~~4. Goodwill and Intangible Assets, Net~~

~~Goodwill and Indefinite-Lived Intangible Assets~~

~~Goodwill was $64.0 million at September 30, 2017 and December 31, 2016. Indefinite-lived trade name/trademarks totaled $1.4 million at September 30, 2017 and December 31, 2016.~~

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

3. Inventories

~~Definite-Lived~~

Inventories consisted of the following (in thousands):


	July 1, 2023		December 31, 2022
Raw materials	$	9,260	$	7,785
Work in progress	109		102
Finished goods	112,077		106,147
	$	121,446	$	114,034

4. Goodwill and Intangible Assets, Net

Goodwill and Indefinite-lived Intangible Assets

~~The following table provides the gross carrying amount~~Goodwill was $64 million at July 1, 2023 and ~~related accumulated~~December 31, 2022. Indefinite-lived trade name/trademarks totaled $1.4 million at July 1, 2023 and December 31, 2022.

Definite-lived Intangible Assets


	July 1, 2023				December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	18,564	$	18,851	$	17,641
Patents	1,972		670		1,972		559
	$	20,823	$	19,234	$	20,823	$	18,200

Developed technologies - amortization ~~of our definite-lived intangible assets (in thousands):~~

September 30, 2017 December 31, 2016

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization
Developed technologies $ 18,851
$ 6,160
$ 18,851
$ 4,524
Customer relationships 2,413
2,413
2,413
1,365
Trade names/trademarks 101
101
101
101
$ 21,365
$ 8,674
$ 21,365
$ 5,990

~~Amortization~~ expense for the three months ended ~~September 30, 2017~~July 1, 2023 and ~~October 1, 2016,~~July 2, 2022, was $0.4 million and $0.5 million, respectively, and ~~$0.6 million, respectively. Amortization expense~~ for the ~~nine~~six months ended ~~September 30, 2017~~July 1, 2023 and ~~October 1, 2016,~~July 2, 2022 was ~~$2.7~~$0.9 million and ~~$1.9~~$1.1 million, respectively.

Patents - amortization expense for both the three months ended July 1, 2023 and July 2, 2022, was $55 thousand, and for both the six months ended July 1, 2023 and July 2, 2022, was $0.1 million.

Annual amortization for definite-lived intangible assets for subsequent years are as follows (in thousands):


2023 (excluding the six months ended July 1, 2023)	$	451
2024	222
2025	226
2026	222
2027	222
2028	156
Thereafter	145
Total future amortization for definite-lived intangible assets	$	1,644


6 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

5. Credit Agreement

~~In March 2017, we amended our revolving~~As of July 1, 2023, the Company’s credit facility had a total commitment amount of $825 million. The credit facility is for general corporate purposes, to ~~increase our net aggregate availability from $150 million~~meet seasonal working capital requirements and to ~~$153 million. We maintained the~~repurchase its stock. The Credit Agreement includes an accordion feature which allows usthe Company to increase the amount of the credit facility from ~~$153~~$825 million to ~~$200 million,~~$1.2 billion, subject to ~~lenders'~~lenders’ approval. ~~There were no other changes to the credit agreement's terms and conditions.~~

The ~~credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. The credit facility matures in February 2021. The credit agreement~~Credit Agreement provides the lenders with a collateral security interest in substantially all of ~~our~~the Company’s assets and those of ~~our~~its subsidiaries and requires usthe Company to comply with, among other things, a maximum net leverage ratio (5.0x) and a minimum interest coverage ratio (3.0x).

The Company amended the Credit Agreement on October 26, 2022. The amendment, among other things, (a) provides relief from the requirement that the net leverage ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a Term SOFR Rate. The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio.

The Company amended the Credit Agreement on July 24, 2023. The amendment, among other things, extends the increased permissible net leverage ratio to 5.0x to include the quarterly reporting period ending September 30, 2023. For the quarterly reporting period ending December 30, 2023, and subsequent quarterly reporting periods, the maximum leverage ratio will be 4.5x.

Under the terms of the ~~credit agreement we pay~~Credit Agreement, the Company pays a variable rate of interest and a commitment fee based on ~~our~~its leverage ratio.

~~As of September 30, 2017, we had no outstanding borrowings and $3.15 million~~ The Credit Agreement matures in ~~outstanding letters of credit. Our borrowing capacity~~December 2026. The Company was ~~$150 million. We were~~ in compliance with all financial ~~covenants.~~covenants as of July 1, 2023.

The following table summarizes the Company’s borrowings under the credit facility ($ in thousands):


	July 1, 2023			December 31, 2022
Outstanding borrowings	$	483,800		$	459,600
Outstanding letters of credit	$	7,147		$	5,947
Additional borrowing capacity	$	334,053		$	359,453
Weighted-average interest rate	7.5		%	6.7		%

6. ~~Repurchase~~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 ~~Common Stock~~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 10 years. The Company’s office and manufacturing leases provide for an initial lease term of up to 15 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.

~~Repurchases~~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 ~~our common stock were as follows (in thousands):~~ rent escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Amount repurchased under Board-approved share repurchase program $ 40,000
$ 25,000
$ 115,000
$ 95,000
Amount repurchased in connection with the vesting of employee restricted stock grants 64
259
5,158
1,410
Total amount repurchased $ 40,064
$ 25,259
$ 120,158
$ 96,410


7 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million. There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.~~The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.~~

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

At July 1, 2023, the Company’s finance right-of-use assets and lease liabilities were not significant.

Lease costs were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Operating lease costs(1)	$	28,083	$	27,025	$	56,372	$	54,103
Variable lease costs	$	129	$	262	$	182	$	593

___________________________

(1)Includes short-term lease costs which are not significant.

The maturities of operating lease liabilities as of July 1, 2023, were as follows(1) (in thousands):


2023 (excluding the six months ended July 1, 2023)	$	54,392
2024	102,112
2025	90,594
2026	78,095
2027	62,664
2028	50,787
Thereafter	86,696
Total operating lease payments(2)	525,340
Less: Interest	86,857
Present value of operating lease liabilities	$	438,483

___________________________

(1)Future payments for real estate taxes and certain building operating expenses for which the Company is obligated are not included in the operating lease liabilities. Total operating lease payments exclude $53 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:


	July 1, 2023		December 31, 2022
Weighted-average remaining lease term (in years)	6.0		6.2
Weighted-average discount rate	6.4	%	6.2	%


	Six Months Ended
(in thousands)	July 1, 2023		July 2, 2022
Cash paid for amounts included in present value of operating lease liabilities	$	53,476	$	48,964
Right-of-use assets obtained in exchange for operating lease liabilities	$	32,831	$	36,180


8 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

7. ~~Stock-Based Compensation Expense~~Repurchases of Common Stock

~~Total stock-based compensation expense~~Repurchases of the Company’s common stock were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Amount repurchased under Board-approved share repurchase program	$	—	$	12,561	$	—	$	54,868
Amount repurchased in connection with the vesting of employee restricted stock grants	138		85		3,501		8,776
Total amount repurchased (based on trade dates)	$	138	$	12,646	$	3,501	$	63,644

As of July 1, 2023, 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):


	July 1, 2023		December 31, 2022
Deferred contract assets included in:
Other current assets	$	28,118	$	28,121
Other non-current assets	55,782		55,564
	$	83,900	$	83,685


	July 1, 2023		December 31, 2022
Deferred contract liabilities included in:
Other current liabilities	$	36,132	$	36,335
Other non-current liabilities	71,004		70,999
	$	107,136	$	107,334

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 July 1, 2023 and July 2, 2022, the Company recognized revenue of $10 million and $9 million, respectively, that was included in the deferred contract liability balances at the beginning of the respective periods. During the six months ended July 1, 2023 and July 2, 2022, the Company recognized revenue of $19 million and $18 million, respectively, 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 approximately 98% of revenues for both the three and six months ended July 1, 2023 and July 2, 2022.


9 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Net sales were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Retail stores	$	402,145	$	490,820	$	860,808	$	935,157
Online, phone, chat and other	56,644		58,253		124,508		141,046
Total Company	$	458,789	$	549,073	$	985,316	$	1,076,203

Obligation for Sales Returns

The activity in the sales returns liability account was as follows (in thousands):


	Six Months Ended
	July 1, 2023		July 2, 2022
Balance at beginning of year	$	25,594	$	22,368
Additions that reduce net sales	57,849		53,964
Deductions from reserves	(57,967)		(51,676)
Balance at end of period	$	25,476	$	24,656

9. Stock-based Compensation Expense

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Stock awards $ 3,339
$ 1,121
$ 10,059
$ 7,533
Stock options 594
545
1,750
1,739
Total stock-based compensation expense 3,933
1,666
11,809
9,272
Income tax benefit 1,314
556
3,968
3,180
Total stock-based compensation expense, net of tax $ 2,619
$ 1,110
$ 7,841
$ 6,092

~~In addition to the income tax benefit related to~~Total stock-based compensation expense (benefit) was as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Stock awards (1)	$	4,258	$	2,940	8,113		$	6,214
Stock options	994		970		1,777		1,829
Total stock-based compensation expense (1)	5,252		3,910		9,890		8,043
Income tax benefit	1,417		946		2,670		1,979
Total stock-based compensation expense, net of tax	$	3,835	$	2,964	$	7,220	$	6,064

___________________________

(1) Changes in stock-based compensation expense include the cumulative impact of the change in the ~~table above, excess tax benefits~~expected achievements of $0.2 million and $1.4 million were recognized as reductions of income tax expense during the three and nine months ended September 30, 2017, respectively. There were no excess tax benefits recognized in income tax expense during the three and nine months ended October 1, 2016. See Note 1, ~~New Accounting Pronouncements, for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017.~~certain performance targets.

