UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED June 30, 2024

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

 

Commission File Number: 001-37523

 

 

PURPLE INNOVATION, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   47-4078206
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

4100 NORTH CHAPEL RIDGE ROAD SUITE 200

LEHI, UTAH

  84043
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (801) 756-2600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share   PRPL   The NASDAQ Stock Market LLC
Preferred Stock Purchase Rights   N/A   The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No

 

As of August 2, 2024, 107,502,899 shares of the registrant’s Class A common stock, $0.0001 par value per share, and 204,981 shares of the registrant’s Class B common stock, $0.0001 par value per share, were outstanding.

 

 

 

 

 

 

PURPLE INNOVATION, INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

      Page
Part I. Financial Information 1
  Item 1. Financial Statements (Unaudited): 1
    Condensed Consolidated Balance Sheets 1
    Condensed Consolidated Statements of Operations 2
    Condensed Consolidated Statements of Stockholders’ Equity 3
    Condensed Consolidated Statements of Cash Flows 4
    Notes to Condensed Consolidated Financial Statements 5
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
  Item 4. Controls and Procedures 33
       
Part II.  Other Information 34
  Item 1. Legal Proceedings 34
  Item 1A. Risk Factors 34
  Item 5. Other Information 35
  Item 6. Exhibits 36
  Signatures 37

 

i

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for par value)

 

   June 30,
2024
   December 31,
2023
 
Assets        
Current assets:        
Cash and cash equivalents  $23,408   $26,857 
Accounts receivable, net   32,083    37,802 
Inventories   69,657    66,878 
Prepaid expenses   5,368    8,536 
Other current assets   886    1,737 
Total current assets   131,402    141,810 
Property and equipment, net   119,465    128,661 
Operating lease right-of-use assets   90,509    95,767 
Intangible assets, net   18,711    22,196 
Other long-term assets   2,063    2,191 
Total assets  $362,150   $390,625 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $37,452   $49,831 
Accrued compensation   9,186    5,064 
Customer prepayments   4,732    5,718 
Accrued rebates and allowances   8,635    13,243 
Accrued warranty liabilities – current portion   8,141    9,793 
Operating lease obligations – current portion   15,122    14,843 
Other current liabilities   8,736    12,490 
Total current liabilities   92,004    110,982 
Related party debt   46,235    
 
Long-term debt, net of current portion   
    26,909 
Accrued warranty liabilities, net of current portion   27,291    25,798 
Operating lease obligations, net of current portion   102,217    109,094 
Warrant liabilities   24,477    
 
Other long-term liabilities   3,394    2,235 
Total liabilities   295,618    275,018 
Commitments and contingencies (Note 13)   
 
    
 
 
Stockholders’ equity:          
Class A common stock; $0.0001 par value, 210,000 shares authorized; 107,503 issued and outstanding at June 30, 2024 and 105,507 issued and outstanding at December 31, 2023   11    11 
Class B common stock; $0.0001 par value, 90,000 shares authorized; 205 issued and outstanding at June 30, 2024 and at December 31, 2023   
    
 
Additional paid-in capital   592,541    591,380 
Accumulated deficit   (526,159)   (475,969)
Total stockholders’ equity attributable to Purple Innovation, Inc.   66,393    115,422 
Noncontrolling interest   139    185 
Total stockholders’ equity   66,532    115,607 
Total liabilities and stockholders’ equity  $362,150   $390,625 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Revenues, net  $120,271   $117,882   $240,304   $224,609 
Cost of revenues   71,331    82,408    149,644    148,557 
Gross profit   48,940    35,474    90,660    76,052 
Operating expenses:                    
Marketing and sales   41,377    46,379    82,839    84,552 
General and administrative   18,117    26,437    37,845    50,104 
Research and development   3,986    2,925    7,652    6,297 
Total operating expenses   63,480    75,741    128,336    140,953 
Operating loss   (14,540)   (40,267)   (37,676)   (64,901)
Other income (expense):                    
Interest expense   (4,161)   (352)   (8,635)   (554)
Other income, net   53    37    4,447    110 
Loss on extinguishment of debt   
    
    (3,394)   (1,217)
Change in fair value – warrant liabilities   18,693    
    (4,906)    
Total other income (expense), net   14,585    (315)   (12,488)   (1,661)
Net income (loss) before income taxes   45    (40,582)   (50,164)   (66,562)
Income tax expense   (54)   (72)   (113)   (144)
Net income (loss)   (9)   (40,654)   (50,277)   (66,706)
Net loss attributable to noncontrolling interest   (36)   (167)   (87)   (286)
Net income (loss) attributable to Purple Innovation, Inc.  $27   $(40,487)  $(50,190)  $(66,420)
                     
Net income (loss) per share:                    
Basic  $0.00   $(0.39)  $(0.47)  $(0.65)
Diluted  $(0.00)  $(0.39)  $(0.47)  $(0.65)
                     
Weighted average common shares outstanding:                    
Basic   107,489    105,079    106,755    101,760 
Diluted   107,779    105,079    106,755    101,760 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited – in thousands)

 

   Class A   Class B   Additional       Total         
   Common Stock   Common Stock   Paid-in   Accumulated   Stockholders’   Noncontrolling   Total 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Equity   Interest   Equity 
Balance – December 31, 2023   105,507   $11    205   $
   $591,380   $(475,969)  $115,422   $185   $115,607 
Net loss       
        
    
    (50,217)   (50,217)   (51)   (50,268)
Stock-based compensation       
        
    492    
    492    
    492 
Issuance of stock for Intellibed acquisition   1,500    
    
    
    
    
    
    
    
 
Issuance of stock under equity compensation plans   473    
    
    
    (115)   
    (115)   
    (115)
Impact of transactions affecting NCI       
        
    (33)   
    (33)   33    
 
Balance – March 31, 2024   107,480   $11    205   $
   $591,724   $(526,186)  $65,549   $167   $65,716 
Net income (loss)       
        
    
    27    27    (36)   

(9

)
Stock-based compensation       
        
    825    
    825    
    825 
Issuance of common stock under equity compensation plans   23    
        
    
    
    
    
    
 
Impact of transactions affecting NCI       
        
    (8)   
    (8)   8    
 
Balance – June 30, 2024   107,503   $11    205   $
   $592,541   $(526,159)  $66,393   $139   $66,532 

 

   Class A   Class B   Additional       Total         
   Common Stock   Common Stock   Paid-in   Accumulated   Stockholders’   Noncontrolling   Total 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Equity   Interest   Equity 
Balance – December 31, 2022   91,380   $9    448   $
   $529,466   $(355,212)  $174,263   $908   $175,171 
Net loss       
        
    
    (25,933)   (25,933)   (119)   (26,052)
Stock-based compensation       
        
    1,192    
    1,192    
    1,192 
Issuance of stock under equity compensation plans   265    
        
    
    
    
    
    
 
Issuance of stock upon underwritten offering, net of costs   13,400    2    
    
    57,198    
    57,200    
    57,200 
Impact of transactions affecting NCI       
        
    (103)   
    (103)   103    
 
Balance – March 31, 2023   105,045   $11    448   $
   $587,753   $(381,145)  $206,619   $892   $207,511 
Net loss       
        
    
    (40,487)   (40,487)   (167)   (40,654)
Stock-based compensation       
        
    1,661    
    1,661    
    1,661 
Exchange of stock   20    
    (20)   
    
    
    
    
    
 
Proportional Representation Preferred Linked Stock redemption fee       
        
    (105)   
    (105)   
    (105)
Additional costs associated with underwritten public stock offering       
        
    (201)   
    (201)   
    (201)
Issuance of stock under equity compensation plans   258    
        
    
    
    
    
    
 
Impact of transactions affecting NCI       
        
    37    
    37    (37)   
 
Balance – June 30, 2023   105,323   $11    428   $   $589,145   $(421,632)  $167,524   $688   $168,212 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

 

   Six Months Ended
June 30,
 
   2024   2023 
Cash flows from operating activities:        
Net loss  $(50,277)  $(66,706)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   12,821    12,890 
Non-cash interest   3,372    686 
Paid-in-kind interest   4,375    
 
Loss on extinguishment of debt   3,394    1,217 
Change in fair value – warrant liabilities   4,906    
 
Stock-based compensation   1,317    2,853 
Loss on disposal of property and equipment   112    
 
Changes in operating assets and liabilities:          
Accounts receivable   5,719    11,467 
Inventories   (2,779)   (5,061)
Prepaid expenses and other assets   4,665    2,952 
Operating leases, net   (1,340)   1,315 
Accounts payable   (9,522)   3,304 
Accrued compensation   4,122    (2,709)
Customer prepayments   (986)   1,025 
Accrued rebates and allowances   (4,608)   (3,977)
Accrued warranty liabilities   (159)   5,063 
Other accrued liabilities   (862)   (2,372)
Net cash used in operating activities   (25,730)   (38,053)
           
Cash flows from investing activities:          
Purchase of property and equipment   (5,142)   (5,443)
Investment in intangible assets   (111)   (380)
Net cash used in investing activities   (5,253)   (5,823)
           
Cash flows from financing activities:          
Payments on term loan   (25,000)   (24,656)
Payments on revolving line of credit   (5,000)   
 
Proceeds from related party loan   61,000    
 
Payments for debt issuance costs   (3,466)   (2,898)
Proceeds from stock offering   
    60,300 
Payments for public offering costs   
    (3,301)
Proportional Representation Preferred Linked Stock redemption fee   
    (105)
Tax receivable agreement payments   
    (269)
Net cash provided by financing activities   27,534    29,071 
           
Net decrease in cash, cash equivalents and restricted cash   (3,449)   (14,805)
Cash, cash equivalents and restricted cash, beginning of the year   26,857    41,754 
Cash, cash equivalents and restricted cash, end of the period  $23,408   $26,949 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for interest, net of amounts capitalized  $203   $(226)
Cash paid during the period for income taxes  $293   $281 
           
Supplemental schedule of non-cash investing and financing activities:          
Property and equipment included in accounts payable  $375   $3,209 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. Organization

 

Purple Innovation, Inc.’s mission is to help people feel and live better through innovative comfort solutions.

 

Purple Innovation, Inc. collectively with its subsidiary (the “Company” or “Purple Inc.”) is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. The Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products. The Company markets and sells its products through its e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers.

 

The Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”). On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple LLC”). At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc.

 

As the sole managing member of Purple LLC, Purple Inc. through its officers and directors is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Purple LLC’s wholly owned subsidiary Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”). All intercompany balances and transactions have been eliminated in consolidation. As of June 30, 2024, Purple Inc. held 99.8% of the common units of Purple LLC and Purple LLC Class B Unit holders held 0.2% of the common units in Purple LLC.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any other interim period or other future year.

 

Variable Interest Entities

 

Purple LLC is a variable interest entity. The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At June 30, 2024, Purple Inc. had a 99.8% economic interest in Purple LLC and consolidated 100% of Purple LLC’s assets, liabilities and results of operations in the Company’s unaudited condensed consolidated financial statements contained herein. The holders of Class B Units of Purple LLC (“Class B Units”) held 0.2% of the economic interest in Purple LLC as of June 30, 2024. For further discussion see Note 15 — Stockholders’ Equity.

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company regularly makes estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and the allowance for credit losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and liabilities assumed in business combinations, impairment reviews of long-lived assets and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s tax receivable agreement with InnoHold, LLC (“InnoHold”). Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ materially from those estimates.

