurchases under its Board-approved share repurchase program in
either period.

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At September 27, 2025, the Company had an aggregate amount of $580 million of borrowings outstanding under its credit
agreement, including $185 million in outstanding term loans and $395 million outstanding under its revolving credit facility,
along with $9 million in outstanding letters of credit. Availability under the revolving credit facility amounted to $82 million.
On November 4, 2025, the Company amended the Credit Agreement. The amendment, among other things: (a) extends
the maturity date of the Credit Agreement to December 3, 2027; (b) reduces the revolving credit facility from $485 million
to $475 million, which decreases further to $465 million on July 31, 2026; (c) replaces the leverage-based pricing grids
used to determine the Applicable Margin and Applicable Commitment Fee Rate (each as defined in the Credit Agreement)
in favor of (I) with respect to Applicable Margin for Term SOFR Loans, (x) 4.0% until December 31, 2026 and (y) 4.25%
starting January 1, 2027 and continuing thereafter, and (II) with respect to the Applicable Commitment Fee Rate, (x)
0.50% until December 31, 2026 and (y) 0.75% starting January 1, 2027 and continuing thereafter; (d) on each Regularly
Scheduled Payment Date (as defined in the Credit Agreement) occurring on and after March 31, 2027, increases the
amortization of outstanding term loans an additional $1,250,000 (for an aggregate scheduled principal payment of
$3,750,000); (e) terminates the accordion feature; (f) adjusts the permissible maximum Net Leverage Ratio (as defined in
the Credit Agreement) to (I) 5.25 to 1.00 for the quarterly reporting period ended September 27, 2025, (II) 4.50 to 1.00 for
the quarterly reporting period ending January 3, 2026, (III) 4.75 to 1.00 for the quarterly reporting period ending April 4,
2026, (IV) 4.80 to 1.00 for the quarterly reporting period ending July 4, 2026, and (V) 4.00 to 1.00 for each quarterly
reporting period thereafter; (g) adjusts the Liquidity financial covenant so that the Company must ensure that liquidity is no
lower than $30 million until September 30, 2026, and $40 million for each monthly reporting period thereafter; (h) adjusts
the permissible minimum Interest Coverage Ratio to (I) 1.50 to 1.00 for the quarterly reporting period ended September
27, 2025, (II) 2.10 to 1.00 for the quarterly reporting periods ending January 3, 2026 and April 4, 2026, (III) 1.80 to 1.00 for
the quarterly reporting period ending July 4, 2026, (IV) 2.10 to 1.00 for the reporting period ending October 3, 2026, and
(V) 2.20 to 1.00 for each quarterly reporting period occurring thereafter; (i) adds a new quarterly minimum EBITDA
covenant test that begins for the quarterly reporting period ending April 4, 2026; (j) adjusts the consolidated EBITDA
calculation to include an addback for certain expenses and costs incurred for the trailing twelve months for discontinued
operations, downsized functions and employment expenses for laid-off employees; and (k) provides for additional and
more frequent reporting requirements. Following such amendment, the Company was in compliance with all covenants.
In connection with the amendment, the Company also agreed to pay the lenders certain amendment fees and to
reimburse the lenders for certain expenses.
Over the past year, due to the conditions affecting our industry and business and our financial condition and results of
operations, we have had to seek waivers and amendments to our credit agreement as we otherwise would not have been
in compliance with the covenants thereunder. While we have received such waivers and amendments in the past, if our
business does not perform as expected, we will require additional waivers or amendments to the Credit Agreement and, if
such waivers or amendments cannot be obtained on commercially reasonable terms or at all, we will be required to seek
alternative financing options, which may not be available at all or available only at significant cost and which may contain
covenants that are more restrictive than those contained in the Credit Agreement. Our inability to obtain any required
waivers or amendments or obtain alternative financing on commercially reasonable terms, if at all, could have a material
adverse impact on our business, results of operations, financial condition and prospects.
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 loss plus:
i ncome tax expense (or minus income tax benefit), interest expense, depreciation and amortization, stock-based
compensation, restructuring costs, other non-recurring items and asset impairments. Management believes Adjusted
EBITDA is a useful indicator of the Company’s 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.