8.10. Profit Sharing and 401(k) Plan

Under ~~our~~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, ~~we may make~~the Company makes a ~~discretionary~~ contribution equal to a percentage of the employee’s contribution. During the three months ended~~September 30, 2017~~ July 1, 2023 and ~~October 1, 2016, our~~July 2, 2022, the Company’s contributions, net of forfeitures, were ~~$1.4~~$2.8 million and ~~$1.1~~$2.5 million,~~, respectively. During~~ respectively and during the ~~nine~~six months ended ~~September 30, 2017~~July 1, 2023 and ~~October 1, 2016, our contributions, net of forfeitures,~~July 2, 2022, were ~~$3.9~~$5.2 million and ~~$3.4~~$5.3 million, respectively.

~~9. Other Expense, Net~~

~~Other expense, net, consisted of the following (in thousands):~~

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 )
Interest income 30
12
80
43
Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 )


10 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~10.~~11. Net Income per Common Share

The components of basic and diluted net income per share were as follows (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net income	$	754	$	34,933	$	12,219	$	37,007
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	22,460		22,355		22,378		22,558
Dilutive effect of stock-based awards	42		358		165		594
Diluted weighted-average shares outstanding	22,502		22,713		22,543		23,152
Net income per share – basic	$	0.03	$	1.56	$	0.55	$	1.64
Net income per share – diluted	$	0.03	$	1.54	$	0.54	$	1.60

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 25,603
$ 25,745
$ 49,286
$ 40,130

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 40,755
45,621
41,740
46,705
Dilutive effect of stock-based awards 760
729
819
708
Diluted weighted-average shares outstanding 41,515
46,350
42,559
47,413

Net income per share – basic $ 0.63
$ 0.56
$ 1.18
$ 0.86
Net income per share – diluted $ 0.62
$ 0.56
$ 1.16
$ 0.85

~~For~~Additional potential dilutive stock-based awards totaling 1.3 million and 0.6 million for the three ~~and nine~~ months ended ~~September 30, 2017~~July 1, 2023 and ~~October~~July 2, 2022, respectively, and 1.2 million and 0.5 million for the six months ended July 1, ~~2016, anti-dilutive stock-based awards~~2023 and July 2, 2022, respectively, have been excluded from the diluted net income per share calculations because these stock-based awards were ~~immaterial.~~anti-dilutive.

~~11.~~12. Commitments and Contingencies

~~Sales Returns~~

~~The activity in the sales returns liability account was as follows (in thousands):~~

Nine Months Ended
September 30,
2017 October 1,
2016
Balance at beginning of year $ 15,222
$ 20,562
Additions that reduce net sales 55,720
54,588
Deductions from reserves (52,494 ) (57,112 )
Balance at end of period $ 18,448
$ 18,038

Warranty Liabilities

The activity in the accrued warranty liabilities account was as follows (in thousands):


	Six Months Ended
	July 1, 2023		July 2, 2022
Balance at beginning of year	$	8,997	$	10,069
Additions charged to costs and expenses for current-year sales	8,194		7,930
Deductions from reserves	(8,315)		(8,995)
Changes in liability for pre-existing warranties during the current year, including expirations	111		(240)
Balance at end of period	$	8,987	$	8,764

Nine Months Ended
September 30,
2017 October 1,
2016
Balance at beginning of year $ 8,633
$ 10,028
Additions charged to costs and expenses for current-year sales 8,627
7,014
Deductions from reserves (6,625 ) (7,976 )
Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 )
Balance at end of period $ 9,927
$ 8,090

~~SELECT COMFORT CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Legal Proceedings

~~We are~~The Company is involved from time to time in various legal proceedings arising in the ordinary course of ~~our~~its business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S. generally accepted accounting principles, in the ~~United States, we record~~Company records a liability in ~~our~~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, ~~we have~~the Company has not established an estimated range of reasonably possible ~~additional~~material losses either because ~~we believe~~it believes that ~~we have~~is has valid defenses to claims asserted against ~~us or~~it, the proceeding has not advanced to a stage of discovery that would enable usit to establish an ~~estimate. We~~estimate, or the potential loss is not material. The Company currently dodoes not expect the outcome of ~~these matters~~pending legal proceedings to have a material effect on ~~our~~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 usthe Company could adversely impact ~~our~~its consolidated results of operations, financial position or cash flows. ~~We expense~~The Company expenses legal costs as incurred.


11 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Shareholder Class Action Complaints

On ~~January 12, 2015, Plaintiffs David and Katina Spade commenced~~December 14, 2021, purported Sleep Number shareholder, Steamfitters Local 449 Pension & Retirement Security Funds (Steamfitters), filed a ~~purported~~putative class action ~~lawsuit~~complaint in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of ~~New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to~~Minnesota (the District of Minnesota) on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen, the ~~United States Court~~Company’s former Executive Vice President and Chief Financial Officer. Steamfitters alleges material misstatements and omissions in certain of ~~Appeals for~~Sleep Number’s public disclosures during the ~~Third Circuit, which has certified two questions~~purported class period, in violation of ~~law to~~Sections 10(b) and 20(a) of the ~~New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims.~~Securities Exchange Act of 1934, as amended (the Exchange Act). The ~~New Jersey Supreme Court has accepted the certified questions~~complaint seeks, among other things, unspecified monetary damages, reasonable costs and ~~oral arguments are expected to be heard in the near future. As the United States District Court for~~expenses and equitable/injunctive or other relief as deemed appropriate by the District of ~~New Jersey determined, we believe~~Minnesota.

On February 14, 2022, a second purported Sleep Number shareholder, Ricardo Dario Schammas, moved for appointment as lead plaintiff in the action. On March 24, 2022, the District of Minnesota heard argument on Schammas’s motion, and subsequently appointed Steamfitters and Schammas as Co-Lead Plaintiffs (together, Co-Lead Plaintiffs). On July 19, 2022, Co-Lead Plaintiffs filed a consolidated amended complaint, which, like the predecessor complaint, asserts claims against Sleep Number, Shelly Ibach, and David Callen under Sections 10(b) and 20(a) of the Exchange Act. Co- Lead Plaintiffs purport to assert these claims on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021. Defendants moved to dismiss the consolidated amended complaint on September 19, 2022, which motion was heard by the Court on January 17, 2023. On July 10, 2023, the Court issued an order dismissing the Plaintiffs’ consolidated amended complaint with prejudice.

Shareholder Derivative Complaint

On May 12, 2022, Gwendolyn Calla Moore, as the appointed representative of purported Sleep Number shareholder Matthew Gelb, filed a derivative action (the Derivative Action) in the District of Minnesota against Jean-Michel Valette, Shelly Ibach, Barbara Matas, Brenda Lauderback, Daniel Alegre, Deborah Kilpatrick, Julie Howard, Kathleen Nedorostek, Michael Harrison, Stephen Gulis, Jr., David Callen, and Kevin Brown. Moore purports to assert claims on behalf of Sleep Number for breaches of fiduciary duty, waste, and contribution under Sections 10(b) and 21(d) of the Exchange Act. Moore’s allegations generally mirror those asserted in the securities complaint described above. The Moore complaint seeks damages in an unspecified amount, disgorgement, interest, and costs and expenses, including attorneys’ and experts’ fees.

On September 13, 2022, the District of Minnesota entered a joint stipulation staying all proceedings in the Derivative Action pending the outcome of any motion to dismiss the Steamfitters consolidated amended complaint.

Stockholder Demand

On March 25, 2022, Sleep Number received a shareholder litigation demand (the “Demand”), requesting that the ~~case is without merit~~Board investigate the allegations in the securities class action complaint and pursue claims on Sleep Number’s behalf based on those allegations. On May 12, 2022, the ~~order~~Board established a special litigation committee to investigate the demand.

On October 5 and October 12, 2022, Sleep Number received two additional shareholder litigation demands, which adopted and incorporated the allegations and requests in the Demand. Both of ~~dismissal should~~these additional litigation demands were referred to the special litigation committee.

The special litigation committee has concluded that it would not be ~~affirmed.~~in the best interests of Sleep Number and its shareholders to take any of the actions requested in the demands at this time.

~~Index~~


12 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index



~~ITEM 2.~~	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 ~~our~~the Company’s condensed consolidated financial statements with a narrative from the perspective of management on ~~our~~its financial condition, results of operations, liquidity and certain other factors that may affect ~~our~~the Company’s future results. ~~Our~~ MD&A is presented in ~~seven~~eight sections:

•Forward-Looking Statements and Risk Factors

~~Company~~•Business Overview

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Data Reconciliations

•Off-Balance-Sheet Arrangements and Contractual Obligations

•Critical Accounting Policies

Forward-looking Statements and Risk Factors

The ~~following~~ discussion ~~and analysis should be read~~ in ~~conjunction with the Condensed Consolidated Financial Statements and the Notes thereto included herein. This quarterly report on Form 10-Q~~this Quarterly Report 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 ~~our~~the Company’s historical experience and ~~our~~its present expectations or projections.