 

5

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Reclassification

 

Certain amounts in the prior year condensed consolidated balance sheet have been reclassified to conform to the current year’s presentation with no effect on previously reported net (loss) income, cash flows or stockholders’ equity. Accrued compensation, previously included in the condensed consolidated balance sheet within other current liabilities, is now presented separately.

 

Recent Accounting Pronouncements

 

Enhanced Segment Disclosures

 

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities, including those that have a single reportable segment, to provide enhanced disclosures about significant expenses. This ASU requires disclosure to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is currently analyzing the impact this ASU will have on its disclosures.

 

Improvements to Income Tax Disclosures

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU amends existing income tax disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective tax rate reconciliation. This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. The Company is currently evaluating the impact this update will have on its income tax disclosures in the consolidated financial statements.

 

3. Acquisition

 

The Company acquired Intellibed, a premium sleep and health wellness company, in August 2022. The acquisition date fair value of the consideration transferred for Intellibed was $28.2 million. Included in this amount was $1.5 million for the fair value of contingent consideration related to 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock did not equal or exceed certain thresholds during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date. The contingent shares were valued using a Monte-Carlo simulation model. Because the contingent consideration was payable with a fixed number of shares of the Company’s Class A common stock, it was classified as equity and did not require remeasurement in subsequent periods. During March 2024, the Company issued 1.5 million shares of Class A common stock to Intellibed security holders since the Company’s stock price did not meet any of the indicated thresholds during the contingency period.

 

6

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

4. Fair Value Measurements

 

The Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:

 

Level 1—Quoted market prices in active markets for identical assets or liabilities;

 

Level 2—Significant other observable inputs (i.e., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and

 

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

 

The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. Financial instruments, although not recorded at fair value on a recurring basis include cash and cash equivalents, receivables, accounts payable and the Company’s debt obligations. The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts. The estimated fair value of the Company’s debt arrangement is based on Level 2 inputs, which include observable inputs approximated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of debt instruments. As of June 30, 2024, the estimated fair value of the Company’s debt arrangement was $41.7 million.

 

The warrant liabilities (see Note 11 — Warrant Liabilities for more information) are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable inputs which require determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities generally decrease (increase) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities generally increase (decrease) in value if the expected average life or expected volatility were to increase (decrease).

 

The following table summarizes the Company’s total Level 3 liability activity for the six months ended June 30, 2024. 

 

(In thousands)  Sponsor
Warrants
 
Fair value as of December 31, 2023  $
 
Initial measurement at time of issuance   19,571 
Change in valuation inputs(1)   4,906 
Fair value as of June 30, 2024  $24,477 

 

(1) Changes in valuation inputs are recognized as the change in fair value – warrant liabilities in the condensed consolidated statement of operations.

 

7

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

5. Revenue from Contracts with Customers

 

The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer, subject to shipping terms.

 

Disaggregated Revenue

 

The Company classifies revenue into two sales categories: direct-to-consumer (“DTC”) and wholesale. The DTC category is comprised of the Company’s e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple showrooms channel that sells directly to consumers who purchase at a showroom location. The wholesale channel includes all product sales to our retail brick and mortar wholesale partners where consumers make purchases at their retail locations or through their online channels. The Company classifies products into two major types: sleep products and other. Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products.

 

The following tables present the Company’s net revenue disaggregated by sales category and product type (in thousands):

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Sales Category  2024   2023   2024   2023 
DTC  $66,863   $68,056   $133,078   $134,361 
Wholesale   53,408    49,826    107,226    90,248 
Revenues, net  $120,271   $117,882   $240,304   $224,609 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Product Type  2024   2023   2024   2023 
Sleep products  $116,977   $114,423   $234,076   $217,926 
Other   3,294    3,459    6,228    6,683 
Revenues, net  $120,271   $117,882   $240,304   $224,609 

 

Contract Balances

 

Payments for sale of products through the e-commerce online channel, third-party online retailers, Purple showrooms and contact center are collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled $4.7 million and $5.7 million at June 30, 2024 and December 31, 2023, respectively. During the three months ended June 30, 2024 and 2023, the Company recognized all revenue that was deferred in customer prepayments at March 31, 2024 and 2023, respectively.

 

6. Inventories

 

Inventories consisted of the following (in thousands):

 

   June 30,   December 31, 
   2024   2023 
Raw materials  $22,519   $23,232 
Work-in-process   5,843    5,962 
Finished goods   41,295    37,684 
Inventories  $69,657   $66,878 

 

8

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

7. Property and Equipment, Net

 

Property and equipment, net consisted of the following (in thousands):

 

   June 30,   December 31, 
   2024   2023 
Equipment  $73,160   $72,424 
Equipment in progress   14,810    15,077 
Leasehold improvements   59,025    60,563 
Furniture and fixtures   32,526    31,084 
Office equipment   2,740    2,737 
Total property and equipment   182,261    181,885 
Accumulated depreciation   (62,796)   (53,224)
Property and equipment, net  $119,465   $128,661 

 

Equipment in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2024 or December 31, 2023. Interest capitalized on borrowings during the active construction period of major capital projects totaled $0.3 million and $0.7 million during the three and six months ended June 30, 2024, respectively and totaled $0.1 million and $0.5 million during the three and six months ended June 30, 2023, respectively. Depreciation expense was $5.1 million and $10.3 million during the three and six months ended June 30, 2024, respectively, and totaled $4.9 million and $9.7 million during the three and six months ended June 30, 2023, respectively.

 

8. Leases

 

The Company leases its manufacturing and distribution facilities, corporate offices, Purple showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036. The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while Purple showrooms have initial lease terms of up to 10 years. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s discretion. Any lease renewal options are included in the lease term if exercise is reasonably certain at lease commencement. The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of three to five years. The right-of-use asset (“ROU”) for finance leases totaled $0.6 million and $0.7 million at June 30, 2024 and December 31, 2023, respectively.

 

The following table presents the Company’s lease costs (in thousands):

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Operating lease costs  $5,178   $4,620   $9,964   $9,505 
Variable lease costs   1,173    1,204    2,042    2,177 
Total lease costs  $6,351   $5,824   $12,006   $11,682 

 

9

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet at June 30, 2024 (in thousands):

 

2024 (excluding the six months ended June 30, 2023)(a)  $10,093 
2025   21,274 
2026   19,926 
2027   19,688 
2028   19,666 
Thereafter   54,681 
Total operating lease payments   145,328 
Less – lease payments representing interest   (27,989)
Present value of operating lease payments  $117,339 

 

(a) Amount consists of $10.8 million of undiscounted cash flows offset by $0.7 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2024.

 

As of June 30, 2024 and December 31, 2023, the weighted-average remaining term of operating leases was 7.7 years and 8.0 years, respectively, and the weighted-average discount rate of operating leases was 5.81% and 5.77%, respectively.

 

The following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

 

   Six Months Ended
June 30,
 
   2024   2023 
Cash paid for amounts included in present value of operating lease liabilities (b)  $8,388   $6,691 
Right-of-use assets obtained in exchange for operating lease liabilities   2,981    3,518 

 

(b)Operating cash flows paid for operating leases are included within the change in operating leases, net within the condensed consolidated statement of cash flows offset by non-cash ROU asset amortization and lease liability accretion.

 

9. Other Current Liabilities

 

Other current liabilities consisted of the following (in thousands):

 

   June 30,   December 31, 
   2024   2023 
Accrued sales returns  $4,545   $5,404 
Accrued sales tax and use tax   1,862    1,949 
Insurance financing   884    1,079 
Long-term debt and unamortized issuance costs – current portion   
    2,129 
Accrued interest   
    506 
Other   1,445    1,423 
Total other current liabilities  $8,736   $12,490 

 

10

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

10. Debt

 

Debt consisted of the following (in thousands):

 

   June 30,   December 31, 
   2024   2023 
Related party loan  $65,375   $
 
Term loan   
    25,000 
Revolving line of credit   
    5,000 
Less: unamortized debt issuance costs   (19,140)   (962)
Total debt   46,235    29,038 
Current portion of debt and unamortized issuance costs (c)   
    (2,129)
Debt, net of current portion  $46,235   $26,909 

 

(c) – Amount is included in other current liabilities in the condensed consolidated balance sheet.

 

2024 Credit Agreement

 

On January 23, 2024, Purple LLC, Purple Inc. and Intellibed (collectively, the “Loan Parties”) entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”), which amended and restated the then existing term loan agreement (“Term Loan Agreement”), with Coliseum Capital Partners (“CCP”) and other lenders (collectively, the “Lenders”) and Delaware Trust Company, as administrative agent. The Lenders agreed to assume the Loan Parties’ obligations under the Term Loan Agreement and refinance their existing obligations. A term loan in the amount of $61.0 million (the “Related Party Loan”) was funded by the Lenders that repaid in full the $25.0 million of term loans outstanding, repaid in full the $5.0 million of asset based lending loans outstanding, paid fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to the Company (after payments of outstanding debt, unpaid accrued interest and expenses) equal to approximately $27.0 million. Interest on the Related Party Loan is payable each month and the principal outstanding matures and is due on December 31, 2026. The Company may elect for interest to be capitalized and added to the principal amount. The Related Party Loan bears interest at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce it cash obligations, 10.25% per annum). Any prepayments on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25%, and any prepayments on or after August 7, 2025 are subject to a prepayment penalty of 2.50%. The Loan Parties may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by them to the extent agreed to by the Lenders at their discretion. The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based loan. 

 

In connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (see Note 11 – Warrant Liabilities) and incurred fees and expenses of $3.5 million that were recorded as debt issuance costs in the first quarter of 2024. Interest expense under the Related Party Loan was $4.3 million and $7.7 million for the three and six months ended June 30, 2024, respectively.

 

The Amended and Restated Credit Agreement granted a security interest to the Lenders in substantially all of the assets (subject to certain limited exceptions) of the Loan Parties to secure the Loan Parties’ loans and other obligations under the Amended and Restated Credit Agreement, including a security interest in the intellectual property owned by the Loan Parties.

 

The Loan Parties (other than Purple LLC) provided an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the Amended and Restated Credit Agreement.

 

The Amended and Restated Credit Agreement also provides for standard indemnification of the Lenders and contains representations, warranties and certain covenants of the Loan Parties. While any amounts are outstanding under the Amended and Restated Credit Agreement, the Loan Parties are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The Loan Parties are also restricted from paying dividends or making other distributions or payments on their capital stock, subject to limited exceptions. As of June 30, 2024, the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.

 

11

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

2023 Credit Agreements

 

On August 7, 2023, the Loan Parties entered into the Term Loan Agreement. Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with a group of financial institutions (collectively the “ABL Lenders”) that provided for a revolving asset-based credit facility (the “ABL Agreement”). Pursuant to entering into these agreements (collectively, the “2023 Credit Agreements”), the Company incurred fees and expenses of $3.1 million that were recorded as debt issuance costs in the third quarter of 2023.

