Welcome to Select Comfort's Q3 2015 Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would like to introduce Dave Schwantes, Vice President, Finance. Thank you. You may begin. Dave Schwantes - Vice President of Finance, Investor Relations & Decision Support: Good afternoon and welcome to the Select Comfort Corporation third quarter 2015 earnings conference call. Thank you for joining us. I am Dave Schwantes, Vice President of Finance and Investor Relations. With me today are Shelly Ibach, our President and CEO; and David Callen, our Senior Vice President and CFO. This telephone conference is being recorded and will be available on our website, at SleepNumber.com. Please refer to the details in our news release to access the replay. Please also refer to our news release for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release or that may be discussed on this call. The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary and responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings news release and discussed in some detail in our Annual Report on Form 10-K and other periodic filings with the SEC. The company's actual future results may vary materially. I will now turn the call over to Shelly for her comments. Shelly Radue Ibach - President, Chief Executive Officer & Director: Good afternoon and thank you for joining our call. My SleepIQ score was 84 last night. I will highlight our results, provide an update on the ERP implementation,…

Thank you. We will now begin the question-and-answer session. Our first question is coming from Peter Keith from Piper Jaffray. Sir, your line is open. Peter Jacob Keith - Piper Jaffray & Co (Broker): Hi. Thank you very much everyone. Congratulations on good Q3 results. I guess there's a lot of moving parts here with the quarter. I guess, could you help us understand the $10 million of sales shift out of Q4 and into Q3? The calculation is probably pretty simple, but could you give us what the impact was on your same-store sales growth and perhaps, was that solely then impactful on your unit growth as well? David R. Callen - Chief Financial Officer & Senior Vice President: Sure, Peter. The impact on our same-store sales growth was about three percentage points in the quarter. It was the right thing to do for our customers ahead of the ERP implementation. We wanted to make sure that we gave them a very good experience ahead of the ERP, which we knew was going to be disruptive, and it's our best estimate of what that sales impact that we pulled into Q3 from Q4 would be. Peter Jacob Keith - Piper Jaffray & Co (Broker): Okay. And that would just be isolated to unit growth and not impactful to the ARU? David R. Callen - Chief Financial Officer & Senior Vice President: That's right. Peter Jacob Keith - Piper Jaffray & Co (Broker): Okay. Okay, good. And then just looking to Q4, when you look at online, social media, there obviously are some upset customers and they'll probably settle out over the coming weeks, but have you contemplated the possibility of cancelled orders, at this point, maybe things that have already been booked at the store but might get cancelled…

Our next question is coming from Mr. Budd Bugatch from Raymond James. Sir, you may begin. I'm sorry, again... Bobby K. Griffin - Raymond James & Associates, Inc.: (29:17) filling in for Budd. David R. Callen - Chief Financial Officer & Senior Vice President: I think it's probably Bobby for Budd. Bobby K. Griffin - Raymond James & Associates, Inc.: Yes. Hi, there, it's Bobby Griffin filling in for Budd. Thank you for taking my questions. First off for me I was just wondering if you could maybe comment a little on what you saw from SleepIQ Kids, the new bed line. If that customer is a new incremental customer or somebody's household that already has a bed that's coming back in to get a second bed? Shelly Radue Ibach - President, Chief Executive Officer & Director: Great. Hi, Bobby. This is Shelly. With the Kids, absolutely it's a new customer for us, a younger, more affluent customer, and it is also a slow ramp up as we expected. This is a new market adjacency. It's a long-term play. But we really love the engagement from this customer, from the kids, and how it connects the entire family. So what we have seen in our small sample size from just a few months is that it's a new customer and oftentimes it will be a multiple bed purchase. Bobby K. Griffin - Raymond James & Associates, Inc.: Okay. So, I understood that the kids were the new customer, but it is at times a new family to Select Comfort or call it a new household to Select Comfort all in total (30:36). Shelly Radue Ibach - President, Chief Executive Officer & Director: Yes. That's exactly what I meant. So, yes, it's a new customer coming to our business. Bobby K.…