These risks and uncertainties include, among others:

•Current and future ~~general and industry~~ economic ~~trends~~conditions and consumer ~~confidence;~~sentiment;

~~The effectiveness~~•Bank failures or other events affecting financial institutions;

•Increases in interest rates, which have increased the cost of ~~our marketing messages;~~servicing the Company’s indebtedness;

~~The efficiency of our advertising and promotional efforts;~~

~~Our ability to execute our Company-Controlled distribution strategy;~~

~~Our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates;~~

~~Our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image;~~

~~Industry competition, the emergence of additional competitive products and the adequacy of our intellectual property rights to protect our products and brand from competitive or infringing activities;~~

~~The potential for claims that our products, processes or trademarks infringe the intellectual property rights of others;~~

•Availability of attractive and cost-effective consumer credit options;

~~Our “just-in-time” manufacturing processes~~•Operating with minimal levels of inventory, which may leave usthe Company vulnerable to ~~shortages in supply;~~supply shortages;

~~Our~~•Sleep Number’s dependence on, ~~significant suppliers~~ and ~~our~~ ability to maintain strong working relationships with, key suppliers ~~including several sole-source suppliers;~~and third parties;

•Rising commodity costs or third-party logistics costs and other inflationary pressures;

•Risks inherent in ~~global sourcing~~global-sourcing activities, including tariffs, geo-political turmoil, war, strikes, labor challenges, government-mandated work closures, outbreaks of pandemics or contagious diseases, and resulting supply shortages and production and delivery delays and disruptions;

•Risks of disruption due to health epidemics or pandemics or COVID-19 variants;

•Regional risks related to having global operations and suppliers, including climate and other disasters;

•The effectiveness of the ~~potential for shortages in supply;~~Company’s marketing strategy and promotional efforts;

•The execution of Sleep Number’s Total Retail distribution strategy;

•Ability to achieve and maintain high levels of product quality;

•Ability to improve and expand Sleep Number’s product line and execute successful new product introductions;

•Ability to prevent third parties from using the Company’s technology or trademarks, and the adequacy of its intellectual property rights to protect its products and brand;

•Ability to compete;

•Risks of disruption in the operation of ~~either~~any of ~~our two~~the Company’s main manufacturing, ~~facilities;~~distribution, logistics, home delivery, product development or customer service operations;

~~Increasing~~•The Company’s ability to comply with existing and changing government regulation;

•Pending or unforeseen litigation and the potential for associated adverse ~~publicity associated with litigation;~~publicity;

•The adequacy of ~~our management~~the Company’s and third-party information systems ~~to meet the evolving needs of our business~~ and ~~existing and evolving regulatory standards applicable to data privacy and security;~~

~~The~~ costs and ~~potential~~ disruptions ~~to our business~~ related to upgrading ~~our management information~~or maintaining these systems;


13 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

•The ~~vulnerability of our management information systems~~Company’s ability to ~~attacks by hackers or other~~withstand cyber threats that could compromise the security of ~~our~~its systems, result in a data breach or ~~disrupt our business;~~business disruption;

~~Our~~•Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified ~~management, executive~~personnel;

•The volatility of Sleep Number stock;

•Environmental, social and ~~other key employees,~~governance (ESG) risks, including ~~qualified retail sales professionals~~increasing regulation and ~~managers;~~stakeholder expectations; and

~~Uncertainties arising from global events, such as terrorist attacks~~•The Company’s ability to adapt to climate change and readiness for legal or ~~a pandemic outbreak, or the threat of such events.~~regulatory responses thereto.

Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk Factors” in ~~our~~Part I, Item 1A. in the Company’s Annual Report on Form 10-K.

~~Index~~

~~We have~~The Company has no obligation to publicly update or revise any of the forward-looking statements contained in this ~~quarterly report~~Quarterly Report on Form 10-Q.

~~Company~~Business Overview

We are executing a consumer innovation strategy with three significant competitive advantages as we work toward our ambitious vision to become one of the world's most beloved brands by delivering an unparalleled sleep experience. We offer consumers high-quality, individualized sleep solutions and services, which include a complete line of Sleep Number^® ~~beds, bases~~ is a wellness technology company. It is guided by its purpose to improve the health and ~~bedding accessories. Our competitive advantages are: proprietary~~wellbeing of society through higher quality sleep; to date, Sleep Number’s innovations have improved over 14.5 million lives. Its wellness technology platform helps solve sleep ~~innovations, exclusive distribution~~problems, whether it’s providing individualized temperature control for each sleeper through its Climate360® smart bed or applying its 21 billion hours of longitudinal sleep data and ~~lifelong customer relationships.~~expertise to research with global institutions.

WeSleep Number’s smart bed ecosystem drives best-in-class engagement through dynamic, adjustable, and effortless sleep with personalized digital sleep and health insights; its millions of smart sleepers are aloyal brand advocates. And Sleep Number’s nearly 5,000 mission-driven team members passionately innovate to drive value creation through its vertically integrated ~~brand~~business model, including its exclusive direct-to-consumer selling in 670 stores and ~~the developer, manufacturer, marketer, retailer and servicer of a complete line of~~ online.

Sleep Number ~~beds and related technology. We are also the pioneer in biometric sleep tracking and adjustability. Only the Sleep Number bed offers SleepIQ~~^® technology - proprietary sensor technology that works directly with the bed’s DualAir™ system to track each individual’s sleep. SleepIQ technology communicates how you slept and what adjustments you can make to optimize your sleep and improve your daily life. Our bed assortment is complemented with proprietary FlextFit™ adjustable bases, and Sleep Number^® ~~pillows, sheets and other bedding products. In May 2017, we began selling certain models of our Sleep Number 360™ smart bed line.~~

~~Our differentiated products are sold exclusively at more than 550 Sleep Number~~^® stores located in 49 states, online at SleepNumber.com or via phone. We offer consumers a unique, value-added store and digital experience through our team of over 3,800 individuals who are dedicated to our mission of improving lives by individualizing sleep experiences. This experience, combined with the advantages of our vertical business model and SleepIQ technology, enable a lifelong relationship with our customers. We generategenerates revenue by marketing and selling ~~products~~its innovations directly to new and existing ~~customers.~~

~~We expect our business transformation over the past five years to result in improved profitability~~customers through ~~the productivity~~exclusive, direct-to-consumer retail touch points including Stores, Online, Phone, and service advancements associated with our integrated ERP platform, smart bed design, more efficient manufacturing and supply chain network. In 2017, we began evolving our supply chain including the transition of more than 20 suppliers with whom we are partnering with to support our innovations and profitability goals. Changes to the supply chain also include in-hub assembly of our new 360 smart beds and optimization of our outbound logistics network. These multi-year initiatives, coupled with our innovations, are expected to drive accelerated profits and cash flows over time.

~~We are~~Chat (Total Retail). Sleep Number is committed to ~~delivering~~creating long-term superior ~~shareholder~~ value ~~through~~for all stakeholders as it focuses on the Company’s three ~~primary drivers of earnings per share growth:~~performance drivers: (1) increasing consumer ~~demand,~~demand; (2) leveraging ~~the~~its vertically integrated business ~~model~~model; and (3) deploying capital efficiently. The investments we have made in R&D, technology, digital and our store experience have strengthened our competitive advantages and established our innovation leadership. We have a long-term orientation and are focused on delivering sustainable, profitable growth.

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, ~~the~~ 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 ~~our~~the Company’s store base, ~~the~~ timing of new product introductions ~~the~~and related expenses, timing of promotional offerings, competitive factors, changes in commodity costs, ~~any~~ disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales, consumer ~~confidence~~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, ~~our~~the historical results of operations may not be indicative of the results that may be achieved for any future period.


14 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Highlights

Financial highlights for the ~~period~~three months ended ~~September 30, 2017~~July 1, 2023 were as follows:

•Net sales for the three months ended ~~September 30, 2017 increased 9%~~July 1, 2023 of $459 million decreased from $549 million for the same period one year ago. Demand was impacted by historically low consumer sentiment. Prior-year net sales benefited from the delivery of high-revenue smart beds from backlog due to ~~$403~~delayed supply of semiconductor chips.

•The net sales change consisted of a 18% comparable sales decrease in Total Retail offset by additional sales from 13 net new stores opened in the past 12 months that added 2 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page 16.

•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 July 1, 2023 totaled $3.1 million, compared with ~~$368~~$3.5 million for the same period last year.

•Operating income for the three months ended July 1, 2023 was $11 million, compared with $50 million in the prior-year period. The $39 million decrease in operating income was driven by the lower net sales and a 1.6 ppt. decrease in the gross profit rate offset by a $22 million reduction in operating expenses.

•The 1.6 ppt. gross profit rate decrease was primarily due to prior year’s delivery of high-revenue smart beds and bases, partially offset by pricing actions taken over the past twelve months. See the Gross profit discussion on page 18 for additional details.

•The $22 million reduction in the Company’s operating expenses was mainly due to lower marketing expenses.

•Net income for the three months ended July 1, 2023 decreased to $1 million, compared with $35 million for the same period one year ago. Net ~~sales for the three months ended September 30, 2017 were affected by: (i)~~income per diluted share was $0.03, compared with $1.54 last year.

•The Company achieved an ~~approximately $25 million shift in sales from our second quarter to our third quarter as a result~~adjusted return on invested capital (Adjusted ROIC) of a delay in deliveries and shipments related to an inventory shortage from one of our new suppliers (this delay has been resolved and we don't expect a shortage in the future), and (ii) temporary disruptions from hurricanes during our Labor Day sales event that reduced third quarter net sales by an estimated $12 to $15 million.

~~Index~~

The 9% sales increase was driven by 6 percentage points (ppt.) of growth from sales generated by 26 net new stores opened in the past 12 months and a 5% comparable sales increase in our Company-Controlled channel, partially offset by a decrease in our Wholesale/Other channel sales.

~~Sales per store (for stores open at least one year)~~12.3% on a trailing twelve-month basis for the period ended ~~September 30, 2017 were $2.4 million, up 5% from $2.2 million in the prior-year comparable period.~~

In May 2017, we began selling our Sleep Number 360™ i7 and i10 smart beds. The Sleep Number 360 smart bed won 13 awards at CES, including being named the Best of Innovation Honoree in the Home Appliance category. We plan to launch a third smart bed model (the p6) in the fourth quarter, and remain on track to complete the phased implementation of our 360 smart bed line by the first half of next year.

~~Operating income~~July 1, 2023, compared with 34.9% for the ~~quarter totaled $39 million, consistent with the same~~comparable period one year ago. ~~Our~~

•The Company generated $19 million in cash from operating ~~income rate decreased to 9.7% of net sales,~~activities for the six months ended July 1, 2023, compared with 10.6% of net sales for the same period last year. The decrease in operating income rate primarily resulted from transition costs associated with the launch of our Sleep Number 360 smart beds and the evolution of our supply chain.