 

The Term Loan Agreement provided for up to $25.0 million of term loans, with up to $5.0 million of incremental term loans available, subject to certain conditions (collectively, the “Term Loans”). Proceeds from the Term Loans were used for general corporate purposes. The borrowing rates under the Term Loan Agreement were based on SOFR, plus a credit spread adjustment of 0.15% per annum, plus 8.5% per annum, with a SOFR floor of 2.0% per annum. The Term Loans were to be repaid at the earlier of (i) a three-year amortization schedule ending on August 7, 2026 or (ii) the payment in full of the ABL Agreement. The Term Loans could be prepaid in whole or in part at any time, but subject to a prepayment premium. There were also potential mandatory prepayment obligations based on certain asset dispositions, casualty events and extraordinary receipts. Once repaid, no portion of the Term Loans could be reborrowed.

 

The ABL Agreement provided for up to $50.0 million of revolving loans subject to a borrowing base calculation and minimum availability requirements (with sub-facilities for swing line loans and the issuance of letters of credit), with incremental increases available up to $20.0 million (the “ABL Loans”), subject to certain conditions, availability reserves, minimum availability requirements, borrowing base calculations, and restrictive covenants. In October 2023, the ABL Lenders implemented an availability reserve of $5.0 million, which reduced the amount available under the borrowing base. Outstanding principal and accrued interest on the ABL Loans were to be repaid on August 7, 2026.

 

Term loans totaling $25.0 million were fully drawn at closing and, subsequent to the closing in August 2023, the Company executed $17.0 million in ABL loan draws and then repaid $12.0 million of those borrowings prior to the end of 2023. The outstanding balance of ABL Loans totaled $5.0 million at December 31, 2023. In connection with the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the agreements were terminated. The termination was accounted for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs related to the 2023 Credit Agreements were recorded as a loss on extinguishment of debt in the first quarter of 2024. Interest expense under the 2023 Credit Agreements was $0.4 million for the six months ended June 30, 2024. For the three months ended June 30, 2024, there was no interest expense associated with the 2023 Credit Agreements.

 

2020 Credit Agreement

 

On September 3, 2020, Purple LLC entered into a financing arrangement with a group of financial institutions (the “2020 Credit Agreement”). The 2020 Credit Agreement provided for a $45.0 million term loan and a $55.0 million revolving line of credit. The term loan was to be repaid in accordance with a five-year amortization schedule or prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility had a term of five years and carried the same interest provisions as the term debt. A commitment fee was due quarterly based on the applicable margin applied to the unused total revolving commitment. In connection with the Company’s execution of the 2023 Credit Agreements, the Company terminated its 2020 Credit Agreement. The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination.

 

On February 17, 2023, the Company entered into a fifth amendment to the 2020 Credit Agreement. The amendment, among other things, revised various covenants associated with the 2020 Credit Agreement. As a condition of entering into the amendment, the Company repaid the $24.7 million outstanding balance on the term loan plus accrued interest. Pursuant to this amendment, the Company incurred fees and expenses of $2.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The amendment was accounted for as an extinguishment of debt and $1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in the first quarter of 2023.

 

Interest expense under the 2020 Credit Agreement totaled $0.5 million and $1.1 million for the three and six months ended June 30, 2023, respectively.

 

12

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

11. Warrant Liabilities

 

On January 23, 2024, in connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (the “Warrants”). Each Warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $1.50 per share, subject to adjustment. The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. The holders do not have the rights or privileges of holders of Class A common stock or any voting rights until they exercise their Warrants. After the issuance of shares of Class A common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Class A common stock held on all matters to be voted on by stockholders generally. A holder of the Warrants will not have the right to exercise its Warrants, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise. The Warrants contain a repurchase provision which, upon an occurrence of a fundamental transaction as defined in the warrant agreement, could give rise to an obligation of the Company to pay cash to the warrant holders. In addition, other provisions may lead to a reduction in the exercise price of the Warrants. The Company determined the fundamental transaction provisions require the Warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. As a result, the liability for these Warrants was recorded at fair value on the date of issuance with the offset included in debt issuance costs. This liability is subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings.

 

The Company used a the Monte Carlo Simulation model to determine the fair value of the liability associated with the Warrants. The model uses key assumptions and inputs such as exercise price, fair market value of common stock, risk free interest rate, warrant life, expected volatility and the probability of a warrant re-price event. The following are the assumptions used in calculating fair value of the Warrants on the date of issuance:

 

Trading price of common stock on measurement date  $0.82 
Exercise price  $1.50 
Risk free interest rate   4.14%
Warrant life in years   10.0 
Expected volatility   88.62%
Expected dividend yield   
 
Probability of an event causing a warrant re-price   25.0%

 

The following are the assumptions used in calculating fair value of the Warrants on June 30, 2024:

 

Trading price of common stock on measurement date  $1.04 
Exercise price  $1.50 
Risk free interest rate   4.36%
Warrant life in years   9.6 
Expected volatility   89.24%
Expected dividend yield   
 
Probability of an event causing a warrant re-price   25.0%

  

The Warrants had a fair value of $24.5 million as of June 30, 2024. The Company recognized a gain of $18.7 million in its condensed consolidated statement of operations for the three months ended June 30, 2024 related to a decrease in the fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants outstanding at the end of the first quarter of 2024. For the six months ended June 30, 2024, the Company recognized a loss of $4.9 million in its condensed consolidated statement of operations related to an increase in the fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants on the date of issuance.

 

12. Other Long-Term Liabilities

 

Other long-term liabilities consist of the following (in thousands):

 

   June 30,   December 31, 
   2024   2023 
Asset retirement obligations  $2,299   $2,230 
Other   1,095    5 
Total other long-term liabilities  $3,394   $2,235 

 

13

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

13. Commitments and Contingencies

 

Warranty Liabilities

 

The Company provides a limited warranty on most of the products it sells. The estimated warranty costs associated with products sold through DTC channels are expensed at the time of sale and included in cost of revenues. The estimated warranty return costs associated with products sold through the wholesale channel are recorded at the time of sale and included as an offset to net revenues. Estimates for warranty costs are based on the results of product testing, industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. Actual warranty claim costs could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs.  The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability.

 

Chief Executive Officer Cash Bonus Award

 

On January 26, 2024, the Company’s board of directors (the “Board”) approved an amendment to the Chief Executive Officer’s employment agreement. Under the amendment, the Company agreed that, among other things, the Chief Executive Officer will be eligible to earn a cash payment of up to $5.0 million, less tax and other required withholdings, based on the volume weighted average price per share of the Company’s Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment with the Company. The amount earned will be payable in quarterly installments commencing with the first payroll period following June 30, 2026. The Company determined the provisions surrounding the future bonus payment require it to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. The Company recorded compensation expense of $0.2 million in its condensed consolidated statement of operations for the six months ended June 30, 2024 related to this future bonus payment. For the three months ended June 30, 2024, the Company recognized a compensation expense reduction of $0.2 million in its condensed consolidated statement of operations related to a decrease in the fair value of the future bonus payment.

 

Senior Leadership Team Special Recognition Bonus

 

On January 26, 2024, the Board unanimously approved a special recognition bonus payment to certain members of the Company’s senior leadership team. Each participant is eligible to earn a special recognition bonus payment equal to 15 months of their regular salary. The special recognition bonus payment is payable, subject to the employee’s continued employment with the Company, 10% on August 1, 2024, 20% on February 1, 2025, and 70% on August 1, 2025. The Company recorded compensation expense of $1.5 million in its condensed consolidated statement of operations for the six months ended June 30, 2024 related to this future bonus payment.

 

Performance Cash Long-Term Incentive Award

 

On June 20, 2024, the Board unanimously approved a performance cash long-term incentive award to those employees eligible to participate in the Company’s Long-Term Incentive Plan. The incentive award payment is based on a performance goal of the volume weighted average price per share of the Company’s Class A common stock on NASDAQ on March 31, 2027. The Company determined the provisions surrounding the performance cash long-term incentive award require it to be accounted for as a liability at fair value at each reporting period, with changes in fair value recognized in earnings in the period of change. The Company recorded a de minimis compensation expense in the consolidated statement of operations for the six months ended June 30, 2024 related to this future award payment.

 

Settlement of Insurance Claim

 

In January 2024, the Company received $4.3 million for partial settlement of a previously filed business interruption claim. The Company recorded the cash upon receipt as other income, net in the condensed consolidated statement of operations for the six months ended June 30, 2024. The remaining settlement amount of $7.3 million was received subsequent to June 30, 2024, refer to Note 20 – Subsequent Events.

 

14

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

  

Rights of Securities Holders

 

On January 23, 2024, in connection with the issuance of the Warrants, the Company entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”) with holders of the Warrants (the “Holders”), providing for the registration under the Securities Act of 1933, as amended of the Warrants, the shares issuable upon the exercise of the Warrants and Class A common stock held by the Holders as of such date (the “Registrable Securities”), subject to customary terms and conditions. The Registration Rights agreement entitles the Holders to demand registration of the Registrable Securities and to piggyback on the registration of securities by the Company and other Company securityholders. The Company will be responsible for the payment of the Holders’ expenses in connection with any offering or sale of Registrable Securities by the Holders, including underwriting discounts or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain Registrable Securities. The Registration Rights Agreement provided further that the Company was required to prepare and file with the SEC a registration statement to register the resale of the Registrable Securities. The registration statement filed by the Company on March 21, 2024 registering the Registrable Securities became effective on June 4, 2024.

 

NOL Rights Plan

  

On June 27, 2024, the Board approved the adoption of a limited-duration stockholder rights agreement (the “NOL Rights Plan”) with a stated expiration date of June 30, 2025. The Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard the Company’s ability to use its estimated $238 million of net operating losses (the “Current NOLs”) to reduce potential future federal income tax obligations from becoming substantially limited by future ownership changes in the Company’s common stock under Code Section 382. See Note 15 – Stockholders’ Equity – NOL Rights Plan for further discussion of the NOL Rights Plan.

 

NOL Protective Charter Amendment

 

In connection with the NOL Rights Plan, the Board adopted, and recommended that the Company’s stockholders approve, an amendment to the Company’s Certificate of Incorporation (the “NOL Protective Charter Amendment”) that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding certain transfers of common stock that could result in an ownership change under Code Section 382. The NOL Protective Charter Amendment is not yet effective and will be submitted for stockholder approval at the Company’s special meeting of the stockholders (the “Special Meeting”). See Note 15 – Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective Charter Amendment.

 

15

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Non-Income Related Taxes

 

The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc., No.17-494, reversed a longstanding precedent that remote sellers are not required to collect state and local sales taxes. The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce. The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, value-added tax and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet. The application of these taxes on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business.

 

Legal Proceedings

 

On December 16, 2022, Purple’s founders filed a complaint against Purple Inc. in the Fourth Judicial District Court in the State of Utah. In that suit, the plaintiffs alleged that they each entered into employment agreements with Purple LLC in February 2018. The plaintiffs contended that certain corporate transactions reduced their “ownership interest and voting power in Purple” and that, as a result, they should have continued to be paid a salary when they retired from Purple LLC. The plaintiffs calculated that they were each owed “no less than $500,000” in unpaid salary. In October 2023, the Court granted Purple Inc.’s motion and ordered that the claims brought by the plaintiffs be dismissed in full, with prejudice. The Court entered a final judgment dismissing the case in January 2024. The plaintiffs have filed an appeal to the Utah Court of Appeals. The Company maintains insurance to cover the costs of defending against claims of this nature and intends to continue to vigorously defend against these claims in the course of the plaintiffs’ appeal.

