UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
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Securities registered pursuant to Section 12(b) of the Act:
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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
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
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As of May 2, 2025,
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 | 28 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39 | |
| Item 4. | Controls and Procedures | 39 | |
| Part II. | Other Information | 40 | |
| Item 1. | Legal Proceedings | 40 | |
| Item 1A. | Risk Factors | 40 | |
| Item 5. | Other Information | 42 | |
| Item 6. | Exhibits | 43 | |
| Signatures | 44 | ||
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PURPLE INNOVATION, INC.
Condensed Consolidated Balance Sheets
(unaudited – in thousands, except for par value)
| March 31, 2025 | December 31, 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Customer prepayments | ||||||||
| Accrued rebates and allowances | ||||||||
| Accrued warranty liabilities – current portion | ||||||||
| Operating lease obligations – current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Related party debt | ||||||||
| Accrued warranty liabilities, net of current portion | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Warrant liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Class A common stock; $ | ||||||||
| Class B common stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity attributable to Purple Innovation, Inc. | ||||||||
| Noncontrolling interest | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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 March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of revenues: | ||||||||
| Cost of revenues | ||||||||
| Cost of revenues - restructuring related charges | ||||||||
| Total cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Marketing and sales | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Restructuring, impairment and other related charges | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||
| Change in fair value – warrant liabilities | ( | ) | ||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss attributable to Purple Innovation, Inc. | $ | ( | ) | $ | ( | ) | ||
| Net loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
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, 2024 | $ | | $ | $ | $ | ( | ) | $ | | $ | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of stock under equity compensation plans | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Impact of transactions affecting NCI | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance – March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| 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 | $ | | $ | $ | $ | ( | ) | $ | $ | | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Issuance of stock for Intellibed acquisition | ||||||||||||||||||||||||||||||||||||
| Issuance of stock under equity compensation plans | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Impact of transactions affecting NCI | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance – March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ |
| ||||||||||||||||||||||||||
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)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash interest | ||||||||
| Paid-in-kind interest | ||||||||
| Non-cash restructuring, impairment and other related charges | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Change in fair value – warrant liabilities | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Operating leases, net | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued compensation | ( | ) | ||||||
| Customer prepayments | ( | ) | ( | ) | ||||
| Accrued rebates and allowances | ( | ) | ( | ) | ||||
| Accrued warranty liabilities | ( | ) | ||||||
| Other accrued liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Sale of property and equipment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Investment in intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party loan | ||||||||
| Payments on term loan | ( | ) | ||||||
| Payments on revolving line of credit | ( | ) | ||||||
| Payments for debt issuance costs | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of the year | ||||||||
| Cash and cash equivalents, end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest, net of amounts capitalized | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Property and equipment included in accounts payable | $ | $ | ||||||
| Warrants issued | $ | $ | ||||||
| Amendment fee added to principal of loan | $ | $ | ||||||
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
The mission of Purple Innovation, Inc. (the “Company” or “Purple Inc.”) is to deliver the greatest sleep ever invented.
The Company, collectively with its subsidiary Purple Innovation, LLC (“Purple LLC”) is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and have since expanded into brick & mortar stores as a true omni-channel brand. The Company offers 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 direct-to-consumer e-commerce 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 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 unaudited 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 March 31, 2025, Purple Inc. held
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, 2024. 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 months ended March 31, 2025 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2025 or for any other interim period or other future year.
Liquidity
The accompanying financial statements have been prepared on a going
concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the
normal course of business. In connection with our preparation of our unaudited condensed consolidated financial statements for the three
months ended March 31, 2025, the company conducted an evaluation as to whether there were conditions and events, considered in the aggregate,
which raised substantial doubt as to its ability to continue as a going concern within one year after the date of the issuance of such
financial statements. The Company had cash and cash equivalents of approximately $
The Company has also taken a number of other actions to increase cash flow. In August 2024, the Company implemented the Restructuring Plan to consolidate manufacturing operations to create efficiencies and cost savings. The Company has realized and plans to continue to realize direct material cost savings through supply chain initiatives and supplier diversification efforts. The Company has taken additional cost-saving initiatives in the first quarter of 2025 to maintain liquidity to support its operations and strategies. Additionally, the Company entered into an agreement with Mattress Firm, Inc. (“Mattress Firm”), a business unit of Somnigroup International, Inc. (“SGI”) to expand its inventory of the Company’s products across SGI’s national store network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots (see Note 21 — Subsequent Events).