~~Net income for the quarter was $25.6 million, or $0.62 per diluted share, compared with $25.7 million, or $0.56 per diluted share, for the same period one year ago.~~

~~Cash provided by operating activities totaled $176 million for the nine months ended September 30, 2017, compared with $145~~$29 million for the same period one year ago. ~~Investing activities for~~

•As of July 1, 2023, the ~~current-year period included $38~~Company had $484 million of ~~property and equipment purchases, compared with $39 million for the same period last year.~~

~~At September 30, 2017, cash and cash equivalents totaled $30 million and we ended the quarter with no~~ borrowings under ~~our $153 million~~its revolving credit ~~facility. We utilize our credit~~ facility ~~to meet our seasonal working capital requirements.~~and available net liquidity of $334 million.

In the third quarter of 2017, we repurchased 1.3 million shares of our common stock under our Board-approved share repurchase program at a cost of $40 million (an average of $31.18 per share). Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million.


15 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

The following table sets forth ~~our~~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								Six Months Ended
	July 1, 2023				July 2, 2022				July 1, 2023				July 2, 2022
Net sales	$	458.8	100.0	%	$	549.1	100.0	%	$	985.3	100.0	%	$	1,076.2	100.0	%
Cost of sales	194.5		42.4	%	224.1		40.8	%	410.8		41.7	%	449.0		41.7	%
Gross profit	264.2		57.6	%	324.9		59.2	%	574.5		58.3	%	627.2		58.3	%
Operating expenses:
Sales and marketing	197.8		43.1	%	220.5		40.2	%	428.3		43.5	%	460.7		42.8	%
General and administrative	39.8		8.7	%	38.7		7.1	%	79.2		8.0	%	80.0		7.4	%
Research and development	15.4		3.4	%	15.8		2.9	%	29.9		3.0	%	32.1		3.0	%
Total operating expenses	253.0		55.1	%	275.0		50.1	%	537.4		54.5	%	572.9		53.2	%
Operating income	11.2		2.4	%	49.9		9.1	%	37.2		3.8	%	54.3		5.0	%
Interest expense, net	9.9		2.2	%	3.6		0.7	%	19.1		1.9	%	5.7		0.5	%
Income before income taxes	1.3		0.3	%	46.3		8.4	%	18.1		1.8	%	48.6		4.5	%
Income tax expense	0.5		0.1	%	11.4		2.1	%	5.9		0.6	%	11.6		1.1	%
Net income	$	0.8	0.2	%	$	34.9	6.4	%	$	12.2	1.2	%	$	37.0	3.4	%

Net income per share:
Basic	$	0.03			$	1.56			$	0.55			$	1.64
Diluted	$	0.03			$	1.54			$	0.54			$	1.60

Weighted-average number of common shares:
Basic	22.5				22.4				22.4				22.6
Diluted	22.5				22.7				22.5				23.2

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Beginning of period 549
506
540
488
Opened 6
24
30
57
Closed (2 ) (3 ) (17 ) (18 )
End of period 553
527
553
527


17 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

~~Index~~

Comparison of Three Months Ended ~~September 30, 2017~~July 1, 2023 with Three Months Ended ~~October 1, 2016~~July 2, 2022

Net sales

Net sales ~~increased 9% to $403 million~~ for the three months ended ~~September 30, 2017, compared with $368~~July 1, 2023 of $459 million decreased from $549 million for the same period one year ago. ~~Net~~Demand was impacted by historically low consumer sentiment. Prior-year net sales ~~for~~benefited from the ~~three months ended September 30, 2017 were affected by: (i) an approximately $25 million shift~~delivery of high-revenue smart beds from backlog due to delayed supply of semiconductor chips.

The net sales change consisted primarily of a 18% comparable sales decrease in Total Retail offset by additional sales from our second quarter to our third quarter as a result of a delay in deliveries and shipments related to an inventory shortage from one of our new suppliers (this delay has been resolved and we don't expect a shortage in the future); and (ii) temporary disruptions from hurricanes during our Labor Day sales event that reduced third quarter net sales by an estimated $12 to $15 million. The 9% sales increase was driven by 6 percentage points (ppt.) of growth from sales generated by 2613 net new stores opened in the past 12 months ~~and a 5% comparable sales increase in our Company-Controlled channel; partially offset by a decrease in our Wholesale/Other channel sales.~~that added 2 percentage points (ppt.) of growth.

The ~~$35~~$90.3 million net sales ~~increase~~decrease compared with the same period one year ago was comprised of the following: (i) a ~~$23~~$92.8 million ~~increase resulting from~~decrease in Retail comparable net ~~store openings; and~~sales; (ii) a ~~$17~~$1.6 million ~~increase in sales~~decrease from ~~our Company-Controlled comparable~~phone, online and other sales; ~~partially~~ offset by (iii) a $5$4.1 million ~~decrease in Wholesale/Other channel sales. Company-Controlled mattress~~increase from net store openings. Total Retail smart bed unit sales ~~were in line~~decreased 10% compared with the prior year. ~~Average~~Total Retail average revenue per ~~mattress~~smart bed unit decreased by 8% to $5,990, compared with $6,485 in ~~our Company-Controlled channel increased by 11%~~the prior-year period. Prior year average revenue per smart bed unit benefited from the delivery of high-revenue smart beds from backlog due to ~~$4,385.~~delayed supply of semiconductor chips.

Gross profit

Gross profit of ~~$253~~$264 million ~~increased~~for the three months ended July 1, 2023 decreased by ~~$21~~$61 million, or 9%19%, compared with ~~$232~~$325 million for the same period one year ago. The gross profit rate ~~was 62.9%~~decreased to 57.6% of net sales for the three months ended ~~September 30, 2017,~~July 1, 2023, compared with ~~63.1%~~59.2% for the prior-year comparable period.

The current-year gross profit rate ~~decline~~decrease of ~~0.2~~1.6 ppt. was mainly due to: (i) prior year’s delivery of high-revenue smart beds and bases pressured the rate by 2.4 ppt.; (ii) higher returns and warranty costs, primarily ~~due~~related to ~~margin pressures from weather-related excess freight and handling costs, and supplier transition costs,~~the returnability of the integrated adjustable base as part of the Climate360 smart bed, impacted the rate by 0.6 ppt.; (iii) increased company-wide performance-based incentive compensation impacted the rate by 0.3 ppt.; (iv) lower delivered smart bed volume deleveraged the rate by 0.2 ppt.; partially offset by a(v) favorable ~~product mix of Sleep Number 360™ smart beds~~pricing actions taken over the past twelve months, increased the rate by 1.6 ppt.; and (vi) improvement in commodity prices and operating ~~lean initiatives.~~efficiencies improved the rate by 0.2 ppt. In addition, ~~our~~the gross profit rate ~~can~~may fluctuate from quarter to quarter due to a variety of other factors, including ~~warranty expenses, return~~changes in manufacturing and ~~exchange costs,~~supply chain operations and performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the three months ended ~~September 30, 2017 increased to $175~~July 1, 2023 were $198 million, or ~~43.4%~~43.1% of net sales, compared with ~~$158~~$220 million, or ~~42.9%~~40.2% of net sales, for the same period one year ago. The ~~0.5 ppt. increase in the~~current-year sales and marketing ~~expense~~expenses rate increase of 2.9 ppt. was ~~mainly~~primarily due to ~~an increase in customer financing expenses, as a larger percentage~~the deleveraging impact of ~~our customers took advantage of promotional financing offers,~~16% lower net sales partially offset by ~~0.6 ppt. of leverage from media spending, which~~a 25% decrease in consumer financing costs as the Company adjusted promotional offers to mitigate increased ~~by 5% compared~~costs associated with the ~~prior year, while net sales increased by 9%.~~higher interest rate environment. Media spend was 12% lower year-over-year.

General and administrative expenses

General and administrative (G&A) expenses totaled ~~$33~~$40 million, or ~~8.1%~~8.7% of net sales, for the three months ended ~~September 30, 2017,~~July 1, 2023, compared with ~~$28~~$39 million, or ~~7.7%~~7.1% of net sales, in the prior-year period. The ~~$4.4~~$1.1 million increase in G&A expenses consisted ~~primarily of the following:~~mainly of: (i) a ~~$3.1~~$3.6 million increase in company-wide performance-based incentive compensation; (ii) a $0.8 million increase in technology expenses; offset by (iii) a $3.5 million reduction in employee compensation including a year-over-year increase in performance-based incentive compensation, enhanced digital marketing capabilities, and salary and wage rate increases that were in line with inflation; and (ii) a $1.3 million net increase in miscellaneous other expenses.on lower headcount. The G&A ~~expense~~expenses rate increased by ~~0.4~~1.6 ppt. in the current-year period, compared with the same period one year ago due to the ~~increase in expenses~~items discussed above ~~partially offset by~~and the ~~leveraging~~deleveraging impact of ~~the 9% sales increase.~~lower net sales.

Research and development expenses

Research and development (R&D) expenses decreased to $15 million for the three months ended ~~September 30, 2017 were $7~~July 1, 2023, compared with $16 million ~~consistent~~ with the same period ~~one~~last year ~~ago, but decreased~~on lower headcount. The Company continues to ~~1.7% of~~maintain a flexible mindset, to capitalize on profitable opportunities as the environment improves, and deliver tangible life-changing health benefits for Smart Sleepers.


18 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Interest expense, net ~~sales from 1.9% of~~

Interest expense, net ~~sales,~~increased to $10 million for ~~the same period one year ago due to the leveraging effect of the 9% net sales increase. For~~ the three months ended ~~September 30, 2017, the investment in product innovations is consistent with our current-year and long-term consumer innovation strategy.~~

~~Index~~

~~Comparison of Nine Months Ended September 30, 2017 with Nine Months Ended October~~July 1, ~~2016~~

~~Net sales~~

~~Net sales increased 8% to $1.08 billion for the nine months ended September 30, 2017,~~2023, compared with ~~$998~~$4 million for the same period one year ago. The $6 million increase was mainly driven by a higher weighted-average interest rate compared with the same period one year ago.