 

On April 3, 2023, Purple’s founders filed a complaint against Purple LLC in the Delaware Court of Chancery. The complaint alleges that Purple LLC breached the limited liability company agreement of Purple LLC by failing to pay the full amount of tax distributions owed under the agreement. The plaintiffs seek damages of approximately $3.0 million in allegedly unpaid tax distributions as well as legal fees and expenses incurred in connection with the litigation. On June 13, 2023, Purple LLC filed an answer to the complaint denying the plaintiffs’ allegations, setting forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment in Purple LLC’s favor. The outcome of the litigation cannot be predicted at this early stage in the proceedings. Purple LLC denies all allegations and intends to vigorously defend against these claims.

 

On January 17, 2024, two customers filed a punitive class action lawsuit (the “Class Action Lawsuit”) against Purple LLC in California Superior Court in the County of San Francisco alleging unlawful marketing and pricing practices, fraud and unjust enrichment. The suit seeks damages and other relief on behalf of all persons who purchased Purple LLC products during the applicable statutory periods in California. On February 22, 2024, Purple LLC removed the case to the United States District Court for the Northern District of California. Purple LLC denies all allegations and intends to vigorously defend against these claims.

 

On April 16, 2024, Purple’s founders, in their capacity as a former landlord of Purple LLC, brought a lawsuit against Purple LLC, as lessee, for amounts allegedly owed under a real estate lease which the parties terminated effective September 30, 2023. In the suit, the plaintiffs allege approximately $2.5 million in damages, based primarily on a dispute regarding whether Purple LLC left the premises in the condition required by the lease. The plaintiffs further claim approximately $0.8 million in holdover rent, as well as unspecified amounts in interest, late fees, liquidated damages, attorney fees and costs. Purple LLC denies all allegations and intends to vigorously defend against these claims.

  

The Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

 

16

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

14. Related Party Transactions

 

The Company has engaged in various transactions with entities or individuals which are considered related parties.

 

Coliseum Capital Management, LLC

 

Immediately following the Business Combination, Adam Gray was appointed to the Board. Mr. Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and Coliseum Co-Invest Debt Fund, L.P. (“CDF”), and he is also a managing partner of CCM, which is the investment manager of Blackwell Partners LLC – Series A (“Blackwell”) and also manages investment funds and accounts. Mr. Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell. Lenders under the Amended and Restated Credit Agreement included CCP and Blackwell. See Note 10— Debt2024 Credit Agreement for further discussion. In April 2023, Adam Gray was appointed Chairman of the Board of the Company as part of an agreement to resolve litigation that had been brought by Coliseum against the Company.

 

Purple Founder Entities

 

Purple LLC began leasing its Alpine facility from entities controlled by Purple’s founders in 2010. On September 3, 2021, in accordance with the terms of that original lease, Purple LLC gave notice that it intended to exercise its right to an early termination of the lease to occur on September 30, 2022. On July 20, 2022, the Company entered into an amendment to its Alpine facility lease agreement that rescinded the Company’s previous notice of termination and extended the lease term to remain in effect until September 30, 2023. The Company vacated the Alpine facility and returned the property back to its owner on September 30, 2023, in accordance with the terms of the lease agreement and notice of termination. In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $0.3 million and $0.6 million for the three and six months ended June 30, 2023, respectively (see Note 13—Commitments and Contingencies—Legal Proceedings for information regarding a complaint filed by Purple’s founders regarding this matter).

 

15. Stockholders’ Equity

 

Class A Common Stock

 

The Company has 210.0 million shares of Class A common stock authorized. Holders of the Company’s Class A common stock are entitled to one vote for each share held on all matters to be voted on by the stockholders. Holders of Class A common stock and holders of Class B common stock voting together as a single class have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. At June 30, 2024, 107.5 million shares of Class A common stock were outstanding.

 

Class B Common Stock

 

The Company has 90.0 million shares of Class B common stock authorized. Holders of the Company’s Class B common stock will vote together as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders. Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold. A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder also simultaneously transfers an equal number of such holder’s Class B Units to such transferee. The Class B common stock is not entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. At June 30, 2024, 0.2 million shares of Class B common stock were outstanding.

 

17

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Preferred Stock

 

The Company has 5.0 million shares of preferred stock authorized. The preferred stock may be issued from time to time in one or more series. The Board is expressly authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, designations and other special rights or restrictions. At June 30, 2024, there were no shares of preferred stock outstanding. On June 27, 2024, 0.3 million shares of the Company’s authorized shares of preferred stock were designated as Series C Junior Participating Preferred Stock, par value $0.0001 per share (“Series C Preferred Shares”).

 

NOL Rights Plan

 

On June 27, 2024, the Board adopted, and the Company entered into the NOL Rights Plan, which is designed to preserve approximately $238 million of the “Current NOLs under Section 382 of the of the Internal Revenue Code of 1986, as amended (“Code Section 382”). The Company’s ability to use the Current NOLs to offset future taxable income may be significantly limited if the Company experiences an “ownership change” under Code Section 382, which occurs if one or more stockholders or groups of stockholders that is deemed to own at least 5% of the Company’s common stock increases their aggregate ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year period. The NOL Rights Plan is intended to prevent an ownership change by acting as a deterrent to any Person (as such term is defined in the NOL Rights Plan) acquiring 4.9% or more of the outstanding common stock of the Company (or, in the case of a Grandfathered Person (as such term is defined in the NOL Rights Plan), an additional one-half of one percentage point of the outstanding common Stock of the Company above their current ownership percentage). Any Person that acquires shares of the Company’s common Stock in violation of the limitations of the NOL Rights Plan is known as an “Acquiring Person.” For purposes of the NOL Rights Plan, “common stock” includes (i) the Class A common stock, (ii) the Class B common stock, and (iii) any interest that would be treated as “stock” of the Company pursuant to Treasury Regulation § 1.382-2T(f)(18). Notwithstanding the foregoing, the NOL Rights Plan allows for the exercise of currently outstanding conversion rights, exchange rights, warrants or options, or otherwise, without triggering the NOL Rights Plan. See Note 11 – Warrant Liabilities for further discussion of the Company’s outstanding warrants.

 

The NOL Rights Plan provides for a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding on July 26, 2024. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series C Preferred Share for a purchase price of $2.75, subject to adjustment as provided in the NOL Rights Plan. Each Series C Preferred Share is designed to be the economic equivalent of one share of common stock.

 

Unless the Board determines to effect an exchange (as discussed below), each Right will become exercisable on the “Distribution Time”, which is the earlier to occur of (i) the tenth day following a public announcement, or the public disclosure of facts indicating, that a Person has become an Acquiring Person or (ii) the tenth business day (or such later date as may be determined by action of the Board prior to such time as any Person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in a Person becoming an Acquiring Person. After the Distribution Time, any Rights held by an Acquiring Person will be void and will not be exercisable. As a result, any Acquiring Person will be subject to significant dilution upon the occurrence of the Distribution Time. At any time after a Person becomes an Acquiring Person, but before such Acquiring Person holds more than 50% of the common stock, the Board, in its sole discretion, may instead extinguish the Rights by exchanging one share of Class A common stock for each Right, other than Rights held by the Acquiring Person.

 

The Rights will expire on the earliest to occur of (i) the close of business on the date of the Special Meeting if a majority of the Company’s stockholders voting do not ratify the NOL Rights Plan, (ii) the close of business on June 30, 2025; (iii) the time at which the Rights are redeemed (as discussed below) or exchanged by the Company; (iv) the repeal of Code Section 382, if the Board determines that this Agreement is no longer necessary for the preservation of the Current NOLs; or (v) the beginning of a taxable year of the Company to which the Board determines that no Current NOLs may be carried forward. At any time prior to the expiration of the NOL Rights Plan, the Company may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right (subject to adjustment and payable in cash, Class A common stock or other consideration deemed appropriate by the Board). Immediately upon the action of the Board authorizing any redemption or at a later time as the Board may establish for the effectiveness of the redemption, the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price.

 

The initial issuance of the Rights as a dividend will have no tax, financial accounting or reporting impact. The fair value of the Rights will be nominal since the Rights are not exercisable when issued and no value is attributable to them. Additionally, the Rights do not meet the definition of a liability under GAAP and will therefore not be accounted for as a long-term obligation. Accordingly, unless the Rights become exercisable upon the occurred of the Distribution Time as discussed above, the NOL Rights Plan and the Rights issued thereunder have no impact on the Company’s consolidated financial statements. The NOL Rights Plan is subject to stockholder ratification at the Special Meeting. If the NOL Rights Plan is not ratified by the stockholders at the Special Meeting, the NOL Rights Plan will be terminated and the Rights will expire.

 

18

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

NOL Protective Charter Amendment

 

Concurrently with the adoption of NOL Rights Plan, on June 27, 2024, the Board adopted, and recommended that the Company’s stockholders approve at the Special Meeting, the NOL Protective Charter Amendment that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding any transfer of common stock that results in any Person holding 4.9% or more of the outstanding common stock of the Company (or, in the case of a Person already holding more than 4.9% of the outstanding common stock of the Company as of the date of the NOL Protective Charter Amendment, one-half of one percentage point of the outstanding common stock of the Company above their current ownership percentage).

 

Any acquisition of common stock in violation of the NOL Protective Charter Amendment will be void as of the date it is attempted. Upon the Company’s written demand, the purported acquiring stockholder must transfer the excess acquired common stock to the Company’s transfer agent (along with any dividends or other distributions paid with respect to such excess acquired common stock). The Company’s transfer agent is then required to sell such excess acquired common stock in an arm’s-length transaction (or series of transactions) that would not constitute a violation under the NOL Protective Charter Amendment. The net proceeds of the sale together with any other distributions with respect to such excess acquired common stock received by the Company’s transfer agent, after deduction of all costs incurred by the transfer agent, will be transferred first to the purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar transfer, the fair market value of the excess securities on the date of the prohibited transfer) incurred by the purported transferee to acquire such excess securities, and the balance of the proceeds, if any, will be transferred to a charitable beneficiary. Further, the Company may hold any stockholder liable, to the fullest extent of the law, for any intentional violation of the NOL Protective Charter Amendment.

 

The NOL Charter Amendment will be submitted for stockholder approval at the Special Meeting. The NOL Protective Charter Amendment will not become effective unless and until it is approved by stockholders at the Special Meeting.

 

Warrants

 

In connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million Warrants to the Lenders. Each Warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $1.50 per share, subject to adjustment. While the Warrants are exercisable, the Company may call the Warrants for redemption in whole and not in part at any time at a price of $0.01 per share of Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to each holder, provided that this redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds $24.00 per share on each of 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the holders. A holder of the Warrants will not have the right to exercise its Warrants, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise.

 

Sponsor Warrants

 

There were 12.8 million sponsor warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering. Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration.

 

Noncontrolling Interest

 

Noncontrolling interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company. At June 30, 2024 and December 31, 2023, the combined NCI percentage in Purple LLC was 0.2% and 0.2%, respectively. The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate interest held by all such Purple LLC Class B Unit holders as NCI.

 

16. Income Taxes

 

The Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC’s net taxable income and any related tax credits are passed through to its members and are included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP.

 

19

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

The Company reported income tax expense related to various state taxes of $0.1 million on a pretax loss of $50.2 million for the six months ended June 30, 2024 as compared to various state taxes of $0.1 million on a pretax loss of $66.6 million for the six months ended June 30, 2023. This resulted in an effective tax rate of (0.22)% for the six months ended June 30, 2024 as compared to (0.22)% for the six months ended June 30, 2023. The Company’s effective tax rate for the six months ended June 30, 2024 differs from the statutory federal rate of 21% primarily due to the impact of the full valuation allowance recorded against the Company’s deferred tax assets at June 30, 2024.