Accordingly, the Company concluded that it will have sufficient liquidity to fund its operations for at least one year from the date of this Quarterly Report on Form 10-Q.
Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that such sources will be sufficient to satisfy its liquidity requirements in the future. If the Company cannot generate or obtain needed funds, it might be forced to make substantial reductions in its operating and capital expenses or pursue restructuring plans, which could adversely affect its business operations and ability to execute its current business strategy.
5
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 March 31, 2025, Purple Inc. had a
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, impairment reviews of long-lived assets and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, the recognition and measurement of restructuring and related charges, 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.
Segment Information
The
Company operates in
Recent Accounting Pronouncements
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 guidance was effective for the Company as of January 1, 2025 and the new disclosure requirements will be effective in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2025. Other than the new disclosure requirements, this guidance is not expected to have an impact on the Company’s consolidated financial statements.
Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU No. 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements. The prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along with certain other expense disclosures already required by GAAP that would need to be integrated within the new tabular disaggregated expense disclosures. Additionally, the amendments also require the disclosure of total selling expenses and an entity’s definition of those expenses. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the potential impact this update will have on its expense disclosures in the notes to the consolidated financial statements.
3. Restructuring, Impairment and Other Related Charges
In August 2024, the Company initiated a restructuring plan to strategically realign the Company’s focus on the achievement of operational efficiencies that are expected to improve profitability and provide for reinvesting in technology and marketing initiatives (the “Restructuring Plan”). The Company’s Restructuring Plan includes the permanent closure of its Grantsville and Salt Lake City, Utah manufacturing facilities to consolidate mattress production in its Georgia plant, and a headcount reduction at the Company’s Utah headquarters to drive additional operating efficiencies. Closure of the two Utah manufacturing facilities will be completed by the end of the second quarter of 2025 while consolidation into the Georgia facility was finalized in December 2024. The reduction in workforce at the Utah headquarters was completed in August 2024.
6
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the restructuring, impairment and other related charges the Company recognized through the first quarter of 2025 in the unaudited condensed consolidated statement of operations (in thousands):
| Cost of Revenues | Operating Expenses | Restructuring, Impairment and Other Related Charges | Total | |||||||||||||
| Cash charges: | ||||||||||||||||
| Employee-related costs | $ | $ | $ | $ | ||||||||||||
| Other costs | ||||||||||||||||
| Total cash charges | ||||||||||||||||
| Non-cash charges: | ||||||||||||||||
| Accelerated depreciation | ||||||||||||||||
| Inventory write-downs | ||||||||||||||||
| Write-down of long-lived assets | ||||||||||||||||
| Impairment of assets | ||||||||||||||||
| Total non-cash charges | ||||||||||||||||
| Total restructuring, impairment and other related charges | $ | $ | $ | $ | ||||||||||||
Of the $
Accelerated depreciation primarily
represents $
The $
Impairment of assets
included impairment charges of $
Impairment of assets also
included the write-off of an $
The lease for the Company’s
Grantsville, Utah manufacturing facility included a five-year renewal option that was reasonably certain of being exercised and included
in the lease term when the Right of Use (“ROU”) asset and lease liability were originally measured. Because of the expected
closure of this facility as part of the Restructuring Plan, the renewal option was no longer deemed reasonably certain of being exercised
and a reassessment of the lease terms was completed. As a result, the original lease term was shortened and the Company recorded a $
7
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes activity for the three months ended March 31, 2025 associated with employee-related and other costs recorded pursuant to the Restructuring Plan, as presented in the indicated line item of the consolidated statement of operations, that will be settled in cash and are included in accounts payable or accrued compensation on the unaudited condensed consolidated balance sheets (in thousands):
| Liability balance at December 31, 2024 | $ | |||
| Employee-related costs – restructuring charges | ||||
| Other costs – restructuring charges | ||||
| Cash paid | ( | ) | ||
| Liability balance at March 31, 2025 | $ |
The following table summarizes the estimated restructuring and other related charges associated with the Restructuring Plan to be recognized in the future (in thousands):
| Cost of Revenues | Operating Expenses | Restructuring, Impairment and Other Related Charges | Total | |||||||||||||