Income tax expense

Income tax expense totaled $0.5 million for the three months ended July 1, 2023, compared with $11.4 million last year. The effective income tax rate for the three months ended July 1, 2023 was 41.0%, compared with 24.5% for the comparable period last year. Discrete tax expenses, primarily stock-based compensation excess tax expense, was $0.1 million for the three months ended July 1, 2023, compared with discrete tax benefits of $0.1 million in last year’s second quarter.

Comparison of Six Months Ended July 1, 2023 with Six Months Ended July 2, 2022

Net sales

Net sales ~~change~~for the six months ended July 1, 2023 decreased by $91 million, or 8%, to $985 million, compared with $1.08 billion for the same period one year ago. Demand was ~~comprised~~impacted by historically low consumer sentiment.

The 8% net sales decrease consisted of 8a 10% comparable sales decrease in Total Retail, partially offset by 2 percentage points (ppt.) of sales growth from ~~sales generated by 26~~ net new stores opened in the past 12 ~~months and a 2% comparable~~months. For additional details, see the components of total net sales ~~increase in our Company-Controlled channel, partially offset by a decrease in Wholesale/Other channel sales.~~change on page 16.

The ~~$83~~$91 million net sales ~~increase~~decrease compared with the same period one year ago was comprised of the following: (i) a ~~$76~~$89 million decrease in Retail comparable net sales; (ii) a $16 million decrease in online, phone and other sales; partially offset by (iii) a $14 million increase resulting from net store ~~openings; and (ii) a $17 million increase~~openings. Total smart bed unit sales declined 13% compared with the prior year. Average revenue per smart bed unit in ~~sales from our Company-Controlled comparable sales; partially offset~~Total Retail increased by ~~(iii) a $10 million decrease~~6% to $5,913, compared with $5,601 in ~~Wholesale/Other channel sales. Company-Controlled mattress units increased 4% compared to~~ the prior-year period. ~~Average revenue per mattress unit in our Company-Controlled channel increased by 5%.~~

Gross profit

Gross profit of ~~$677~~$575 million ~~for the nine months ended September 30, 2017 increased~~decreased by ~~$64~~$53 million, or ~~10%~~8%, compared with $627 million for the same period one year ago. The gross profit rate ~~increased to 62.6%~~was 58.3% of net sales for the ~~first nine~~six months ~~of 2017, compared~~ended July 1, 2023, consistent with ~~61.4% for~~ the prior-year comparable period. ~~The prior-year gross profit rate was negatively impacted by actions taken to manage operating issues associated with our ERP implementation during the first six months of 2016.~~

The current-year gross profit rate ~~improvement~~ of ~~1.2 ppt. was primarily due to manufacturing and supply chain efficiencies, including lean initiatives, and lower sales return and exchange costs compared~~58.3% remained consistent with the same period one year ~~ago. In addition,~~ago: (i) favorable pricing actions taken over the past twelve months increased the rate by 1.6 ppt.; (ii) improvement in commodity prices and operating efficiencies increased the rate by 0.4 ppt.; offset by (iii) higher mix of high-end adjustable bases last year due to semiconductor chip supply constraints limiting the Company’s product availability pressured the rate by 0.7 ppt.; (iv) higher returns and warranty costs, primarily related to the returnability of the integrated adjustable base as part of the Climate360 smart bed, decreased the rate by 0.6 ppt.; (v) increased company-wide performance-based incentive compensation decreased the rate by 0.3 ppt.; (vi) lower delivered smart bed volume deleveraged the rate by 0.3 ppt.; and (vii) incremental logistics and delivery costs, including labor inflation and investments in our distribution network, decreased the rate by 0.2 ppt. The gross profit rate ~~can~~may fluctuate from quarter to quarter due to a variety of other factors, including ~~warranty expenses, product mix~~ changes in manufacturing and supply chain operations and performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the ~~nine~~six months ended ~~September 30, 2017 increased to $489~~July 1, 2023 were $428 million, or 43.5% of net sales, compared with ~~$443~~$461 million, or 42.8% of net sales, for the same period one year ~~ago, and increased to 45.2% of net sales compared with 44.4% of net sales last year.~~ago. The ~~0.8 ppt. increase in the~~current-year sales and marketing ~~expense~~expenses rate increase of 0.7 ppt. was ~~mainly~~primarily due ~~to an increase in customer financing expenses, as~~to: (i) deleveraging impact of a larger percentage of our customers took advantage of promotional financing offers, and an increase in selling compensation expense, including performance-based incentive compensation. These increases were8% sales decline; (ii) the additional costs associated with operating 13 net new stores; partially offset by ~~leverage from~~(iv) a 12% decrease in media ~~spending, which increased by 4% compared with the prior year, while net sales increased by 8%.~~spend year-over-year resulting in 0.5 ppt. of leverage.


19 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

General and administrative expenses

General and administrative (G&A) expenses totaled ~~$95~~$79 million, or ~~8.8%~~8.0% of net sales, for the ~~nine~~six months ended ~~September 30, 2017,~~July 1, 2023, compared with ~~$86~~$80 million, or ~~8.6%~~7.4% of net sales, in the prior-year period. The $9$1 million ~~increase~~decrease in G&A expenses consisted ~~primarily of the following:~~of: (i) a ~~$4.0~~$5.9 million ~~increase~~reduction in employee compensation ~~including~~on lower headcount; (ii) a ~~year-over-year~~$1.7 million decrease in professional and consulting fees; (iii) a $0.5 million decrease in travel and training expenses; and (iv) a $1.4 million decrease in other miscellaneous expenses; partially offset by (v) a $7.0 million increase in company-wide, performance-based incentive ~~compensation, enhanced digital marketing capabilities,~~compensation; and ~~salary and wage rate increases that were in line with inflation; (ii) $2.3~~(vi) a $1.7 million ~~of additional depreciation and amortization expense, including incremental depreciation expense from capital expenditures that support the growth of our business; and (iii) a $2.7 million net~~ increase in ~~miscellaneous other expenses.~~technology investments. The G&A ~~expense~~expenses rate increased by ~~0.2~~0.6 ppt. in the current-year period, compared with the same period one year ago due to the ~~increase in expenses discussed above,~~deleveraging impact of the 8% net sales decrease partially offset by the ~~leveraging impact of the 8% sales increase.~~net expense reductions discussed above.

Research and development expenses

Research and development (R&D) expenses for the nine months ended September 30, 2017 were $21 million, or 1.9% of net sales, compared with $22 million, or 2.2% of net sales, for the same period one year ago. The $1 million decrease in R&D expenses was duedecreased by 7% to ~~the timing of our investments to support product innovations. The investment spending year-to-date is consistent with our current-year and long-term consumer innovation strategy.~~

~~Income tax expense~~

~~Income tax expense was $22~~$30 million for the ~~nine~~six months ended ~~September 30, 2017,~~July 1, 2023, compared with ~~$21~~$32 million for the same period one year ago. The Company continues to maintain a flexible mindset, to capitalize on profitable opportunities as the environment improves, and deliver tangible life-changing health benefits for Smart Sleepers.

Interest expense, net

Interest expense, net increased to $19 million for the six months ended July 1, 2023, compared with $6 million for the same period one year ago. The $13 million increase was mainly driven by a higher weighted-average interest rate compared with the same period one year ago.

Income tax expense

Income tax expense totaled $6 million for the six months ended July 1, 2023, compared with $12 million last year. The effective income tax rate for the ~~nine~~six months ended ~~September 30, 2017 was 30.7%~~July 1, 2023 increased to 32.5%, compared with ~~33.9%~~23.8% for the ~~prior-year period. The effective~~comparable period last year, reflecting higher discrete tax ~~rate for the current-year period benefited from: (i)~~expenses, primarily stock-based compensation excess tax benefits in accordance with new Financial Accounting Standards Board (FASB) guidance effective for us beginning in 2017; and (ii) the recognition of additional tax credits. Under previous FASB guidance, excess tax benefits or deficiencies were recognized in additional paid-in capital in our consolidated balance sheet. See Note 1, ~~New Accounting Pronouncements,~~ expense in the ~~Notes to~~current-year six-month period of $1.1 million versus the ~~Condensed Consolidated Financial Statements for additional details.~~prior-year, six-month period of $0.6 million.

~~Index~~

Liquidity and Capital Resources

Managing ~~our~~ liquidity and capital resources is an important part of ~~our~~the Company’s commitment to deliver superior shareholder ~~value. Our business model, which can operate with minimal working capital, does not require additional capital from external sources to fund operations or organic growth. Our~~value over time. The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under ~~our $153~~its $825 million revolving credit facility. As of July 1, 2023, the Company does not have any off-balance sheet financing other than its $7 million in outstanding letters of credit. The cash generated from ongoing operations and cash available under ~~our~~the revolving credit facility are expected to be adequate to maintain operations, and fund anticipated expansion, ~~and~~ strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail stores for the foreseeable future.

~~As of~~ ~~September 30, 2017~~,Changes in cash and cash equivalents ~~totaled~~ ~~$30 million~~ ~~compared with~~ ~~$12 million~~ asduring the six months ended July 1, 2023 primarily consisted of ~~December 31, 2016. The~~ ~~$18 millionincrease~~ ~~was primarily due to $176~~$19 million of cash provided by operating activities ~~which was partially~~and an $15 million increase in short-term borrowings, offset by ~~$38~~$30 million of cash used to purchase property and equipment and ~~$120~~$4 million of cash used to repurchase ~~our~~its common stock ~~($115 million under our Board-approved share repurchase program and $5 million~~(based on settlement, in connection with the vesting of employee restricted stock grants).