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Adjusted EBITDA calculations are as follows (in thousands):

| Three Months Ended |  | Trailing-Twelve Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net loss | $(39,790) |  | $(3,136) |  | $(78,113) |  | $(40,857)
Income tax benefit | (13,212) |  | (489) |  | (4,893) |  | (7,966)
Interest expense | 12,687 |  | 12,057 |  | 47,244 |  | 49,313
Depreciation and amortization | 12,975 |  | 15,859 |  | 56,706 |  | 67,335
Stock-based compensation | (788) |  | 1,432 |  | 6,615 |  | 13,523
Restructuring costs (1) | 39,154 |  | 1,963 |  | 51,230 |  | 30,110
Other non-recurring items (2) | 2,228 |  | — |  | 5,053 |  | —
Asset impairments | — |  | — |  | 1,220 |  | 198
Adjusted EBITDA | $13,254 |  | $27,686 |  | $85,062 |  | $111,656

_____________________
(1) Represents costs related to business restructuring actions.
(2) Represents costs related to CEO transition activities and proxy contest costs of $0.4 million and $0, respectively, for the three months ended
September 27, 2025 and $1.4 million and $1.9 million, respectively, for the trailing twelve months ended September 27, 2025. These costs were both
initiated in the fourth quarter of fiscal 2024. In addition, represents CFO search costs of $0.2 million and write off of debt issuance cost of $1.6 million
for both the three and trailing twelve months ended September 27, 2025. These costs were both initiated in the third quarter of 2025.
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):

| Nine Months Ended |  | Trailing-Twelve Months Ended
| September 27, 2025 |  | September 28, 2024 |  | September 27, 2025 |  | September 28, 2024
Net cash (used in) provided by operating activities | $(5,159) |  | $50,824 |  | $(28,840) |  | $9,980
Subtract: Purchases of property and equipment | 11,888 |  | 17,218 |  | 18,175 |  | 26,252
Free cash flow | $(17,047) |  | $33,606 |  | $(47,015) |  | $(16,272)

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.

27 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

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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
| September 27, 2025 |  | September 28, 2024
Adjusted net operating profit after taxes (Adjusted NOPAT) |  |  |
Operating income | $(35,762) |  | $490
Add: Operating lease expense (1) | 24,956 |  | 27,371
Less: Income taxes (2) | 1,443 |  | (5,474)
Adjusted NOPAT | $(9,363) |  | $22,387
Average adjusted invested capital |  |  |
Total deficit | $(521,342) |  | $(448,784)
Add: Long-term debt (3) | 579,680 |  | 516,761
Add: Operating lease obligations (4) | 361,029 |  | 401,153
Total adjusted invested capital at end of period | $419,367 |  | $469,130
Average adjusted invested capital (5) | $460,891 |  | $502,494
Adjusted return on invested capital (Adjusted ROIC) (6) | (2.0%) |  | 4.5%

___________________________
(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 13.4% and 19.6% for September 27, 2025 and September 28, 2024,
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 believes 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 28, 2024. There were no significant changes in the Company’s critical accounting policies since the end of
fiscal 2024.

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Table of Contents
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
$5.0 million based on the $580 million of borrowings under the credit facility at September 27, 2025. 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
September 27, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.

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Table of Contents
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company’s legal proceedings are discussed in Note 15 – Commitments and Contingencies, Legal Proceedings, of
the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Notes to Condensed Consolidated
Financial Statements, of 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.
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)
June 29, 2025 through July 26, 2025 |  | — |  | $— |  | — |  | $348,071,000
July 27, 2025 through August 23, 2025 |  | 3,059 |  | $10.52 |  | — |  | $348,071,000
August 24, 2025 through September 27, 2025 |  | 5,012 |  | $8.80 |  | — |  | $348,071,000
Total |  | 8,071 |  | $9.45 |  | — |  | $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 September 27, 2025.
(2)In connection with the vesting of employee restricted stock grants, the Company repurchased 8,071 shares of its common stock at a cost of
$0.1 million during the three months ended September 27, 2025.
(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.

30 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
ITEM 5. OTHER INFORMATION
On November 4, 2025, the Company amended the Credit Agreement. More information can be found in Note 5 – Credit
Agreement of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Notes to Condensed
Consolidated Financial Statements, of this Quarterly Report on Form 10-Q.
Rule 10b5-1 Trading Plan and Non-rule 10b5-1 Trading Arrangement Adoptions, Modifications and Terminations
During the quarter ended September 27, 2025, none of the Company’s 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 of SEC Regulation S-K.

31 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

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ITEM 6. EXHIBITS

Exhibit Number |  | Description
10.1* |  | Twelfth Amendment to Amended and Restated Credit and Security Agreement
31.1* |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* |  | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2* |  | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
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.

32 | 3Q 2025 FORM 10-Q | SLEEP NUMBER CORPORATION

Table of Contents
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: | November 5, 2025 | By: | /s/ Linda Findley
|  |  | Linda Findley
|  |  | Chief Executive Officer
|  |  | (principal executive officer)
|  | By: | /s/ Kelly F. Baker
|  |  | Kelly F. Baker
|  |  | Interim Principal Accounting Officer
|  |  | (principal accounting officer)