| Cash charges | $ | $ | $ | $ | ||||||||||||
| Non-cash charges | ||||||||||||||||
| Total estimated charges to be recognized in future (a) | $ | $ | $ | $ | ||||||||||||
| (a) |
8
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 arrangements is
based on Level 2 and Level 3 inputs. Level 2 inputs include observable inputs such as market-based expectations for interest rates, credit
risk, volatility, and the contractual terms of debt instruments. The unobservable Level 3 inputs are associated with the required rate
of return for the security implied by the March 2025 issuance of debt bundled with warrants, which were valued using a Monte Carlo model.
As of March 31, 2025, the estimated fair value of the Company’s debt arrangements was $
The unobservable significant inputs to the valuation model were as follows:
| March 31, | ||||
| 2025 | ||||
| Debt term in years | ||||
| Risk free interest rate | % | |||
| SOFR interest rate | % | |||
| Discount rate | % | |||
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).
9
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the Company’s total Level 3 liability activity for the three months ended March 31, 2025 (in thousands):
| Fair value as of December 31, 2024 | $ | |||
| Initial measurement at time of issuance(1) | ||||
| Change in valuation inputs(2) | ( | ) | ||
| Fair value as of March 31, 2025 | $ |
| (1) | |
| (2) |
5. Revenue from Contracts with Customers
The Company markets and sells its products through direct-to-consumer e-commerce channels, Purple showrooms, retail brick-and-mortar wholesale partners, 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 as either direct-to-consumer (“DTC”) or wholesale revenue. DTC revenues include the e-commerce channel which sells directly to consumers who purchase online, through the contact center, and through online marketplaces and the showrooms channel that sells directly to consumers who purchase at a Purple showroom location. The wholesale channel includes all product sales to the Company’s retail brick and mortar and online wholesale partners where consumers make purchases at their retail locations or through their online channels.
The following tables present the Company’s revenue disaggregated by sales channel (in thousands):
| Three Months Ended March 31, | ||||||||
| Sales Category | 2025 | 2024 | ||||||
| e-commerce | $ | $ | ||||||
| Showrooms | ||||||||
| Wholesale | ||||||||
| Revenues, net | $ | $ | ||||||
Contract Balances
Payments for the sale of products
through the direct-to-consumer e-commerce channel, Purple showrooms and our contact center are collected at point of sale in advance of
shipping the products. The amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled
$
6. Inventories
Inventories consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
10
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):
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Equipment | $ | $ | ||||||
| Equipment in progress | ||||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Office equipment | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Equipment in progress reflects
equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at March 31, 2025 or December
31, 2024. Interest capitalized on borrowings during the active construction period of major capital projects totaled $
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
The following table presents the Company’s lease costs (in thousands):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating lease costs | $ | $ | ||||||
| Variable lease costs | ||||||||
| Short-term lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
11
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The table below reconciles
the undiscounted cash flows for each of the first
| 2025 (excluding the three months ended March 31, 2025)(a) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total operating lease payments | ||||
| Less – lease payments representing interest | ( | ) | ||
| Present value of operating lease payments | $ |
| (a) | Amount consists of $ |
As of March 31, 2025 and December
31, 2024, the weighted-average remaining term of operating leases was
The following table provides supplemental information related to the Company’s unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2025 and 2024 (in thousands):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash paid for amounts included in present value of operating lease liabilities (b) | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | ||||||||
| (b) |
9. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued sales returns | $ | $ | ||||||
| Accrued sales tax and use tax | ||||||||
| Insurance financing | ||||||||
| Asset retirement obligation | ||||||||
| Other | ||||||||
| Total other current liabilities | $ | $ | ||||||
12
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. Debt
Debt consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Related party loan | $ | $ | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Total debt | ||||||||
| Current portion of debt and unamortized issuance costs | ||||||||
| Debt, net of current portion | $ | $ | ||||||
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 $
In connection with the Amended
and Restated Credit Agreement, the Company issued
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 March 31, 2025, the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.