The following table summarizes ~~our~~ cash flows ~~(dollars in~~(in millions). Amounts may not add due to rounding differences:


	Six Months Ended
	July 1, 2023		July 2, 2022
Total cash provided by (used in):
Operating activities	$	18.7	$	28.7
Investing activities	(30.3)		(36.5)
Financing activities	11.6		7.7
Net increase (decrease) in cash and cash equivalents	$	0.0	$	(0.1)

Nine Months Ended
September 30,
2017 October 1,
2016
Total cash provided by (used in):
Operating activities $ 176.1
$ 145.3
Investing activities (34.4 ) (29.6 )
Financing activities (123.3 ) (91.3 )
Net increase in cash and cash equivalents $ 18.3
$ 24.4


20 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Cash provided by operating activities for the ~~nine~~six months ended ~~September 30, 2017~~July 1, 2023 was ~~$176~~$19 million, compared with ~~$145~~$29 million for the ~~nine~~six months ended ~~October 1, 2016.~~July 2, 2022. Significant components of the year-over-year change in cash provided by operating activities included: (i) a $9$25 million ~~increase~~decrease in net income for the ~~nine~~six months ended ~~September 30, 2017,~~July 1, 2023, compared with the same period one year ago; (ii) a ~~$37~~$25 million fluctuation in ~~customer prepayments resulting from higher than normal customer prepayments at January 2, 2016 (due~~accrued compensation and benefits primarily related to ~~ERP implementation issues); (iii)~~year-over-year changes in company-wide performance-based compensation that was earned in 2021 and paid in the first quarter of 2022, compared with no company-wide performance-based compensation earned in 2022 and paid in the first quarter of 2023; and (iv) a ~~$31~~$12 million fluctuation in ~~income taxes based on a $15 million income taxes receivable at January 2, 2016 (income taxes payable for comparable period);~~prepaid expenses and ~~(iv)~~other assets primarily due to the ~~ERP implementation issues we experienced in our plants~~amount and ~~supply chain during the fourth quarter~~timing of ~~2015 that resulted in increased accounts receivables, higher inventories, higher accounts payable, and lower other taxes and withholding at the end of 2015.~~rebate payments.

Net cash used in investing activities to purchase property and equipment was ~~$34~~$30 million for the ~~nine~~six months ended ~~September 30, 2017,~~July 1, 2023, compared with $30 million of net cash used in investing activities for the same period one year ago. Investing activities for the current-year period included $38 million of property and equipment purchases, compared with $39 million for the same period last year. We decreased our investments in marketable debt securities by $9 million during the nine months ended October 1, 2016. We did not hold any investments in marketable debt securities as of December 31, 2016 or during the nine months ended September 30, 2017.

~~Net cash used in financing activities was $123 million for the nine months ended September 30, 2017, compared with $91~~$37 million for the same period one year ago. The year-over-year decrease was primarily due to the timing of cash flows associated with investments in information technology.

Net cash provided by financing activities was $12 million for the six months ended July 1, 2023, compared with $8 million for the same period last year. During the ~~nine~~six months ended ~~September 30, 2017, we~~July 1, 2023, the Company repurchased ~~$120~~$4 million of ~~our~~its stock ~~($115 million under our Board-approved share repurchase program and $5 million~~(based on settlement dates, in connection with the vesting of employee restricted stock awards), compared with ~~$96~~$64 million ~~($95~~(based on settlement dates, $55 million under ~~our~~the Board-approved share repurchase program and ~~$1.4~~$9 million in connection with the vesting of employee restricted stock awards) during the same period one year ago. Short-term borrowings ~~declined~~increased by $6$15 million during the current-year period ~~primarily~~ due to a $24 million increase in borrowings under the revolving credit facility to $484 million offset by a $9 million decrease in book overdrafts which are included in the net change in short-term borrowings. Short-term borrowings increased by $71 million during the prior-year period due to a $61 million increase in borrowings under the credit facility to $443 million and a $10 million increase in book overdrafts.

~~Under our~~In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share repurchase ~~program, we repurchased 4.3~~program. At July 1, 2023, there was $348 million ~~shares at a cost of $115~~remaining authorization under the Board-approved $600 million (an average of $26.52 per share) during the nine months ended September 30, 2017. During the nine months ended October 1, 2016, we repurchased 4.6 million shares at a cost of $95 million (an average of $20.78 per share). Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase ~~authorization to $500 million.~~program. There is no expiration date governing the period over which wethe Company can repurchase shares.

~~In March 2017, we amended our revolving~~The Company has a credit facility ~~to increase our net aggregate availability from $150 million to $153 million. We maintained the accordion feature~~(Credit Agreement) which ~~allows us to increase the amount of the credit facility from $153 million to $200 million, subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions.~~

~~Index~~

~~The credit facility~~ is for general corporate purposes, ~~and is utilized~~ to meet ~~our~~its seasonal working capital ~~requirements.~~requirements and to repurchase its stock. The ~~credit facility matures in February 2021.~~Company amended the Credit Agreement on October 26, 2022. The ~~credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with,~~amendment, among other things, ~~a maximum~~(a) provides relief from the requirement that the net leverage ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a ~~minimum~~Term SOFR Rate. The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest ~~coverage~~period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio. Under the terms of the ~~credit~~Credit agreement, ~~we pay~~the Company pays a variable rate of interest and a commitment fee based on ~~our~~its leverage ratio.

~~As of~~The Company amended the Credit Agreement on July 24, 2023. The amendment, among other things, extends the increased permissible net leverage ratio to 5.0x to include the quarterly reporting period ending September 30, ~~2017, we~~2023.

At July 1, 2023, the Company had ~~$3.15~~$484 million of borrowings under its revolving credit facility, $7 million in outstanding letters of credit and nonet liquidity available under the credit facility of $334 million. At July 1, 2023, the Company’s leverage ratio as defined in the credit agreement was 4.7x, the weighted-average interest rate on borrowings under the credit ~~facility. Our available borrowing capacity~~facility was ~~$150 million. We were~~7.5% and the Company was in compliance with all financial covenants.

~~We have~~Sleep Number has an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance their purchases from usthe Company (Synchrony Agreement). The Synchrony Agreement contains ~~certain~~ financial covenants ~~including~~consistent with the credit facility, including a maximum net leverage ratio and a minimum interest coverage ratio. As of ~~September 30, 2017, we were~~July 1, 2023, the Company was in compliance with all financial covenants.

Under the terms of the Synchrony Agreement, Synchrony Bank sets the minimum acceptable credit ratings, the interest rates, fees and all other terms and conditions of the customer accounts, including collection policies and procedures, and is the owner of the accounts.


21 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

Non-GAAP Data Reconciliations

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

~~We define~~The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of ~~our~~its financial performance and ~~our~~its ability to generate cash from operating activities. ~~Our~~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.

~~Our~~ Adjusted EBITDA calculations are as follows ~~(dollars in~~(in thousands):


	Three Months Ended				Trailing-Twelve Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net income	$	754	$	34,933	$	11,822	$	101,869
Income tax expense	524		11,359		6,602		30,442
Interest expense	9,948		3,619		32,289		9,406
Depreciation and amortization	18,304		15,920		71,318		61,857
Stock-based compensation	5,252		3,910		15,071		18,872
Asset impairments	170		80		294		266
Adjusted EBITDA	$	34,952	$	69,821	$	137,396	$	222,712

Three Months Ended
Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 25,603
$ 25,745
$ 60,573
$ 18,958
Income tax expense 13,178
13,044
25,731
11,112
Interest expense 278
267
935
721
Depreciation and amortization 14,770
14,536
60,404
56,154
Stock-based compensation 3,933
1,666
14,498
10,609
Asset impairments 222
2
267
51
Adjusted EBITDA $ 57,984
$ 55,260
$ 162,408
$ 97,605

Free Cash Flow

~~Our~~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, ~~we are~~the Company is providing this information as ~~we believe~~it believes it facilitates analysis for investors and financial analysts.

The following table summarizes ~~our~~ free cash flow calculations ~~(dollars in~~(in thousands):


	Six Months Ended				Trailing-Twelve Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net cash provided by operating activities	$	18,720	$	28,691	$	26,167	$	167,281
Subtract: Purchases of property and equipment	29,899		36,559		62,794		71,447
Free cash flow	$	(11,179)	$	(7,868)	$	(36,627)	$	95,834

Nine Months Ended
Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net cash provided by operating activities $ 176,054
$ 145,261
$ 182,438
$ 121,616
Subtract: Purchases of property and equipment 37,613
38,769
56,696
62,920
Free cash flow $ 138,441
$ 106,492
$ 125,742
$ 58,696


22 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

Non-GAAP Data Reconciliations (continued)

Return on Invested Capital ~~(ROIC)~~(Adjusted ROIC)

(dollars in thousands)

Adjusted ROIC is a financial measure ~~we use~~the Company uses to determine how efficiently ~~we deploy our~~it deploys its capital. It quantifies the return ~~we earn~~the Company earns on ~~our~~its adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. ~~We compute~~The Company computes Adjusted ROIC as outlined below. ~~Our~~Its definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies.