Next one is coming from Mr. John Baugh of Stifel. Sir, you may begin. John Baugh - Stifel, Nicolaus & Co., Inc.: Thank you and good evening. I'd really love to know (32:05) Sleep Number IQ for the first week of October. I have few things here. First on the delivery, you said I think that you'll be back two weeks by the time you exit this quarter. Did I hear that correctly? And then where are we with the free delivery, when do you anticipate pulling that? Shelly Radue Ibach - President, Chief Executive Officer & Director: Yes, John, couple of things. First of all, we did end the free home delivery a couple weeks ago or a week after the 26th is when we ended the free home delivery and we are currently at 21-day lead time for the majority of our products. Then your other question was about normal customer service timeframes and, yes, we did state that we expected to be back to normal within the quarter. John Baugh - Stifel, Nicolaus & Co., Inc.: Okay. And then switching gears on BAM, so walk me through how we go – I get how we're dilutive because we're bringing on 35 people. But walk me through again how we go from dilutive to accretive, what occurs? Something about product costs? David R. Callen - Chief Financial Officer & Senior Vice President: Right. Again, I'm highlighting that we have enabled some product cost reductions through the acquisition and that will come into play starting at the end of 2016, and then benefit us enough in 2017 that it will more than offset those additional R&D costs. John Baugh - Stifel, Nicolaus & Co., Inc.: So, these engineers are going to be able to help you engineer cost out…

Our next question is coming from Mr. Brad Thomas with KeyBanc Capital Markets.

Thank you. Good afternoon and congratulations on a strong quarter here. David R. Callen - Chief Financial Officer & Senior Vice President: Thank you, Brad.

Let's see here. Wanted to just follow up on the topic of sales and maybe just ask directly how you're thinking about comps for the fourth quarter. I think the math would be that there is a $0.03 drag from the timing shift to 3% to 4% drag from the ERP. Obviously for total sales you have the extra week that you're up against. But can you just give us a sense for how you're thinking about the cadence of same-store sales, especially as we think about the momentum that you may have as you move into next year. David R. Callen - Chief Financial Officer & Senior Vice President: Sure. Brad, I first want to take us back, something that we need to keep in mind is Q4 of last year grew 40%. That included an extra week, which on an adjusted basis was still up 29%. So on a two-year basis, net sales even as we're guiding for Q4, even with all the moving parts on a GAAP basis are up 30%, with two-year stacked comp of coming in in that mid- to high-teen rate, even with stacked units in a 10% or 12% kind of range. So when we think about the fourth quarter, obviously, the things you highlighted the comparison to the prior year with the extra week, the shift into Q3 from Q4 and then the impact on sales from the ERP implementation this quarter, we are planning to have lower sales in Q4 than the prior year. On a comp basis, I would say that ARU, first of all, is positive in the range of mid-single digits, while we expect units to be down.

Great. And then just for the fourth quarter, how are you all planning your marketing spend? Shelly Radue Ibach - President, Chief Executive Officer & Director: Yes. A couple of things to add on the fourth quarter. I think the other part of your question was how we exit 2015 and head into 2016, and that directly ties to your question about the marketing spend. One of the things we've learned, certainly in our formula, is to have a steady baseline of marketing spend. So we are continuing to do that through the ERP and obviously, that creates some deleverage in media in this quarter. So we're continuing our spend. We expect to return to our normal customer service levels within the quarter. We expect to have a very strong holiday and a strong exit going into 2016. And what you're seeing, the impact on fourth quarter in addition to the 53rd week, is really about the ERP implementation, primarily in the month of October, and that's – obviously we planned it for this time period, because it is a lower sales period for us. But we expect to be where we need to be as we head into the holidays.

Great, and just... Shelly Radue Ibach - President, Chief Executive Officer & Director: And our marketing dollars year-over-year will still be up in the fourth quarter.

Perfect. And then, just to ask it directly, to make sure we're clear. When you quantify the $10 million to $12 million of negative sales effects, that's assumed just to be lost. You're not assuming that spills into the first quarter, are you? David R. Callen - Chief Financial Officer & Senior Vice President: No. We are assuming that those are lost sales.

Great. Thank you so much. David R. Callen - Chief Financial Officer & Senior Vice President: Thanks, Brad.

Our next question is coming from Keith Hughes from SunTrust. Sir, you may begin.