 

In connection with the Business Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the agreement.

 

As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a tax receivable agreement liability may be recorded based on 80% of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange.

 

The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of June 30, 2024, the Company had unrecognized tax benefits of $0.9 million.

 

17. Net Loss Per Common Share

 

Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of Class A common stock outstanding during each period. Diluted net income (loss) per share reflects the weighted-average number of common shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock equivalents that are dilutive.

 

The following table sets forth the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands, except per share amounts):

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Numerator:                
Net income (loss) attributable to Purple Innovation, Inc. – basic  $27  $(40,487)  $(50,277)  $(66,420)
Less – net loss attributed to noncontrolling interest   (36)   
    
    
 
Net income (loss) attributable to Purple Innovation, Inc. – diluted  $(9)  $(40,487)  $(50,277)  $(66,420)
Denominator:                    
Weighted average shares—basic   107,489    105,079    106,755    101,760 
Add – dilutive effect of Class B shares   205    
    
    
 
Add – dilutive effect of equity securities   85    
    
    
 
Weighted average shares—diluted   107,779    105,079    106,755    101,760 
Net loss per common share:                    
Basic  $0.00  $(0.39)  $(0.47)  $(0.65)
Diluted  $(0.00)  $(0.39)  $(0.47)  $(0.65)

 

The Company excludes certain shares issuable from equity awards, warrants and exchange of Class B common stock from the diluted net loss per common share computation when their exercise or performance vesting price is greater than the average market price of the Company’s common stock or they are otherwise anti-dilutive. For the three months ended June 30, 2024, the Company excluded 22.7 million shares of Class A common stock issuable upon conversion of certain warrants, stock options and restricted stock. For the six months ended June 30, 2024, the Company excluded 25.0 million shares of Class A common stock issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock. For the three and six months ended June 30, 2023, the Company excluded 3.0 million and 3.4 million, respectively, of Class A common stock issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock.

 

20

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

18. Equity Compensation Plans

 

2017 Equity Incentive Plan

 

The Purple Innovation, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock units and other stock-based awards. Directors, officers and other employees, as well as others performing consulting or advisory services for the Company and its subsidiaries, will be eligible for grants under the 2017 Plan. As of June 30, 2024, an aggregate of 2.2 million shares remain available for issuance or use under the 2017 Plan.

 

Employee Stock Options

 

The following table summarizes the Company’s total stock option activity for the six months ended June 30, 2024:

 

   Options
(in thousands)
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term in
Years
   Intrinsic
Value
(in thousands)
 
Options outstanding as of January 1, 2024   863   $8.13    2.2   $
    —
 
Granted   
    
    
    
 
Exercised   
    
    
    
 
Forfeited   (309)   9.69    
    
 
Options outstanding as of June 30, 2024   554   $7.27    2.6   $
 

 

Outstanding and exercisable stock options as of June 30, 2024 are as follows:

 

    Options Outstanding   Options Exercisable 
Exercise Prices   Number of
Options
Outstanding
(in thousands)
   Weighted
Average
Remaining Life
(Years)
   Number of
Options
Exercisable
(in thousands)
   Weighted
Average
Remaining Life
(Years)
   Intrinsic
Value
(in thousands)
 
$6.82    500    2.8    333    2.8   $
 
 7.99    19    0.4    19    0.4    
       —
 
 13.12    35    0.9    35    0.9    
 

 

The following table summarizes the Company’s unvested stock option activity for the six months ended June 30, 2024:

 

    Options
(in thousands)
    Weighted
Average
Grant Date
Fair Value
 
Nonvested options as of January 1, 2024     337     $ 0.41  
Granted            
Vested     (170 )     0.59  
Forfeited            
Nonvested options as of June 30, 2024     167     $ 0.22  

 

The estimated fair value of Company stock options is amortized over the options vesting period on a straight-line basis. For the three and six months ended June 30, 2023, the Company recognized stock option expense of $0.1 million and $0.4 million, respectively. Stock option expense was de minimis for the three and six months ended June 30, 2024.

 

As of June 30, 2024, outstanding stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of 0.8 years. The fair value of stock options vested during the six months ended June 30, 2024 totaled $0.1 million.

 

21

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Employee Restricted Stock Units

 

During the first six months of 2024, the Company granted 1.8 million restricted stock units under the 2017 Equity Incentive Plan to certain members of the Company’s management team. Of the restricted stock units granted, 0.4 million included a market vesting condition. The restricted stock awards that did not have a market vesting condition had a weighted average grant date fair value of $1.00 per share. The estimated fair value of these awards is recognized on a straight-line basis over the vesting period. For those awards that include a market vesting condition, the estimated fair value of the restricted stock was measured on the grant date and incorporated the probability of vesting occurring. The estimated fair value is recognized over the derived service period (as determined by the valuation model), with such recognition occurring regardless of whether the market condition is met. The Company determined the weighted average grant date fair value of the awards with the market vesting condition to be $1.13 per share using a Monte Carlo Simulation model with the following weighted average assumptions:

 

Trading price of common stock on measurement date  $1.50 
Risk free interest rate   4.46%
Expected life in years   3.0 
Expected volatility   97.1%
Expected dividend yield   
 

 

The following table summarizes the Company’s restricted stock unit activity for the six months ended June 30, 2024:

 

   Number
Outstanding
(in thousands)
   Weighted
Average
Grant Date
Fair Value
 
Nonvested restricted stock units as of January 1, 2024   3,057   $2.97 
Granted   1,828    1.03 
Vested   (582)   3.87 
Forfeited   (260)   3.44 
Nonvested restricted stock units as of June 30, 2024   4,043   $1.94 

 

The Company recorded restricted stock unit expense of $0.8 million and $1.3 million during the three and six months ended June 30, 2024, respectively, and $0.9 million and $1.8 million during the three and six months ended June 30, 2023, respectively.

 

As of June 30, 2024, outstanding restricted stock units had $5.2 million of unrecognized stock compensation cost with a remaining recognition period of 1.6 years.

 

22

 

 

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Aggregate Non-Cash Stock-Based Compensation

 

The Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation. This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period.

 

The following table summarizes the aggregate non-cash stock-based compensation recognized in the statement of operations for stock awards, employee stock options and employee restricted stock units (in thousands):

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Cost of revenues  $103   $23   $190   $98 
Marketing and sales   128    240    224    215 
General and administrative   514    1,332    755    2,452 
Research and development   80    66    148    88 
Total non-cash stock-based compensation  $825   $1,661   $1,317   $2,853 

 

19. Employee Retirement Plan

 

In July 2018, the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code. All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan. The plan provides for the Company to match employee contributions up to 5% of eligible earnings. Company contributions immediately vest. The Company’s matching contribution expense was $1.0 million and $2.1 million for the three and six months ended June 30, 2024, respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2023, respectively.

 

20. Subsequent Events

 

Settlement of Insurance Claim

 

In July 2024, pursuant to a previously filed business interruption claim, the Company received the remaining settlement amount of $7.3 million. The Company recorded the payment received as other income, net in the third quarter of 2024.

 

Class Action Lawsuits

 

On July 15, 2024, the Company entered into a settlement agreement (the “Settlement Agreement”) with the plaintiffs in connection with the Class Action Lawsuit. Pursuant to the Settlement Agreement, the Company will make a cash payment upon the receipt of an executed release of all claims by the plaintiffs. The payment will have no material impact on results of operations, financial condition or cash flow of the Company. The Settlement Agreement is subject to approval by the United States District Court for the Northern District of California. If the court does not grant final approval of the Settlement Agreement, or the settlement does not otherwise become final or effective, proceedings in the Class Action Lawsuit will continue. See Note 13 - Commitments and Contingencies - Legal Proceedings for further discussion of the Class Action Lawsuit.

 

On July 24, 2024, a former part-time employee filed a class action lawsuit against Purple LLC in California Superior Court in the County of Alameda alleging failure to pall all wages, failure to pay overtime pay rate, failure to provide all meal periods, and other employment-related causes of action. The suit seeks damages, interest, attorneys’ fees, costs and other relief on behalf of all non-exempt California employees of Purple LLC during the applicable statutory periods.  

 

23

 

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion is intended to provide a review of the operating results and financial condition of Purple Innovation, Inc. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “project,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words.

 

All forward-looking statements included in this Quarterly Report are made only as of the date thereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking statements.

 

We caution and advise readers that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2024. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and investors are cautioned not to place undue reliance on any such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

 

Overview of Our Business

 

Our mission is to help people feel and live better through innovative comfort solutions.

 

We are an omni-channel company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, duvets, duvet covers, and other products. Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary Hyper-Elastic Polymer gel technology underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products. We sell our products via our DTC channels, including Purple.com, online marketplaces (e.g., Amazon), our customer contact center, Purple showrooms and through wholesale retailers.

 

24

 

 

Organization

 

Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. At June 30, 2024, Purple Inc. had a 99.8% economic interest in Purple LLC while Class B unit holders had the remaining 0.2%.

 

Recent Developments in Our Business

 

Operational Developments

 

In May 2023, we launched our new Premium and Luxe product lineups. This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging. The response to our new products and enhanced brand positioning has been extremely positive. As consumer spending habits have moved away from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 60 as of June 30, 2024. We have also focused on growing our placements with wholesale partners and improving wholesale door productivity. Improving the sales productivity of both our wholesale partners and existing showrooms remains a significant priority and critical component of our strategy to respond to shifting demand patterns. In addition, we are diligently working to improve e-commerce conversion by determining ways to best optimize traffic on our website. Furthermore, we are concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions, continued mix shift towards our Premium and Luxe collections, and manufacturing and supply chain optimization. With the introduction of our new product lineups, we initiated a new marketing campaign which included enhanced brand positioning and increased media investment at the top of the acquisition funnel. During the second quarter of 2024, we began to realize efficiencies with our media investments by targeting specific segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product. We also improved our gross margin in the second quarter of 2024 by driving cost savings through supply chain initiatives and manufacturing efficiency. We have delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with improved delivery reliability. We believe we have set the right course for the next stage of growth for the Company.

 

Debt Financing

 

On January 23, 2024, we entered into the Amended and Restated Credit Agreement, which amended and restated the Term Loan Agreement, with the Lenders. The Lenders agreed to assume our obligations under the Term Loan Agreement and agreed to refinance our existing obligations. Pursuant to the Amended and Restated Credit Agreement, we borrowed $61.0 million from the Lenders that was used to repay the $25.0 million of Term Loans outstanding, the $5.0 million of ABL Loans outstanding, loan fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) equal to approximately $27.0 million. Interest on the new loan is payable each month and the principal outstanding matures and is due on December 31, 2026. We may elect for interest to be capitalized and added to the principal amount. The loan bears interest at a rate equal to (i) the secured overnight financing rate plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce its cash obligations, 10.25% per annum). Any prepayments on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25%, and any prepayments on or after August 7, 2025 are subject to a prepayment penalty of 2.50%. We may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by us to the extent agreed to by the Lenders at their discretion. The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based loan. In connection with our execution of the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the 2023 Agreements were terminated.