The tables below reconcile adjusted net operating profit after taxes ~~(NOPAT)~~(Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial ~~measures:~~measures (in thousands):


	Trailing-Twelve Months Ended
	July 1, 2023			July 2, 2022
Adjusted net operating profit after taxes (Adjusted NOPAT)
Operating income	$	50,713		$	141,718
Add: Operating lease expense (1)	27,040			25,079


Less: Income taxes (2)	(21,993)			(39,798)
Adjusted NOPAT	$	55,760		$	126,999

Average adjusted invested capital
Total deficit	$	(419,141)		$	(442,962)
Add: Long-term debt (3)	484,161			443,779
Add: Operating lease obligations (4)	438,483			420,516
Total adjusted invested capital at end of period	$	503,503		$	421,333

Average adjusted invested capital (5)	$	452,573		$	363,986

Adjusted return on invested capital (Adjusted ROIC) (6)	12.3		%	34.9		%

___________________________

Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016
Net operating profit after taxes (NOPAT)
Operating income $ 87,108
$ 30,681
Add: Rent expense⁽¹⁾
72,260
64,994
Add: Interest income 129
109
Less: Depreciation on capitalized operating leases⁽²⁾
(18,384 ) (16,953 )
Less: Income taxes⁽³⁾
(46,004 ) (29,805 )
NOPAT $ 95,109
$ 49,026

Average invested capital
Total equity $ 104,297
$ 176,512
Less: Cash greater than target⁽⁴⁾
—
—
Add: Long-term debt⁽⁵⁾
—
—
Add: Capitalized operating lease obligations⁽⁶⁾
578,080
519,952
Total invested capital at end of period $ 682,377
$ 696,464
Average invested capital⁽⁷⁾
$ 689,467
$ 714,956
Return on invested capital (ROIC)⁽⁸⁾
13.8 % 6.9 %
(1) Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842, Leases.

~~___________________~~

⁽¹⁾ ~~Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.~~

⁽²⁾ Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) for the respective reporting periods with an assumed thirty-year useful life. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.

⁽³⁾ Reflects annual effective income tax rates, before discrete adjustments, of ~~32.6%~~28.3% and ~~37.8%~~23.9% for ~~2017~~July 1, 2023 and ~~2016,~~July 2, 2022, respectively.

⁽⁴⁾ ~~Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.~~

⁽⁵⁾(3) Long-term debt includes existing ~~capital~~finance lease ~~obligations, if applicable.~~liabilities.

⁽⁶⁾ ~~A multiple of eight times annual rent expense is used as an estimate for capitalizing our~~(4) Reflects operating lease ~~obligations. The methodology utilized aligns with~~liabilities included in the ~~methodology of a nationally recognized credit rating agency.~~Company’s financial statements under ASC 842.

⁽⁷⁾(5) Average adjusted invested capital represents the average of the last five fiscal ~~quarters'~~quarters’ ending adjusted invested capital balances.

⁽⁸⁾(6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital.

Note - ~~Our~~the Company’s ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, ~~we are~~the Company is providing this information as weit believe it facilitates analysis of the Company's financial performance by investors and financial analysts. The Company updated its Adjusted ROIC calculation effective beginning with the reporting period ended December 31, 2022, to reflect adjustments consistent with ASC 842. The prior period has been updated to reflect this calculation.

GAAP - generally accepted accounting principles in the U.S.

~~Index~~

~~Off-Balance-Sheet Arrangements~~

Critical Accounting Policies

The Company discusses its critical accounting policies and ~~Contractual Obligations~~

Asestimates inManagement’s Discussion and Analysis of ~~September 30, 2017, we were not involved in any unconsolidated special purpose entity transactions. Other than our operating leases~~Financial Condition and ~~a $3.15 million outstanding letter~~Results of ~~credit, we do not have any off-balance-sheet financing.~~

~~There has been no material changes in our contractual obligations, other than~~ Operationsin the ~~ordinary course of business, since the end of~~ ~~fiscal 2016. See Note 5,~~ ~~Credit Agreement, of the Notes to our Condensed Consolidated Financial Statements for information regarding our credit agreement. See our~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~ ~~for additional information regarding our other contractual obligations.~~

~~Critical Accounting Policies~~

~~We discuss our critical accounting policies and estimates in~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~in our Annual Report on Form 10-K for the fiscal year ended~~ ~~December 31, 2016~~.2022. There were no significant changes in ~~our~~the Company’s critical accounting policies since the end of fiscal ~~2016~~.2022.


23 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Changes~~The Company is exposed to changes in ~~the overall level of~~market-based short-term interest rates ~~affect~~that will impact net interest ~~income generated from cash and cash equivalents.~~expense. If overall interest rates were one percentage point ~~lower~~higher than current rates, ~~our~~ annual ~~interest~~net income would ~~not change~~decrease by ~~a significant amount~~$3.5 million based on ~~our cash and cash equivalents as~~the $484 million of ~~September 30, 2017, and~~borrowings under the ~~current low interest-rate environment. We do~~credit facility at July 1, 2023. The Company does not manage ~~our investment~~the interest-rate volatility risk of borrowings under the credit facility through the use of derivative instruments.

~~As of September 30, 2017, we had no borrowings under our revolving credit facility.~~

ITEM 4. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

~~We maintain~~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. ~~Our~~The Company’s management, with the participation of ~~our~~its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ~~our~~the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, ~~our~~its principal executive officer and principal financial officer concluded that ~~our~~the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal ~~Controls~~Control

There were no changes in ~~our~~the Company’s internal control over financial reporting during the fiscal quarter ended ~~September 30, 2017~~,July 1, 2023, that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.


24 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are involved from time to time in various~~The Company’s legal proceedings ~~arising~~are discussed in Note 12,Commitments and Contingencies, Legal Proceedings, in the ~~ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with generally accepted accounting principles~~Notes to Condensed Consolidated Financial Statements in the United States, we record a liability in our 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. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effectthis Quarterly Report on our 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 us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred.Form 10-Q.

On January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which has certified two questions of law to the New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court has accepted the certified questions and oral arguments are expected to be heard in the near future. As the United States District Court for the District of New Jersey determined, we believe that the case is without merit and the order of dismissal should be affirmed.

ITEM 1A. RISK FACTORS

~~Our~~In addition to the risks discussed below and other information set forth in this Quarterly Report on Form 10-Q, 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 ~~our~~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 ~~our~~the Company’s most recent Annual Report on Form 10-K. The risk factors discussed in the Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q do not identify all risks that ~~we face~~the Company faces because ~~our~~its business operations could also be affected by additional risk factors that are not presently known to usthe Company or that weit currently ~~consider~~considers to be immaterial to its operations.

Bank failures or other events affecting financial institutions could adversely affect our ~~operations.~~liquidity and financial performance.

The recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures and banking industry instability could materially and adversely affect the Company’s liquidity, access to cash and credit, and the Company’s business, financial condition and results of operations, as well those of the Company’s third-party suppliers or vendors. The recent closures of Silicon Valley Bank (SVB) and Signature Bank and their placement into receivership with the Federal Deposit Insurance Company (FDIC) along with the FDIC’s seizure and sale of First Republic Bank created market disruption and uncertainty with respect to the financial condition of a number of other banking institutions in the United States. While the Company does not have any direct exposure to SVB, Signature Bank, or First Republic Bank, the Company does maintain its cash at financial institutions, occasionally in balances that exceed the current FDIC insurance limits.

If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, the Company’s ability to access its cash and cash equivalents, including transferring funds, making payments or receiving funds, and the Company’s access to credit, as well as those of its third-party suppliers or vendors, may be threatened and could have a material adverse effect on the Company’s business and financial condition.


25 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) – (b) Not applicable.


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)
April 2, 2023 through April 29, 2023	3,205	$	26.37	—	$	348,071,000
April 30, 2023 through May 27, 2023	735	$	21.23	—	$	348,071,000
May 29, 2023 through July 1, 2023	1,587	$	23.63	—	$	348,071,000
Total	5,527	$	24.90	—	$	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 July 1, 2023.

(2)In connection with the vesting of employee restricted stock grants, the Company repurchased 5,527 shares of its common stock at a cost of $0.1 million during the three months ended July 1, 2023.

(3)There is no expiration date governing the period over which the Company can repurchase shares under it’s Board-approved share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.



~~(a) – (b)~~	~~Not applicable.~~
~~(c)~~	~~Issuer Purchases of Equity Securities~~

Fiscal 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⁾
July 2, 2017 through July 29, 2017 363,219
$ 32.17
362,370
$ 158,342,000
July 30, 2017 through August 26, 2017 384,548
32.31
384,237
145,926,000
August 27, 2017 through September 30, 2017 537,000
29.71
536,119
130,000,000
Total 1,284,767
$ 31.18
1,282,726
$ 130,000,000


⁽¹⁾	Under the then current Board-approved $300 million share repurchase program, we repurchased 1,282,726 shares of our common stock at a cost of $40 million (based on trade dates) during the three months ended ~~September 30, 2017~~.


⁽²⁾	~~In connection with the vesting of employee restricted stock grants, we also repurchased 2,041 shares of our common stock at a cost of $64 thousand during the three months ended September 30, 2017.~~

⁽³⁾

On October 17, 2017, we announced that our Board approved an increase in the total remaining share repurchase authorization to $500 million, effective as of the beginning of our 2017 fiscal fourth quarter. There is no expiration date governing the period over which we can repurchase shares under our 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.

ITEM 5. OTHER INFORMATION

~~Not applicable.~~During the quarter ended July 1, 2023, 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.”