13
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2025 Amendment
On March 12, 2025, the Loan
Parties, entered into the First Amendment to the Amended and Restated Credit Agreement (the “2025 Amendment” and the Amended
and Restated Credit Agreement as so amended, the “Amended A&R Credit Agreement”) with CCP and Blackwell Partners LLC –
Series A (“Blackwell”) (collectively the “2025 Lenders”), which amends the Amended and Restated Credit Agreement.
The 2025 Amendment, among other things, provides for an increase in the initial principal amount of the Related Party Loan by $
The 2025 Amendment also provides
that (i) the First Incremental Loan shall be senior in right of repayment to the Related Party Loan and (ii) in any voluntary or mandatory
prepayment in part or in full of the First Incremental Loan for any reason, the Company will be required to pay an amount equal to the
greater of (i) the Make-Whole Premium (as defined below) and (ii)
The 2025 Amendment requires prepayment from certain amounts of proceeds received by the Company related to asset dispositions, equity issuances, incurrence of indebtedness, and extraordinary receipts. Additionally, upon an event of default, the 2025 Lenders may declare all or any portion of the term loan then outstanding to be accelerated and due and payable, immediately, including the prepayment premium. The Company determined that these features qualify as a derivative and must be bifurcated from the debt, but such value is de minimis. The Company will reassess whether the derivative has more than a de minimis value at each reporting period.
The 2025 Amendment also
includes contingent interest upon an event of default at a rate of
In addition, the Company also
paid (i) an amendment fee equal to
In connection with the 2025 Amendment, the Company issued to the 2025
Lenders, warrants (the “2025 Warrants”) to purchase
The 2025 Amendment was evaluated and determined to be a modification of debt as the effective borrowing rate was not reduced, therefore the 2025 Lenders did not grant a concession, and the 2025 Amendment terms were not substantially different from the Amended and Restated Credit Agreement.
The Company has elected to have interest paid-in-kind and added to
the principal amount of the loans. Interest expense under the Related Party Loan and First Incremental Loan for the three months ended
March 31, 2025 and 2024 consisted of paid-in-kind interest of $
14
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
The Company used a Monte
Carlo Simulation model to determine the fair value of the liability associated with the Warrants. The model used 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.
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Trading price of common stock on measurement date | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk free interest rate | % | |||||||
| Warrant life in years | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | — | |||||||
| Probability of an event causing a warrant re-price | % | % | ||||||
The Warrants had a fair value
of $
12. Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Asset retirement obligations | $ | $ | ||||||
| Other | ||||||||
| Total other long-term liabilities | $ | $ | ||||||
15
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. The Company has accrued $
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 $
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. The bonus was awarded to incentivize retention and continued engagement with the Company during these challenging times
in the bedding industry. 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 paid as follows, subject to the employee’s continued employment with the Company:
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 amount of compensation expense in the unaudited consolidated statement of operations for the three months ended March 31, 2025 related to this future award payment.