 

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Warrants

 

In connection with the Amended and Restated Credit Agreement, we issued Warrants to the Lenders to purchase 20.0 million shares of our Class A common stock. Each Warrant entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per share, subject to adjustment. The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. A holder of the Warrants will not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise. The Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. During the six months ended June 30, 2024, we recognized a loss of $4.9 million in our condensed consolidated statement of operations related to an increase in the fair value of the Warrants outstanding at June 30, 2024.

 

Registration Rights Agreement

 

In connection with the issuance of the Warrants, we entered into the Registration Rights Agreement with the Holders, providing for the registration of Registrable Securities, subject to customary terms and conditions. We are responsible for the payment of the Holders’ expenses in connection with any offering or sale of Registrable Securities by the Holders, including underwriting discounts or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain Registrable Securities. The registration statement filed by the Company on March 21, 2024 to register the Registrable Securities became effective on June 4, 2024.

 

Stockholder Rights Agreement

 

On June 27, 2024, our Board approved the adoption of the NOL Rights Plan with a stated expiration date of June 30, 2025. The Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately $238 million to reduce potential future federal income tax obligations from becoming substantially limited by future ownership of our Common Stock. Upon adopting the NOL Rights Plan, 0.3 million shares of our authorized shares of preferred stock were designated as Series C Preferred Shares. Pursuant to the NOL Rights Plan, the Board authorized and declared a dividend of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on July 26, 2024. Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage), the Rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan.

  

NOL Protective Charter Amendment

 

In connection with the NOL Rights Plan, the Board adopted, and recommended that our stockholders approve, the NOL Protective Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage). The NOL Rights Plan and the NOL Protective Charter Amendment will be submitted for stockholder approval at the Special Meeting.

 

Executive Summary – Results of Operations

 

Net revenues increased 2.0% to $120.3 million for the three months ended June 30, 2024 compared to $117.9 million for the three months ended June 30, 2023. Our revenue growth was primarily due to a $3.6 million, or 7.2%, increase in wholesale channel net revenues driven primarily by the continued positive response of our wholesale partners and strong demand for our new product lineups we launched in 2023. Within our DTC channel, e-commerce net revenues decreased $2.9 million, or 5.7%, while Purple showroom net revenues increased $1.7 million, or 10.6%. The decrease in e-commerce net revenues reflected the ongoing impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items and delays in our efforts to improve personalization and streamline the website. The growth in Purple showroom net revenues was driven by an increase in average selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products. We also expanded the number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter of 2024.

 

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Gross profit increased 38.0% to $48.9 million for the three months ended June 30, 2024 compared to $35.5 million for the three months ended June 30, 2023. The gross profit percentage in 2024 was 40.7% as compared to 30.1% in 2023. These increases reflected improved production efficiency due primarily to supply chain initiatives and manufacturing efficiency. We realized direct material cost savings from our supplier diversification efforts to become less dependent on sole-sourced materials, generated strong efficiency gains in our plants, improved scrap and yield results through continuous improvements, and our scheduled delivery program for outbound freight is giving us both cost improvements and improved delivery reliability. The gross profit percentage in 2023 was adversely impacted by the transition to our new product lineup in the second quarter of 2023.

 

Operating expenses decreased 16.2% to $63.5 million for the three months ended June 30, 2024 compared to $75.7 million for the three months ended June 30, 2023. This decrease primarily reflected a $5.0 million decrease in marketing and sales costs related to lower advertising spend coupled with an $8.3 million reduction in general and administrative expense. The decrease in general and administrative expense was primarily due to the prior year comparative quarter including non-recurring legal and professional costs incurred by the Board’s special committee.

 

Other income totaled $14.6 million for the three months ended June 30, 2024 compared to other expense of $0.3 million for the three months ended June 30, 2023. Other income in 2024 included an $18.7 million gain related to a decrease in the fair value of Warrants outstanding at June 30, 2024, partially offset by $4.2 million of interest expense related to the Related Party Loan associated with the Amended and Restated Credit Agreement.

 

Net income attributable to Purple Inc. was de minimis for the three months ended June 30, 2024 compared to a net loss of $40.5 million for the three months ended June 30, 2023. The $40.5 million reduction in net loss was primarily due to the $18.7 million gain associated with the decrease in the fair value of the Warrants outstanding at June 30, 2024, the $13.4 million increase in gross profit and the $12.2 million reduction in operating expenses.

 

Outlook for Growth

 

We believe that we are well positioned to build on our recent trends due to our differentiated product and growing brand strength. We remain focused on five key initiatives to drive sustainable and profitable market share gains:

 

  Improving the productivity of our existing wholesale and showroom doors. With our wholesale partners, we are continuing to focus on deepening our partnerships at each functional touch point, including joint business planning, collaborative marketing and sales associate training to maximize productivity and continued brand awareness. In Purple showrooms, we are focusing on increasing productivity and profitability over door expansion. This includes establishing a more focused selling environment with new demand driven tactics, a new consumer financing partnership and store expense optimization.

 

  Improving our marketing effectiveness. Our marketing will support growth in two ways – by enhancing creative and by improving media efficiency.  Our premium branding has been performing well and we believe there is potential to further evolve the marketing creative to attract more consumers to the brand.  We will focus on media efficiency by directing spend based on geography and high sales potential, adjusting the cadence of our spend to match consumer demand periods and shifting some of our upper funnel spend closer to key wholesale distribution points. Additionally, we recently moved digital media management back in house to increase agility and performance.

 

  Driving e-commerce conversion. We intend to drive conversion improvements through personalization and streamlining of the website.  Our efforts will focus on altering the website experience by visitor intent and product focus and simplifying the experience for potential customers.

 

  Bringing new products and innovations to market. We continue to accelerate innovation, keeping our product and technology pipelines robust and vibrant.  Recent initiatives are generating new and more cost-effective technologies which positions us for the next stage of growth.  We expect multiple new product launches across each of our major product categories over the next 12 months as we continue to drive our Path to Premium Sleep strategy with holistic, sleep system solutions.

 

  Driving gross margin improvements. We believe we can continue to drive gross margin improvements through various strategies that include selective pricing actions, continued mix shift towards our Premium and Luxe collections and manufacturing and supply chain optimization.  We have generated strong efficiency gains in our plants.  In addition, we have delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with improved delivery reliability.

 

There is no guarantee that we will be able to effectively continue to execute these initiatives, which are subject to risks, uncertainties, and assumptions that are difficult to predict, including the risks described in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2024 and elsewhere herein. Therefore, actual results may differ materially and adversely from those described above. In addition, we may, in the future, adapt these focuses in response to changes in the market or our business.

 

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Operating Results for the Three Months Ended June 30, 2024 and 2023

 

The following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our condensed consolidated statements of operations (dollars in thousands):

 

   Three Months Ended June 30, 
   2024   % of
Net
Revenues
   2023   % of
Net
 Revenues
 
Revenues, net  $120,271    100.0%  $117,882    100.0%
Cost of revenues   71,331    59.3    82,408    69.9 
Gross profit   48,940    40.7    35,474    30.1 
Operating expenses:                    
Marketing and sales   41,377    34.4    46,379    39.3 
General and administrative   18,117    15.1    26,437    22.4 
Research and development   3,986    3.3    2,925    2.5 
Total operating expenses   63,480    52.8    75,741    64.3 
Operating loss   (14,540)   (12.1)   (40,267)   (34.2)
Other income (expense):                    
Interest expense   (4,161)   (3.5)   (352)   (0.3)
Other income, net   53        37     
Loss on extinguishment of debt                
Change in fair value – warrant liabilities   18,693    15.5         
Total other expense, net   14,585    12.1    (315)   (0.3)
Net income (loss) before income taxes   45        (40,582)   (34.4)
Income tax expense   (54)       (72)   (0.1)
Net loss   (9)       (40,654)   (34.5)
Net loss attributable to noncontrolling interest   (36)       (167)   (0.1)
Net income (loss) attributable to Purple Innovation, Inc.  $27       $(40,487)   (34.3)

 

Revenues, Net

 

Net revenues increased $2.4 million, or 2.0%, to $120.3 million for the three months ended June 30, 2024 compared to $117.9 million for the three months ended June 30, 2023. Our revenue growth was primarily due to a $3.6 million, or 7.2%, increase in wholesale channel net revenues, driven primarily by the continued positive response of our wholesale partners and strong demand for our new product lineups we launched in 2023. Within our DTC channel, e-commerce net revenues decreased $2.9 million, or 5.7%, while Purple showroom net revenues increased $1.7 million, or 10.6%. The decrease in e-commerce net revenues reflected the ongoing impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items and delays in our efforts to improve personalization and streamline the website. The growth in Purple showroom net revenues was driven by an increase in average selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products. We also expanded the number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter of 2024.

 

Cost of Revenues

 

Cost of revenues decreased $11.1 million, or 13.4%, to $71.3 million for the three months ended June 30, 2024 compared to $82.4 million for the three months ended June 30, 2023. The decrease in our cost of revenues was largely due to the operational efficiency improvements implemented over the last 12 months along with increased costs in 2023 due to significant non-recurring costs related to our new product launch. Our gross profit percentage increased to 40.7% of net revenues in the second quarter of 2024 from 30.1% in the prior year second quarter. This increase reflected improved production efficiency in 2024 due primarily to supply chain initiatives and manufacturing efficiency. We realized direct material cost savings from our supplier diversification efforts to become less dependent on sole-sourced materials, generated strong efficiency gains in our plants, improved scrap and yield results through continuous improvements, and our scheduled delivery program for outbound freight is giving us both cost improvements and improved delivery reliability. The gross profit percentage in 2023 was adversely impacted by the transition to our new product lineup in the second quarter of 2023.

 

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Marketing and Sales

 

Marketing and sales expense decreased $5.0 million, or 10.8%, to $41.4 million for the three months ended June 30, 2024 compared to $46.4 million for the three months ended June 30, 2023. This decrease primarily consisted of a $4.2 million decrease in advertising spending. As a percentage of net revenues, advertising spend was 13.2% in the second quarter of 2024 compared to 17.0% in the second quarter of 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s expanded marketing efforts in the second quarter of 2023 to support the launch of the new Premium and Luxe product lineups in May 2023.

 

General and Administrative

 

General and administrative expense decreased $8.3 million, or 31.5%, to $18.1 million for the three months ended June 30, 2024 compared to $26.4 million for the three months ended June 30, 2023. This decrease was primarily due to the prior year comparative quarter including non-recurring legal and professional costs incurred by the Board’s special committee.

 

Research and Development

 

Research and development costs increased $1.1 million, or 36.3%, to $4.0 million for the three months ended June 30, 2024 compared to $2.9 million for the three months ended June 30, 2023. This increase was primarily due to the loss incurred on the write off of a project.

 

Operating Loss

 

Operating loss decreased $(25.7) million to $(14.5) million, or 63.9% for the three months ended June 30, 2024 compared to $(40.3) million for the three months ended June 30, 2023. The smaller operating loss in 2024 primarily resulted from an increase in gross profit that was driven by production efficiencies coupled with a reduction in operating expenses.

 

Interest Expense

 

Interest expense totaled $4.2 million for the three months ended June 30, 2024 compared to $0.4 million for the three months ended June 30, 2023. This increase was primarily due to interest incurred on the new $61.0 million loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the second quarter of 2023 was comprised of only debt issuance cost amortization and commitment fees associated with the line of credit under the 2020 Credit Agreement as the related term loan associated with the 2020 Credit Agreement was repaid in full in February 2023.