26 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

ITEM 6. EXHIBITS



Exhibit Number	Description	~~Method of Filing~~
~~31.1~~ 10.1†	Sleep Number Corporation Profit Sharing and 401(k) Plan (2022 Restatement) (incorporated by reference to Exhibit 99.1 to Sleep Number ’s Registration Statement on Form S-8 filed July 1 2 , 20 2 3 (File No. 0-25121))
10.2†	Sleep Number Corporation Profit Sharing and 401(k) Plan (2022 Restatement) (First Declaration of Amendment) effective May 30, 2022 (incorporated by reference to Exhibit 99.2 to Sleep Number’s Registration Statement on Form S-8 filed July 1 2 , 2023 (File No. 0-25121))
10.3†	Sleep Number Corporation Profit Sharing and 401(k) Plan (2022 Restatement) (Second Declaration of Amendment) effective January 1, 2022 (incorporated by reference to Exhibit 99.3 to Sleep Number’s Registration Statement on Form S-8 filed July 1 2 , 2023 (File No. 0-25121))
10.4†	Sleep Number Corporation Profit Sharing and 401(k) Plan (2022 Restatement) (Third Declaration of Amendment) effective as of December 31, 2022 (incorporated by reference to Exhibit 99.4 to Sleep Number’s Registration Statement on Form S-8 filed July 1 2 , 2023 (File No. 0-25121))
10.5*†	Offer Letter dated June 29, 2023 from Sleep Number Corporation to Francis K. Lee (filed herewith)
10.6*	Ninth Amendment to Amended and Restated Credit and Security Agreement
10.7*	Second Amendment, dated May 25, 2023, to Lease Agreement between DCI 1001 Minneapolis Venture, LLC, as Landlord, and Sleep Number Corporation, as Tenant, dated October 21, 2016
31.1*	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	~~Filed herewith~~
~~31.2~~31.2*	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	~~Filed herewith~~
~~32.1~~32.1*	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	~~Furnished herewith~~
~~32.2~~32.2*	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	~~Furnished herewith~~
~~101~~101.INS*	~~The following financial information from~~Inline XBRL Instance Document – the ~~Company's Quarterly Report on Form 10-Q for~~instance document does not appear in the ~~period ended September 30, 2017, filed with~~Interactive Data File because its XBRL tags are embedded within the ~~SEC on October 27, 2017, formatted~~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 eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and October 1, 2016; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and October 1, 2016; (iv) Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2017; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and October 1, 2016; and (vi) Notes to Condensed Consolidated Financial Statements.	~~Filed herewith~~Exhibit 101)

* Filed Herein.

† Management contract or compensatory plan or arrangement.


27 \| 2Q 2023 FORM 10-Q						SLEEP NUMBER CORPORATION

Index



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


				Page
PART I: FINANCIAL INFORMATION				1

Item 1.			~~Page~~ Financial Statements (unaudited)	1

~~PART I: FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~ ~~(unaudited)~~
	Condensed Consolidated Balance Sheets	21
			Condensed Consolidated Statements of Operations	32
			Condensed Consolidated Statements of ~~Comprehensive Income~~Shareholders' Deficit	43
			~~Condensed Consolidated Statement of Shareholders’ Equity~~	5
	Condensed Consolidated Statements of Cash Flows	64
			Notes to Condensed Consolidated Financial Statements	75
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	2224
Item 4.			Controls and Procedures	2224

PART II: OTHER INFORMATION				2325

Item 1.			Legal Proceedings	2325
Item 1A.			Risk Factors	2325
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	2326
Item 3.			Defaults Upon Senior Securities	2426
Item 4.			Mine Safety Disclosures	2426
~~Item 5.~~	~~Other Information~~	24
~~Item 6.~~	~~Exhibits~~	25
~~SIGNATURES~~Item 5.			Other Information	26
Item 6.			Exhibits	27
SIGNATURES				28


	September 30, 2017		December 31, 2016			July 1, 2023		December 31, 2022
Assets					Assets
Current assets:					Current assets:
Cash and cash equivalents	$	29,914	$	11,609	Cash and cash equivalents	$	1,798	$	1,792
Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively	21,107		19,705
Accounts receivable, net of allowances of $1,475 and $1,267, respectively					Accounts receivable, net of allowances of $1,475 and $1,267, respectively	24,102		26,005
Inventories	79,217		75,026		Inventories	121,446		114,034

Prepaid expenses	10,208		8,705		Prepaid expenses	21,029		16,006
Other current assets	23,803		23,282		Other current assets	40,142		39,921
Total current assets	164,249		138,327		Total current assets	208,517		197,758

Non-current assets:					Non-current assets:
Property and equipment, net	206,690		208,367		Property and equipment, net	191,067		200,605
Operating lease right-of-use assets					Operating lease right-of-use assets	399,989		397,755
Goodwill and intangible assets, net	78,133		80,817		Goodwill and intangible assets, net	67,086		68,065
Deferred income taxes	938		4,667		Deferred income taxes	16,230		7,958
Other non-current assets	28,898		24,988		Other non-current assets	82,266		81,795
Total assets	$	478,908	$	457,166	Total assets	$	965,155	$	953,936

Liabilities and Shareholders’ Equity
Liabilities and Shareholders’ Deficit					Liabilities and Shareholders’ Deficit
Current liabilities:					Current liabilities:
Borrowings under revolving credit facility					Borrowings under revolving credit facility	$	483,800	$	459,600
Accounts payable	$	136,628	$	105,375	Accounts payable	152,205		176,207
Customer prepayments	39,929		26,207		Customer prepayments	58,498		73,181
Accrued sales returns	18,448		15,222		Accrued sales returns	25,476		25,594
Compensation and benefits	34,683		19,455		Compensation and benefits	38,934		31,291
Taxes and withholding	24,041		23,430		Taxes and withholding	23,356		23,622
Operating lease liabilities					Operating lease liabilities	82,439		79,533
Other current liabilities	44,708		35,628		Other current liabilities	57,054		60,785
Total current liabilities	298,437		225,317		Total current liabilities	921,762		929,813

Non-current liabilities:					Non-current liabilities:

Operating lease liabilities					Operating lease liabilities	356,044		356,879
Other non-current liabilities	76,174		71,529		Other non-current liabilities	106,490		105,421
Total liabilities	374,611		296,846		Total liabilities	1,384,296		1,392,113

Shareholders’ equity:
Shareholders’ deficit:					Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—		Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
Common stock, $0.01 par value; 142,500 shares authorized, 39,819 and 43,569 shares issued and outstanding, respectively	398		436
Common stock, $0.01 par value; 142,500 shares authorized, 22,214 and 22,014 shares issued and outstanding, respectively					Common stock, $0.01 par value; 142,500 shares authorized, 22,214 and 22,014 shares issued and outstanding, respectively	222		220
Additional paid-in capital	—		—		Additional paid-in capital	11,997		5,182
Retained earnings	103,899		159,884
Total shareholders’ equity	104,297		160,320
Total liabilities and shareholders’ equity	$	478,908	$	457,166
Accumulated deficit					Accumulated deficit	(431,360)		(443,579)
Total shareholders’ deficit					Total shareholders’ deficit	(419,141)		(438,177)
Total liabilities and shareholders’ deficit					Total liabilities and shareholders’ deficit	$	965,155	$	953,936


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance at January 1, 2022	22,683	$	227	$	3,971	$	(429,151)	$	(424,953)
Net income	—	—		—		2,074		2,074
Exercise of common stock options	21	—		531		—		531
Stock-based compensation	341	3		4,130		—		4,133
Repurchases of common stock	(813)	(8)		(8,632)		(42,358)		(50,998)
Balance at April 2, 2022	22,232	$	222	$	—	$	(469,435)	$	(469,213)
Net income	—	—		—		34,933		34,933
Exercise of common stock options	2	—		54		—		54
Stock-based compensation	26	1		3,909		—		3,910
Repurchases of common stock	(296)	(3)		(3,963)		(8,680)		(12,646)
Balance at July 2, 2022	21,964	$	220	$	—	$	(443,182)	$	(442,962)



	Common Stock					Additional Paid-in Capital			Retained Earnings			Total
	Shares		Amount			Additional Paid-in Capital			Retained Earnings			Total
Balance at December 31, 2016	43,569		$	436		$	—		$	159,884		$	160,320
Net income	—		—			—			49,286			49,286
Exercise of common stock options	212		2			3,038			—			3,040
Stock-based compensation	587		6			11,803			—			11,809
Repurchases of common stock	(4,549	)	(46		)	(14,841		)	(105,271		)	(120,158		)
Balance at September 30, 2017	39,819		$	398		$	—		$	103,899		$	104,297


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Net sales	$	402,646		$	367,988		$	1,081,218		$	997,846
Cost of sales	149,181			135,645			404,675			385,168
Gross profit	253,465			232,343			676,543			612,678

Operating expenses:
Sales and marketing	174,800			158,024			488,564			443,477
General and administrative	32,645			28,278			95,233			86,202
Research and development	6,991			6,997			20,950			21,661
Total operating expenses	214,436			193,299			604,747			551,340
Operating income	39,029			39,044			71,796			61,338
Other expense, net	(248		)	(255		)	(668		)	(581		)
Income before income taxes	38,781			38,789			71,128			60,757
Income tax expense	13,178			13,044			21,842			20,627
Net income	$	25,603		$	25,745		$	49,286		$	40,130

Basic net income per share:
Net income per share – basic	$	0.63		$	0.56		$	1.18		$	0.86
Weighted-average shares – basic	40,755			45,621			41,740			46,705
Diluted net income per share:
Net income per share – diluted	$	0.62		$	0.56		$	1.16		$	0.85
Weighted-average shares – diluted	41,515			46,350			42,559			47,413


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance at December 31, 2022	22,014	$	220	$	5,182	$	(443,579)	$	(438,177)
Net income	—	—		—		11,465		11,465
Exercise of common stock options	17	—		389		—		389
Stock-based compensation	271	3		4,636		—		4,639
Repurchases of common stock	(118)	(1)		(3,362)		—		(3,363)
Balance at April 1, 2023	22,184	$	222	$	6,845	$	(432,114)	$	(425,047)
Net income	—	—		—		754		754
Exercise of common stock options	3	—		39		—		39
Stock-based compensation	33	—		5,251		—		5,251
Repurchases of common stock	(6)	—		(138)		—		(138)
Balance at July 1, 2023	22,214	$	222	$	11,997	$	(431,360)	$	(419,141)



	September 30, 2017				December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	6,160	$	18,851	$	4,524
Customer relationships	2,413		2,413		2,413		1,365
Trade names/trademarks	101		101		101		101
	$	21,365	$	8,674	$	21,365	$	5,990



Fiscal 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⁾
July 2, 2017 through July 29, 2017	363,219	$	32.17	362,370	$	158,342,000
July 30, 2017 through August 26, 2017	384,548	32.31		384,237	145,926,000
August 27, 2017 through September 30, 2017	537,000	29.71		536,119	130,000,000
Total	1,284,767	$	31.18	1,282,726	$	130,000,000