Settlement of Insurance Claim
In January 2024, the Company
received a $
16
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 2024 Warrants, the Company entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”) with holders of the 2024 Warrants (the “2024 Holders”), providing for the registration under the Securities Act of 1933, as amended (the “Securities Act”), of the 2024 Warrants, the shares issuable upon the exercise of the 2024 Warrants and Class A common stock held by the 2024 Holders as of such date (the “Registrable Securities”), subject to customary terms and conditions. The Registration Rights Agreement entitles the 2024 Holders to demand registration of the Registrable Securities and to piggyback on the registration of securities by the Company and other Company security holders. The Company will be responsible for the payment of the 2024 Holders’ expenses in connection with any offering or sale of Registrable Securities by the 2024 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.
In connection with the issuance of the 2025 Warrants, on March 12, 2025, the Company entered into a Second Amended and Restated Registration Rights Agreement (the “2025 Registration Rights Agreement”) with CCP, Blackwell, and Coliseum Capital Co-Invest III, L.P., (the “2025 Holders”), providing for the registration under the Securities Act of the 2025 Warrants, the shares issuable upon the exercise of the 2025 Warrants, other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders as of such date (the “2025 Registrable Securities”), subject to customary terms and conditions. The 2025 Registration Rights Agreement entitles the 2025 Holders to demand registration of the 2025 Registrable Securities and also to piggyback on the registration of Company securities by the Company and other Company securityholders. The Company will be responsible for the payment of the 2025 Holders’ expenses in connection with any offering or sale of the 2025 Registrable Securities by the 2025 Holders, including underwriting discounts or selling commissions, placement agent or broker fees or similar discounts, commissions or fees relating to the sale of certain 2025 Registrable Securities.
The 2025 Registration Rights Agreement provides that on or prior to May 30, 2025 if Form S-3 is not then available to the Company, the Company will be 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.
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 June 30, 2024 estimated $
NOL Protective Charter Amendment
To further safeguard the Company’s ability to use its Current NOLs, on July 27, 2024, 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. At the Special Meeting, the Company’s stockholders approved the NOL Protective Charter Amendment. See Note 15 – Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective Charter Amendment.
17
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 $
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 $
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
$
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 pay 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. On September 30, 2024, the plaintiffs filed an amended complaint adding a claim for penalties under California’s Private Attorneys General Act. Subsequent to this, Purple LLC and the plaintiffs agreed to mediate the claims and to stay formal discovery pending mediation, which is currently scheduled to take place on May 8, 2025. Purple LLC denies all allegations and intends to vigorously defend against these claims.
On February 10, 2025, a shareholder of the Company filed a class action lawsuit in the Court of Chancery of the State of Delaware against Purple Inc. and the individual members of the Board alleging that Section 29 of the NOL Rights Plan violates Delaware General Corporate Law Sections 102(b)(7) and 141(a). The suit seeks declaratory relief, attorneys’ fees, costs, and other relief on behalf of the class. The Company denies all allegations and intends to vigorously defend against these claims.
18
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On February 26, 2025, a consumer filed a class action lawsuit in the U.S. District Court, Eastern District of New York, against Purple LLC alleging website accessibility violations under the ADA and state law. The lawsuit seeks declaratory relief, class certification, attorneys’ fees, costs, and other relief on behalf of the class. Purple LLC denies all allegations and intends to vigorously defend against these claims.
On April 15, 2025, a consumer filed a class action lawsuit in the U.S. District Court, District of Minnesota, against Purple LLC alleging website accessibility violations under the ADA and state law. The lawsuit seeks declaratory relief, class certification, attorneys’ fees, costs, and other relief on behalf of the class. Purple LLC denies all allegations and intends to vigorously defend against these claims.
The Company and Purple LLC are 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.
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 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 and 2025 Lenders under the 2025 Amendment included CCP and Blackwell. See Note 10— Debt—2024 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.