Thank you. Coming back to BAM, what was the purchase price again for BAM? David R. Callen - Chief Financial Officer & Senior Vice President: Total, including some cost, was about $57 million.

I think you said $0.10 to $0.12 hit in 2016. That's a cash hit, correct? That's not any kind of amortization fall off or anything of that nature, is it? David R. Callen - Chief Financial Officer & Senior Vice President: No, it's primarily cash, right. There is a little bit of amortization, but....

I guess my question is why – I think you were doing business with them before as a third party, why outlay capital for them at this point? Shelly Radue Ibach - President, Chief Executive Officer & Director: Great question. A couple of things; first of all, this SleepIQ technology has been very important to our business, and we have proven in our research that the combination of SleepIQ technology with the sleep number bed improves one's sleep. And this is a technology – a platform that has the ability to continue to innovate off the platform over time. The consumer is moving deeper and deeper into health and wellness and quantified self, and this fits squarely in the middle of those trends. Securing this from a competitive advantage perspective and improving our overall IP trade secrets, significant data, and also having the connection with our customers and having that ongoing relationship with our customers, is very important to our sustainable profitable growth in our future. We have had excellent consumer adoption to this technology and we continue to see year-over-year growth with the demand.

So the technology – they developed things for you – for you own that IP, is that correct? Shelly Radue Ibach - President, Chief Executive Officer & Director: Shared, it was a shared ownership in the past, as well as the data. So this significantly strengthens our competitive position. And there is also a page in our investor deck that we added – we updated a couple of pages in the investor relations deck which is online, and page 11 speaks to some of the additional details.

Okay. And the $57 million that's (42:07), was that developed in some sort of discounted revenue stream from the IP, or how did that come about? David R. Callen - Chief Financial Officer & Senior Vice President: Yeah. We use various valuation methodologies, and discounted cash flows is part of that.

Was there a royalty payment that you were making to them? That seems like that would go away and defray some of this cost that we're feeling here in 2016. David R. Callen - Chief Financial Officer & Senior Vice President: Yeah. And that's also considered in the numbers that we've been providing. Shelly Radue Ibach - President, Chief Executive Officer & Director: And the reduction overall in the SleepIQ product, that is implemented in our pump.

Okay. And that is clear in that $0.10 to $0.12 hit in 2016 you referred to earlier, I assumed that the offset... David R. Callen - Chief Financial Officer & Senior Vice President: That's the net number that was...

That's what I thought, okay. Shelly Radue Ibach - President, Chief Executive Officer & Director: Yeah. And then accretive in 2017, so within two years. And, Keith, you'll also see, I think a great example of the other benefit here is the ability to accelerate our innovation pipeline and obviously, we just did this acquisition, in September we closed, and you'll see this at the January CES. And it's a great example of our engineers being able to work at a much deeper level of collaboration with the focus singular on our customers' improved sleep.

Okay. Thank you. And you've kind of highlighted the fourth quarter in various ways. I guess we knew there was going to be cost that's coming in the second half of the year. Given that you are going to be going from $0.60-something to effectively breakeven or so, is that kind of what you saw coming in the year, or there've been some things that have caused the third quarter to be better, fourth quarter to be worse, versus the plan you laid out earlier in the year? David R. Callen - Chief Financial Officer & Senior Vice President: Yeah. That's exactly – as we were providing guidance for the year and then even on the last call we highlighted – we expected $0.60 of EPS in the back half and we provide annual guidance and provide some additional color on certain items to help you with modeling. But this is largely what we expected. The exception is of course the BAM shift from $0.04 gain in Q4 and then they charge in Q3. Shelly Radue Ibach - President, Chief Executive Officer & Director: Gain in Q3. David R. Callen - Chief Financial Officer & Senior Vice President: Sorry. Gain in Q3 and charge in Q4.

Okay. Shifting more to business trends, as you look through October, I know you've had some disruption going on. But has there been any acceleration/deceleration in store, how you would measure that type of thing in terms of business, or as you exited third into the fourth? Shelly Radue Ibach - President, Chief Executive Officer & Director: I'm sorry. Can you repeat the question?

