TPX: A Disciplined Growth Company

January 2021
ALL PER SHARE NUMBERS ARE
PRE-SPLIT
Over the past 10 years, TPX has grown revenue at a 12.7% CAGR

The company achieved this through a blend of highly accretive acquisitions and disciplined organic growth

4.0

3.5
TPX Revenue ($B)

3.0

2.5

2.0

1.5

1.0

0.5

-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E
“Pay close attention to the
cannibals – the businesses
that are eating themselves
by buying back their
stock.”

Charlie Munger
Vice Chairman, Berkshire Hathaway
In the past decade, TPX has also reduced its share count dramatically

The shares outstanding have fallen from 74mm to 53mm today

75
TPX Shares Outstanding (M)

70

65

60

55

50
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
TPX is a secularly growing cannibal

TPX grew revenue by 12.7% annualized over the past decade AND simultaneously retired 3% of its shares annually
TPX achieved this and has a clean balance sheet today!

2020E Ending Net Debt/EBITDA:

1.75x
TPX is growing faster than many beloved public consumer/technology companies

TPX grew revenue by 12.7% annualized over the past decade which places it in an elite peer group

10 yr. revenue CAGR 10 yr. revenue CAGR

13.0% 8.0%

15.5% 10.7%

12.5%
8.9%

12.2%
8.5%
8.9%
This peer group faces disruptive challenges to their competitive position

Disruption threat Disruption threat

Coke, Pepsi,
Redbull, health Blockchain, digital
concerns around currencies in digital
product wallets

Wayfair, RH is not
vertically integrated

Behr, PPG, Sherwin

also digesting
Has to grow units complex acquisition
internationally of Valspar

Delivery moat being

eroded by DoorDash Starbucks, new
and others entrants into coffee
and bakery, COVID
issues
TPX’s elite peer group trades at a premium to the S&P 500

Secularly growing cannibal 2021E

multiple:

35x
 With a bottoms up method, the market uses this algorithm to value growth companies

Secular growth companies like TPX are valued using an abbreviated discounted cash flow model

STEP 1: Project the long-term revenue growth rate forward to 2030

STEP 2: Assume that the current margin structure and capital intensity hold

STEP 3: Calculate implied 2030 EPS assuming historical rate of share repurchase

STEP 4: Assume that the company trades at the long-term S&P multiple of 18x in 2030

STEP 5: Discount the future value of the equity back to today at a 6-8% discount rate
Step 1: Project TPX’s 2030 revenue

This metric is calculated using Tempur’s normalized long-term growth rate of 12.7%. This implies 2030E revenue of $11.9B

14.0

12.0

10.0
TPX Revenue ($B)
8.0

6.0

4.0

2.0

-
2020E 2030E
Step 2: Project TPX’s 2030 EBITDA and Capex

Tempur currently earns a 20% EBITDA margin. Based on their heavy investments in product innovation and distribution,
this is expected to be sustained. Capital expenditures are expected to inflate to $150MM per year

2030E EBITDA: 2030E Capex:

$2.38B $150M
Step 3: Calculate TPX’s 2030E EPS

Assume that TPX repurchases 3% of its share count annually. This implies a share count of 39MM (pre-split) in 2030
Assume that TPX deleverages to $1B of debt at 5% interest
Assume tax rates of 26%
THIS IMPLIES:

2030E EPS:

$41
Step 4: Calculate TPX share price in 2030 assuming it trades at a market multiple

2030E EPS: S&P Multiple:

$41 X 18x
=
2030E TPX PRICE:

$738
Step 5: Discount $738 2030E price back to today’s present value at 8%

Current pre-split value of TPX per

share in 2020:

$342
Split adjusted, TPX should currently
trade at:

$84