15. Stockholders’ Equity
Class A Common Stock
The Company has
Class B Common Stock
The Company has
19
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Preferred Stock
The Company has
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 $
The NOL Rights Plan provided
for the issuance of 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 $
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
The Rights will expire on
the earliest to occur of (i) the close of business on June 30, 2025; (ii) the time at which the Rights are redeemed (as discussed below)
or exchanged by the Company; (iii) the repeal of Code Section 382, if the Board determines that the NOL Rights Plan 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 $
The initial issuance of the Rights as a dividend had no tax, financial accounting or reporting impact. The fair value of the Rights is nominal, since the Rights were 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 therefore are not being accounted for as a long-term obligation. Accordingly, unless the Rights become exercisable upon the occurrence of the Distribution Time as discussed above, the NOL Rights Plan and the Rights issued thereunder have no impact on the Company’s unaudited consolidated financial statements.
20
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
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.
Warrants
In connection with the Amended
and Restated Credit Agreement, the Company issued
Noncontrolling Interest
Noncontrolling interest (“NCI”)
is the membership interest in Purple LLC held by holders other than the Company. At March 31, 2025 and December 31, 2024, the combined
NCI percentage in Purple LLC was
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.
The Company reported de minimis income tax expense on a pretax loss of
$
21
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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
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
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 March 31, 2025, the Company had unrecognized tax benefits of $
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 March 31, | ||||||||
| 2025 | 2024 | |||||||
| Numerator: | ||||||||
| Net loss attributable to Purple Innovation, Inc. – basic | $ | ( | ) | $ | ( | ) | ||
| Less – net loss attributed to noncontrolling interest | ||||||||
| Net loss attributable to Purple Innovation, Inc. – diluted | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average shares—basic | ||||||||
| Add – dilutive effect of Class B shares | ||||||||
| Weighted average shares—diluted | ||||||||
| Net loss per common share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
The Company excludes from
the diluted net loss per common share computation potentially dilutive securities related to warrants, equity awards and convertible shares
of Class B common stock 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.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Warrants | ||||||||
| Restricted stock units | ||||||||
| Stock Options | ||||||||
| Class B Shares | ||||||||
22
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, are eligible for grants under the 2017 Plan. As of March 31, 2025, an aggregate of
Employee Stock Options
The following table summarizes the Company’s total stock option activity for the three months ended March 31, 2025:
| Options (in thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term in Years | Intrinsic Value (in thousands) | |||||||||||||
| Options outstanding as of January 1, 2025 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Options outstanding as of March 31, 2025 | $ | $ | ||||||||||||||
Outstanding and exercisable stock options as of March 31, 2025 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) | |||||||||||||||||
| $ | $ | |||||||||||||||||||||
The following table summarizes the Company’s unvested stock option activity for the three months ended March 31, 2025:
| Options (in thousands) |
Weighted Average Grant Date Fair Value |
|||||||
| Nonvested options as of January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Nonvested options as of March 31, 2025 | $ | |||||||
23
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The estimated fair value of Company stock options is amortized over the options vesting period on a straight-line basis. Stock option expense was de minimis for the three months ended March 31, 2025 and 2024.
As of March 31, 2025, outstanding
stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of
Employee Restricted Stock Units
During the three months ended
March 31, 2025, the Company granted
The following table summarizes the Company’s restricted stock unit activity for the three months ended March 31, 2025:
| Number Outstanding (in thousands) | Weighted Average Grant Date Fair Value | |||||||
| Nonvested restricted stock units as of January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested restricted stock units as of March 31, 2025 | $ | |||||||
The Company recorded restricted
stock unit expense of $
For restricted stock units
outstanding as of March 31, 2025, there were $
24
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 March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cost of revenues | $ | $ | ||||||
| Marketing and sales | ( | ) | ||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total non-cash stock-based compensation | $ | $ | ||||||
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
20. Segment Information and Concentrations
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 has
The accounting policies for the Company’s one segment are the same as those described in Note 2 – Summary of Significant Accounting Policies. The CODM assesses performance for the segment and decides how to allocate resources based on consolidated net income or loss as reported in the consolidated statement of operations. The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. The Company does not have intra-entity sales or transfers.
