Financial Analysis

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 potentia …

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Credit Agreement As of September 27, 2025 , the Companys 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 Companys 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 dete …

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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

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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 ___________________________ (1) Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance targets.

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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.

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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 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

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Income Taxes 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 managements 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 …

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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 Companys 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 Companys office and manufacturing leases provide for an initial lease term of up to fifteen years . In addition, the Companys 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 Companys sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. The Companys 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 Companys 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 …

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"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 Companys 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 …

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Profit Sharing and 401(k) Plan Under the Companys 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 employees contribution. During the three months ended September 27, 2025 and September 28, 2024 , the Companys 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. …

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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 Companys 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. The following table provides a summary of the Companys 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) 2 …

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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 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 Companys 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 servi …

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Segments The Companys 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 Companys business activities as a single operating and reportable segment at the consolidated level. The CODM uses consolidated earnings and losses, as reported on the Companys 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 Companys 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. 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) …

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