 

Change in Fair Value – Warrant Liabilities

 

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At June 30, 2024, the outstanding Warrants had a fair value of $24.5 million. During the three months ended June 30, 2024, we recognized a gain of $18.7 million in our condensed consolidated statement of operations for the decrease in fair value of the Warrants outstanding at June 30, 2024 as compared to the fair value of the Warrants outstanding at the end of the first quarter of 2024.

 

Income Tax (Expense) Benefit

 

We had income tax expense of $0.1 million for the three months ended June 30, 2024 compared to income tax expense of $0.1 million for the three months ended June 30, 2023. The income tax expense amounts in both the second quarter of 2024 and 2023 were related to various state taxes.

 

Noncontrolling Interest

 

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was de minimis for the three months ended June 30, 2024 and $0.2 million for the three months ended June 30, 2023.

 

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Operating Results for the Six Months Ended June 30, 2024 and 2023

 

The following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our statements of operations:

 

   Six Months Ended June 30, 
   2024   % of
Net
Revenues
   2023   % of
Net
Revenues
 
Revenues, net  $240,304    100.0%  $224,609    100.0%
Cost of revenues   149,644    62.3    148,557    66.1 
Gross profit   90,660    37.7    76,052    33.9 
Operating expenses:                    
Marketing and sales   82,839    34.5    84,552    37.6 
General and administrative   37,845    15.7    50,104    22.3 
Research and development   7,652    3.2    6,297    2.8 
Total operating expenses   128,336    53.4    140,953    62.8 
Operating loss   (37,676)   (15.7)   (64,901)   (28.9)
Other income (expense):                    
Interest expense   (8,635)   (3.6)   (554)   (0.2)
Other income, net   4,447    1.9    110     
Loss on extinguishment of debt   (3,394)   (1.4)   (1,217)   (0.5)
Change in fair value – warrant liabilities   (4,906)   (2.0)        
Total other expense, net   (12,488)   (5.2)   (1,661)   (0.7)
Net loss before income taxes   (50,164)   (20.9)   (66,562)   (29.6)
Income tax expense   (113)       (144)   (0.1)
Net loss   (50,277)   (20.9)   (66,706)   (29.7)
Net loss attributable to noncontrolling interest   (87)       (286)   (0.1)
Net loss attributable to Purple Innovation, Inc.  $(50,190)   (20.9)  $(66,420)   (29.6)

 

Revenues, Net

 

Net revenues increased $15.7 million, or 7.0%, to $240.3 million for the six months ended June 30, 2024 compared to $224.6 million for the six months ended June 30, 2023. Net revenue growth was primarily due to a $17.0 million, or 18.8%, increase in wholesale channel net revenues, driven primarily by the continued positive response of our wholesale partners and strong demand for our new product lineups we launched in 2023. Within our DTC channel, e-commerce net revenues decreased $4.7 million, or 4.6%, while Purple showroom net revenues increased $3.4 million, or 10.9%. The decrease in e-commerce net revenues reflected the ongoing impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items and delays in our efforts to improve personalization and streamline the website. The growth in Purple showroom net revenues was driven by an increase in average selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products. We also expanded the number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter of 2024.

 

Cost of Revenues

 

Cost of revenues increased $1.1 million, or 0.7%, to $149.6 million for the six months ended June 30, 2024 compared to $148.6 million for the six months ended June 30, 2023. The increase in our cost of revenues is due to the increase in revenues partially offset by decreases in costs largely due to the operational efficiency improvements implemented over the last 12 months. In addition, our costs in 2023 increased due to significant non-recurring costs related to our new product launch. Our gross profit percentage increased to 37.7% of net revenues in 2024 from 33.9% in 2023. This increase reflected improved production efficiency in 2024 due primarily to supply chain initiatives and manufacturing efficiency. We realized direct material cost savings from our supplier diversification efforts to become less dependent on sole-sourced materials, generated strong efficiency gains in our plants, improved scrap and yield results through continuous improvements, and our scheduled delivery program for outbound freight is giving us both cost improvements and improved delivery reliability. These savings were offset in part by a shift in revenue to our wholesale channel, which carries a lower average selling price than sales from our DTC channels. The gross profit percentage in 2023 was adversely impacted by costs associated with the transition to our new product lineup in the second quarter of 2023.

 

Marketing and Sales

 

Marketing and sales expense decreased $1.7 million, or 2.0%, to $82.8 million for the six months ended June 30, 2024 compared to $84.6 million for the six months ended June 30, 2023. This decrease primarily reflected a $3.1 million decrease in advertising spending, offset in part by a $1.8 million increase in showroom marketing and sales costs attributable to showroom expansion. As a percentage of net revenues, advertising spend was 12.0% in 2024 compared to 14.2% in 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s expanded marketing efforts that began in the second quarter of 2023 to support the launch of our new Premium and Luxe product lineups in May 2023.

 

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General and Administrative

 

General and administrative expense decreased $12.3 million, or 24.5%, to $37.8 million for the six months ended June 30, 2024 compared to $50.1 million for the six months ended June 30, 2023. This decrease was primarily due to 2023 including non-recurring legal and professional costs incurred by the Board’s special committee.

 

Research and Development

 

Research and development costs increased $1.4 million, or 21.5%, to $7.7 million for the six months ended June 30, 2024 compared to $6.3 million for the six months ended June 30, 2023. This increase was primarily due to the loss incurred on the write off of a project. 

 

Operating Loss

 

Operating loss decreased $(27.2) million, or 41.9%, to $(37.7) million for the six months ended June 30, 2024 compared to $(64.9) million for the six months ended June 30, 2023. The smaller operating loss in 2024 primarily resulted from an increase in gross profit that was driven by higher sales and production efficiencies coupled with a reduction in operating expenses.

 

Interest Expense

 

Interest expense totaled $8.6 million for the six months ended June 30, 2024 compared to $0.6 million for the six months ended June 30, 2023. This increase was primarily due to interest incurred on the new $61.0 million loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the first six months of 2023 was lower because the term loan associated with the 2020 Credit Agreement was repaid in full in February 2023.

 

Other Income, Net

 

Other income increased to $4.4 million for the six months ended June 30, 2024 compared to $0.1 million for the six months ended June 30, 2023. This increase was primarily due to $4.3 million of proceeds received in January 2024 as partial settlement for a previously filed business interruption insurance claim.

 

Loss on Extinguishment of Debt

 

In January 2024, we entered into the Amended and Restated Credit Agreement that terminated and paid off our 2023 Credit Agreements. This termination was accounted for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2024. In February 2023, we entered into a fifth amendment to the since terminated 2020 Credit Agreement and repaid in full the outstanding balance of the related term loan plus accrued interest. This amendment was accounted for as an extinguishment of debt and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2023.

 

Change in Fair Value – Warrant Liabilities

 

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. The initial liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is being re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At June 30, 2024, the Warrants had a fair value of $24.5 million. During the six months ended June 30, 2024, we recognized a loss of $4.9 million in our condensed consolidated statement of operations for the increase in fair value of the Warrants outstanding at June 30, 2024 as compared to the fair value of the Warrants on the date of issuance.

 

Income Tax (Expense) Benefit

 

We had income tax expense of $0.1 million for the six months ended June 30, 2024 compared to income tax expense of $0.1 million for the six months ended June 30, 2023. The income tax expense amounts in both 2024 and 2023 were related to various state taxes.

 

Noncontrolling Interest

 

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

 

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Liquidity and Capital Resources

 

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated Credit Agreement and proceeds received from offerings of our equity capital. Principal uses of funds consist of capital expenditures, working capital needs, and operating lease payment obligations. In accordance with the Amended and Restated Credit Agreement, we have elected to pay interest in kind on our new loan to reduce cash obligations. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations. Our cash and cash equivalents and working capital positions were $23.4 million and $39.5 million, respectively, as of June 30, 2024 compared to $26.9 million and $30.8 million, respectively, as of December 31, 2023. Cash used for capital expenditures totaled $5.3 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. Our capital expenditures in 2024 have primarily consisted of additional investments made in our manufacturing operations and showroom facilities. Additional details about our Amended and Restated Credit Agreement are described above under “Recent Developments in our Business – Debt Financing.

 

Based on our current projections, which includes the remaining $7.3 million settlement amount received in July 2024 pursuant to a previously filed business interruption claim, we believe our cash on hand, expected cash to be generated from our operations and up to $19.0 million additional cash available under our Amended and Restated Credit Agreement, will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12 months.  In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue our growth strategies. Such actions could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees. In addition, we may be forced to restructure our obligations to creditors, pursue work-out options or other protective measures. We may also need to seek additional funding sources including new debt from subordinated lenders or equity capital. However, such additional debt or equity capital may not be available on terms favorable to us or at all. Our ability to raise additional debt financing would require the consent of the Lenders.

 

Other Contractual Obligations

 

Other material contractual obligations primarily include operating lease payment obligations. See Note 8 - Leases of the condensed consolidated financial statements for additional information on leases.

 

Cash Flows for the Six Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

 

The following summarizes our cash flows for the six months ended June 30, 2024 and 2023 as reported in our condensed consolidated statements of cash flows (in thousands):

 

   Six Months Ended
June 30,
 
   2024   2023 
Net cash used in operating activities  $(25,730)  $(38,053)
Net cash used in investing activities   (5,253)   (5,823)
Net cash provided by financing activities   27,534    29,071 
Net increase in cash   (3,449)   (14,805)
Cash, beginning of the period   26,857    41,754 
Cash, end of the period  $23,408   $26,949 

 

Cash used in operating activities was $25.7 million and $38.1 million for the six months ended June 30, 2024 and 2023, respectively. Cash used in operating activities during the first six months of 2024 was offset by the net proceeds received from entering into the Amended and Restated Credit Agreement in January 2024. Significant components of the year-over-year change in cash used in operating activities included a $16.4 million decrease in net loss, offset in part by a $4.9 million increase in the fair value of Warrants issued in January 2024.

 

Cash used in investing activities reflected capital expenditures of $5.2 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures in the first six months of 2024 primarily consisted of additional investments made in our manufacturing operations and showroom facilities.

 

Cash provided by financing activities was $27.5 million during the six months ended June 30, 2024 compared to $29.1 million during the six months ended June 30, 2023. Financing activities during the first six months of 2024 included $61.0 million of proceeds received from the Related Party Loan under the Amended and Restated Credit Agreement, offset in part by a $25.0 million payment to pay off the Term Loans from the 2023 Credit Agreement, a $5.0 million payment to pay off the ABL Loans from the 2023 Credit Agreement, and payments of $3.5 million for debt issuance costs associated with entering into the Amended and Restated Credit Agreement.

 

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 2023 Annual Report on Form 10-K filed March 12, 2024. There have been no significant changes in our critical accounting policies since the end of fiscal 2023.

 

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Available Information

 

Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website.

 

We also use the Investor Relations portion of our website, investors.purple.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate Risk

 

Our operating results are subject to risk from interest rate fluctuations on the outstanding borrowings. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. The proceeds we received from the Amended and Restated Credit Agreement entered into in January 2024 bears interest at a variable rate which exposes us to market risks relating to changes in interest rates. As of June 30, 2024, we had $65.4 million of variable rate debt outstanding under our new loan under the Amended and Restated Credit Agreement. Based on this debt level, an increase of 100 basis points in the effective interest rate on the outstanding debt amount would result in an increase in interest expense of approximately $0.7 million over the next 12 months.