The CODM uses consolidated net income (loss) to evaluate earnings generated from segment assets (return on assets) in deciding whether to reinvest profits into its single reportable segment or into other parts of the entity, such as for acquisitions. Consolidated net income (loss) is also used to monitor budget versus actual results. The monitoring of budgeted versus actual results are used in assessing the segment’s performance and in establishing management’s compensation.
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PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes segment revenue, significant segment expenses, other segment items and segment profit or loss (in thousands):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues, net | $ | |||||||
| Reductions (additions): | ||||||||
| Cost of revenues | ||||||||
| Cost of revenues – restructuring related charges | ||||||||
| Advertising expense | ||||||||
| Marketing sales expense | ||||||||
| Wholesale marketing and sales expense | ||||||||
| Showrooms marketing and sales expense | ||||||||
| General and administrative expense | ||||||||
| Research and development expense | ||||||||
| Restructuring, impairment and other related charges | ||||||||
| Other segment items, net (d) | ||||||||
| Income tax expense | ||||||||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net reductions | ||||||||
| Segment net loss | $ | ( | ) | $ | ( | ) | ||
| (d) |
The Company classifies products
into two major categories: sleep products and other. Sleep products include mattresses, platforms, adjustable bases, mattress protectors,
pillows and sheets. Other products include cushions and various other products. In the three months ended March 31, 2025 and 2024 sales
of other products accounted for less than
The Company defines international revenues as sales to customers located outside of the United States. In the three months ended March 31, 2025 and 2024 international customers accounted for less than % of net revenues.
The Company had one individual
customer that accounted for approximately
The Company currently obtains materials and components used in production from outside sources. As a result, the Company is dependent upon suppliers that in some instances, are the sole source of supply. The Company is continuing efforts to dual-source key components. The failure of one or more of the Company’s suppliers to provide materials or components on a timely basis could significantly impact the results of operations. The Company believes that it can obtain these raw materials and components from other sources of supply in the ordinary course of business, although an unexpected loss of supply over a short period of time may not allow for the replacement of these sources in the ordinary course of business.
The Company maintains its
cash balances in financial institutions based in the United States that are insured by the Federal Deposit Insurance Corporation (FDIC)
up to $
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21. Subsequent Events
Second 2025 Amendment
On May 2, 2025, the Loan Parties entered into a Second Amendment to
the Amended and Restated Credit Agreement (the “Second 2025 Amendment”) with the 2025 Lenders, which amends the Amended A&R
Credit Agreement. The Second 2025 Amendment, among other things, provides for a commitment increase pursuant to Section 2.18 of the Amended
A&R Credit Agreement in the initial principal amount of the senior secured term loan facility by $
The Second 2025 Amendment
also provides that (i) the Second Incremental Loan shall be senior in right of repayment to the initial $
In addition, the Company also
paid (i) an amendment fee equal to
In connection with the Second
2025 Amendment, the Company issued to the 2025 Lenders, warrants (the “2025 Additional Warrants”) to purchase
SGI Commercial Arrangements
On May 2, 2025, the Company entered into a Second Amendment to Master Retailer Agreement (the “MRA Amendment”) with Mattress Firm, a business unit of SGI, which provides that SGI, through its Mattress Firm stores, will expand its inventory of the Company’s products across its national store network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots. Also on May 2, 2025, the Company entered into an Amended and Restated Master Vendor Supply and Services Agreement (the “Sherwood Agreement” and together with the MRA Amendment the “SGI Agreements”) with Tempur Sherwood, LLC, a subsidiary of Tempur Sealy. The Sherwood Agreement provides that Tempur Sherwood, LLC will have the exclusive right to assemble certain product lines that the Company sells to Mattress Firm.
In connection with the SGI Agreements, the Company issued to SGI warrants
to purchase
Early Termination of the NOL Rights Plan and NOL Protective Charter Amendment
On May 6, 2025, the Board accelerated the expiration date of the NOL Rights Plan and the NOL Protective Charter Amendment to May 7, 2025. In conjunction with the termination of the NOL Rights Plan, the Company filed a Certificate of Elimination eliminating the Series C Junior Participating Preferred Stock, effective May 7, 2025.