Yeah. So, just general pace of business here in October as we began the fourth quarter, have you noticed any notable acceleration/deceleration on a same-store sale basis, anything of that nature? Shelly Radue Ibach - President, Chief Executive Officer & Director: Well, it obviously has been clouded with our ERP implementation, and that has really been the centerpiece for us in the month of October. We chose the month of October for this very reason, understanding that it has a very small market share event, in the early part of October, and then it's a much slower month than the rest and expect to be well positioned as we head into the holidays.

And final question, can you remind everyone the basis point impact on results in the fourth quarter from the calendar difference versus prior year? David R. Callen - Chief Financial Officer & Senior Vice President: It was $25 million worth of sales and $0.06 of EPS for the extra week last year.

(46:11) and we will get the basis point of that? David R. Callen - Chief Financial Officer & Senior Vice President: Right. There you go.

All right. Thank you. Shelly Radue Ibach - President, Chief Executive Officer & Director: Thank you.

Our next question is coming from Seth Basham from Wedbush Securities. Sir, you may begin.

Thanks a lot, and good afternoon. Shelly Radue Ibach - President, Chief Executive Officer & Director: Hey, Seth.

My first question. I just want to understand and clarify some of the guidance that you are providing. Starting with the fourth quarter, if I understood you correctly, you are looking for implied unit comps down about 10%. Is that a correct statement? David R. Callen - Chief Financial Officer & Senior Vice President: I was talking about total units. We focus on total units, as you know Seth, because I think it's a better, the right measure for our business. Shelly Radue Ibach - President, Chief Executive Officer & Director: Sounds likely (47:10). David R. Callen - Chief Financial Officer & Senior Vice President: But we expect them to be down on a GAAP basis in that kind of magnitude in total.

Okay. And so, just implied dollar comps for the fourth quarter, is that around negative 5%? David R. Callen - Chief Financial Officer & Senior Vice President: Yeah. That's about right.

And you expected ARU to be up in the mid-single digits, so the delta there is around 10% for units? David R. Callen - Chief Financial Officer & Senior Vice President: Right.

Okay. And then secondly, as we think about 2016 here, you indicated you expect positive unit comps or unit growth in 2016, you expect positive unit comps as well? David R. Callen - Chief Financial Officer & Senior Vice President: Again, we focus – our attention is really on the total units because we think that's the right measure for our business given our self-imposed cannibalization when we open new stores et cetera. So, we really would rather we focus on total units, but that's our measure of health and we're expecting that to be in the positive territory for 2016.

Okay. And you're looking for mid-to-high teens EPS growth against some pretty easy comparisons given all the ERP damage to the business in the back half of the year, is that correct? David R. Callen - Chief Financial Officer & Senior Vice President: Well, and then we highlighted some of the other burdens that we're absorbing including additional launch cost in the first half of $4 million, the lab impact on our EPS of $0.10 to $0.12 and then the incremental depreciation largely coming from our ERP launched here in the fourth quarter.

Got it. Okay. And then lastly, to make sure I understand the 2015 guidance, $1.35 which is pretty much unchanged. And I think another caller had asked a similar question, but BAM obviously wasn't contemplating that guidance at the beginning of the year. And I assume that the tax benefit and share repurchase benefit of $0.03 each will have been contemplated as well? David R. Callen - Chief Financial Officer & Senior Vice President: The share repurchase was contemplated and there are lots of moving parts. We've had a little bit of higher ERP implementation cost than we originally guided for at the beginning of the year. So, on balance the $1.35 is in line with what we had anticipated for the year.

Okay, great. And then lastly, in terms of inventories, obviously, you are up substantially year-over-year at the end of the third quarter. You expect some trend down at the fourth quarter. But from a year-over-year basis, where do you expect inventories to end up at the end of the fourth quarter? David R. Callen - Chief Financial Officer & Senior Vice President: Right around same place we were at the end of the second quarter, maybe $68 million to $70 million, that kind of range.

Great. Okay. Thank you very much. David R. Callen - Chief Financial Officer & Senior Vice President: Thanks, Seth.

At this time, there are no further question in queue. Now, I'll turn it back to the company for closing remarks. David R. Callen - Chief Financial Officer & Senior Vice President: Thank you for joining us today. We look forward to sharing our fourth quarter results with you early next year. Sleep well and dream big.

And that concludes today's conference. Thank you all for participating. You may now disconnect.