 

We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO” and together with the CEO, the “Certifying Officers”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Based upon this evaluation, and the above criteria, our Certifying Officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024 at the reasonable assurance level.

  

Previously Reported Material Weakness

 

As previously reported, we identified a material weakness related to the review and evaluation of wholesale customer contracts, specifically as it relates to variable consideration, including wholesale warranty obligations. Specifically, we did not design and maintain effective controls over the review and evaluation of the accounting relating to contract terms agreed upon with our wholesale customers and the identification and calculation of the related wholesale accrued warranty liabilities.

 

In response to this material weakness, management, with oversight of the Audit Committee of the Board, designed and effectively implemented a control over the review of all wholesale customer contracts to ensure the terms contained therein are appropriately evaluated and recorded. This control includes increased rigor and participation among our legal and accounting personnel regarding the appropriate consideration and application of contractual terms. We also implemented new controls over credit memo review and approval and the evaluation and review of accrued wholesale warranty liabilities. Based on these measures, management has tested the new controls, found them effective, and concluded that the previously reported material weakness described above has been remediated as of June 30, 2024.

 

(b) Changes in Internal Controls Over Financial Reporting.

 

Other than the remediation efforts related to the design and implementation of sufficient controls around our customer contracts described above, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

33

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. Please refer to Note 13 — Commitments and Contingencies and Note 20 – Subsequent Events to the condensed consolidated financial statements contained in this report for certain information regarding our legal proceedings.

 

ITEM 1A. RISK FACTORS  

 

Except as described below, there have been no material changes from the risk factors previously disclosed in our 2023 Annual Report on Form 10-K filed with the SEC on March 12, 2024.The disclosure of risks identified below does not imply that the risk has not already materialized.

 

Future use and amount of our Current NOLs and other tax benefits is uncertain.

 

On June 27, 2024, our Board approved the adoption of the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately $238 million to reduce potential future federal income tax obligations from becoming substantially limited by future ownership of our Common Stock. Pursuant to the NOL Rights Plan, the Board authorized and declared a dividend of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on July 26, 2024. Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage), the Rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan. In connection with the NOL Rights Plan, the Board adopted, and recommended that our stockholders approve, the NOL Protective Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage).

 

Our use of our Current NOLs and other tax benefits depends on our ability to generate taxable income in the future. We cannot ensure whether we will have future taxable income in any applicable period or, if we do, whether such income or our Current NOLs or other tax benefits at such time will exceed any potential limitation under Code Section 382.

 

The IRS may challenge our Current NOLs and other tax benefits.

 

As of June 30, 2024, the amount of our Current NOLs has not been audited or otherwise validated by the Internal Revenue Service (the “IRS”). The IRS could challenge the amount of our Current NOLs, which could result in an increase in our future liability for income taxes. In addition, determining whether an ownership change under Code Section 382 has occurred is subject to uncertainty, both because of the complexity and ambiguity of the provisions of Code Section 382 and because of limitations on the knowledge that any publicly traded company can have about the ownership of, and transactions in, its securities on a timely basis. Therefore, we cannot ensure that the IRS or another taxing authority will not claim that we experienced an ownership change under Code Section 382 and attempt to reduce the benefit of our Current NOLs and other tax benefits available to us at such time, even if the NOL Protective Charter Amendment is in place.

 

There is continued risk of ownership change under Code Section 382.

 

Although the NOL Protective Charter Amendment and NOL Rights Plan are intended to reduce the likelihood of an ownership change under Code Section 382, we cannot ensure that the NOL Protective Charter Amendment and the NOL Rights Plan will be effective. The amount by which an ownership interest under Code Section 382 may change in the future could, for example, be affected by purchases of our Common Stock by stockholders who are 5%-stockholders (as defined under Code Section 382) or by purchases of stock or other interests in corporations, partnerships or other legal entities that own 4.9% or more of our Common Stock, over which we have no control. Further, while the NOL Protective Charter Amendment and the NOL Rights Plan allow for the exercise of currently outstanding conversion rights, exchange rights, warrants or options or otherwise, such exercises may result in an ownership change under Code Section 382. It may also be in our best interests, taking into account all relevant facts and circumstances at the time, to permit the acquisition of our Common Stock in excess of the specified limitations or to issue new or redeem existing equity in the future, all of which may increase the likelihood of an ownership change under Code Section 382.

 

The NOL Protective Charter Amendment and the NOL Rights Plan may potentially adversely affect the market for, and negatively impact the value of, our Common Stock.

 

The NOL Protective Charter Amendment and the NOL Rights Plan are intended to prohibit or deter a stockholder’s ability to acquire, directly, indirectly or constructively, additional shares of our Common Stock in excess of the specified limitations. As such, a stockholder’s ability to dispose of our Common Stock may be limited by reducing the class of potential acquirers for such shares. In addition, a stockholder’s ownership of our Common Stock may become subject to the restrictions of the NOL Protective Charter Amendment, or may trigger applicable thresholds under the NOL Rights Plan, upon actions taken by Persons (as such term is defined in the NOL Protective Charter Amendment or the NOL Rights Plan, as applicable) related to, or affiliated with, such stockholder.

 

34

 

 

If the NOL Protective Charter Amendment and the NOL Rights Plan are approved by our stockholders at the Special Meeting, our Board intends to include a legend reflecting the transfer restrictions included in the NOL Protective Charter Amendment and the Rights issued pursuant to the NOL Rights Plan on certificates representing newly issued or transferred shares of our Common Stock, to disclose such Rights and restrictions to Persons holding our Common Stock in uncertificated form, and to disclose such restrictions to the public generally. Because certain buyers, including Persons who wish to acquire more than 4.9% of our Common Stock and certain institutional holders who may not be comfortable holding our Common Stock with restrictive legends, may choose not to purchase our Common Stock, the NOL Protective Charter Amendment and the NOL Rights Plan could have an adverse effect on the marketability and trading value of our Common Stock in an amount that could more than offset any value preserved from protecting our Current NOLs. The NOL Protective Charter Amendment and NOL Rights Plan could also have a negative impact on the trading value of our Common Stock by deterring Persons or groups of Persons from acquiring our Common Stock, including in acquisitions that might result in some or all of our stockholders receiving a premium above market value.

 

The NOL Protective Charter Amendment and the NOL Rights Plan may have an anti-takeover effect.

 

While the NOL Protective Charter Amendment is not intended to prevent, or even discourage, a proposal to acquire the Company, if approved by our stockholders at the Special Meeting, the NOL Protective Charter Amendment may have a potential anti-takeover effect because, among other things, it will restrict the ability of a Person, entity or group to accumulate more than 4.9% of our Common Stock and the ability of Persons, entities or groups now owning more than 4.9% of our Common Stock to acquire any significant amount of additional shares of our Common Stock, in each case, without the approval of our Board. Similarly, while the NOL Rights Plan is not intended to prevent, or even discourage, a proposal to acquire the Company, if ratified by our stockholders at the Special Meeting, the NOL Rights Plan may have a potential anti-takeover effect because, among other things, an Acquiring Person (as such term is defined in the NOL Rights Plan) may have its ownership interest diluted upon the occurrence of a triggering event. Accordingly, the overall effects of the NOL Protective Charter Amendment and NOL Rights Plan, if approved and ratified by our stockholders at the Special Meeting, may be to render more difficult or discourage a merger, tender offer, proxy contest or assumption of control by a substantial holder of our Common Stock, and have an adverse effect on the marketability and the trading value of our Common Stock. However, the NOL Protective Charter Amendment and NOL Rights Plan should not interfere with any merger or other business combination approved by the Board.

 

Future sales of our Common Stock in the public market may depress our share price.

 

Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities or other securities convertible into or exchangeable for equity securities, regardless of whether there is any relationship between such sales and the performance of our business.

 

In connection with the issuance of Warrants pursuant to the Amended and Restated Credit Agreement, on January 23, 2024, the Company entered into an Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with CCP, Blackwell, Coliseum Capital Co-Invest III, L.P. (“C-3”), Harvest Master, Harvest Partners, and HSCP (the “Holders”), providing for the registration under the Securities Act of the Warrants, the shares of Common Stock issuable upon the exercise of the Warrants and the Class A Common Stock held by the Holders as of such date (the “Registrable Securities”), subject to customary terms and conditions. The Registration Rights Agreement provides that on or prior to February 22, 2024, the Company was required to prepare and file with the SEC pursuant to Rule 415 of the Securities Act a registration statement to register the resale of the Registrable Securities. The Company received an extension from the Holders to file the registration statement on or prior to March 22, 2024. On March 21, 2024, the Company filed the registration statement pursuant to the Registration Rights Agreement which became effective on June 4, 2024.

 

The market price of our Common Stock could decline as a result of sales in the market by a few large stockholders, such as Coliseum or the Holders, or the perception that these sales could occur, including as a result of the registration statement filed March 21, 2024. These sales might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate.

 

Our stockholders may experience substantial dilution in the value of their investment or may otherwise have their interests impaired if we issue additional shares of our capital stock, including as a result of the exercise of the Warrants.

 

Our Second Amended and Restated Certificate of Incorporation allows us to issue up to 300 million shares of our common stock, including 210 million shares of Class A common stock and 90 million shares of Class B common stock, and up to five million shares of undesignated preferred stock. For example, in February 2023 we issued 13.4 million shares of Class A common stock pursuant to an underwritten public offering. To raise additional capital, we may in the future sell additional shares of our Common Stock or other securities convertible into or exchangeable for our Common Stock at prices that are lower than the prices paid by existing stockholders, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders, which could result in substantial dilution to the interests of existing stockholders. For example, on January 23, 2024, we issued to the Lenders under the Amended and Restated Credit Agreement Warrants to purchase 20.0 million Class A common stock at a price of $1.50 per share, subject to certain adjustments. The Warrants will expire on the 10-year anniversary of issuance or earlier upon redemption. The exercise of the Warrants will dilute the value of the Class A common stock and stockholder voting power.

 

ITEM 5. OTHER INFORMATION

 

10b5-1 Trading Plans

 

During the second quarter of 2024, none of our directors or executive officers adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.

35

 

 

ITEM 6. EXHIBITS

 

Number   Description
3.1   Certificate of Designation of the Preferred Stock of the Company, dated June 28, 2024 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on June 28, 2024).
4.1   Stockholder Rights Agreement, dated June 27, 2024, between Purple Innovation, Inc. and Pacific Stock Transfer Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on June 28, 2024).
4.2   Proposed First Amendment to the Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 001-37523) filed on June 28, 2024).
4.3*   Amended Form of Class A Common Stock certificate.
31.1*   Certification by Robert T. DeMartini, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification by Todd E. Vogensen, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification by Robert T. DeMartini, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification by Todd E. Vogensen, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

*Filed herewith.

 

36

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  PURPLE INNOVATION, INC.
     
Date: August 5, 2024 By: /s/ Robert T. DeMartini
    Robert T. DeMartini
    Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 5, 2024 By: /s/ Todd E. Vogensen
    Todd E. Vogensen
    Chief Financial Officer
    (Principal Financial Officer)

 

Date: August 5, 2024 By: /s/ George T. Ulrich
    George T. Ulrich
    VP Accounting and Financial Reporting
    (Principal Accounting Officer)

 

 

37

 

 

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