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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.” Capitalized terms used in this “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and not otherwise defined shall have the meanings set forth 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, and Section 21E of the Securities Exchange Act of 1934, as amended (“the “Exchange Act”), 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 hereof. 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 SEC on March 14, 2025. 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 deliver the greatest sleep ever invented.
We began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and have since expanded into brick & mortar stores as a true omni-channel brand. We offer a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets and more. Our products are the result of decades 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 products from our competitors. Specially engineered to relieve pressure, maintain an ideal body temperature, and provide instantly adaptive support, Purple’s patented technology has been tested rigorously within medical and consumer applications for over 30 years. Originally designed for use in hospital beds and wheelchairs, we adapted this unique pressure-relieving material for our mattresses, pillows and other cushion products.
We market and sell our products via our direct-to-consumer channel, which includes Purple.com (our direct-to-consumer e-commerce), Purple showrooms, our customer contact center and online marketplaces (collectively “DTC”), and our wholesale channel through retail brick-and-mortar and online wholesale partners.
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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 March 31, 2025, Purple Inc. had a 99.85% economic ownership interest in Purple LLC while Class B unit holders had the remaining 0.15%.
Recent Developments in Our Business
Operational Developments
Our first quarter 2025 revenue was down from last year as softness in our e-commerce and wholesale channels continue. Revenue from our showrooms channel increased for the second consecutive quarter of year-over-year growth. Gross margins continue to improve as we realize the benefits from ongoing sourcing initiatives, production efficiencies and the full integration of our consolidated manufacturing operations. Operating expenses continue to decline as we have implemented numerous cost reduction efforts and closely manage our costs with disciplined cost controls.
Earlier this year, we announced the re-launching of our Rejuvenate line in the second quarter 2025 through our DTC channels, followed by a full wholesale channel roll-out expected to be complete by the third quarter 2025. The new Rejuvenate 2.0 will have a newly innovated grid technology that when stacked with our original GelFlex grid, creates a unique combination that we believe will continue to differentiate us in the market while driving superior comfort and support for an even more premium sleep experience.
On May 2, 2025, we entered into a Second Amendment to Master Retailer Agreement (the “MRA Amendment”) with Mattress Firm, Inc. (“Mattress Firm”), a business unit of Somnigroup International, Inc. (“SGI”), which provides that SGI, through its Mattress Firm stores, will expand its inventory of our products across its national store network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots. We expect that this increased retail presence in Mattress Firm stores will generate approximately $70 million in incremental net revenue beginning in 2026. Also on May 2, 2025, we entered into an Amended and Restated Master Vendor Supply and Services Agreement (the “Sherwood Agreement” and together with the MRA Amendment the “SGI Agreements”) with Tempur Sherwood, LLC, a subsidiary of Tempur Sealy. The Sherwood Agreement provides that Tempur Sherwood, LLC will have the exclusive right to assemble certain product lines that the Company sells to Mattress Firm.
Restructuring Activities
In August 2024, we initiated the Restructuring Plan to strategically realign our operational focus to achieve efficiencies in our operations that are expected to improve profitability and provide for reinvesting in technology and marketing initiatives. The Restructuring Plan includes the permanent closure of both Utah manufacturing facilities to consolidate mattress production in our Georgia plant, and a headcount reduction at our Utah headquarters to drive additional operating efficiencies. Closure of the two Utah manufacturing facilities is projected to be completed in the second quarter of 2025 while consolidation into the Georgia facility was finalized in December 2024. The reduction in workforce at our Utah headquarters was completed in August 2024. During the three months ended March 31, 2025, we recognized $2.9 million in costs relating to the Restructuring Plan, which included $1.9 million of moving and transition related costs, $0.6 million related to disposal of long-lived assets or equipment in progress that will not be put in service, $0.2 million in employee related costs, and $0.2 million in accelerated depreciation. We expect to record additional restructuring and other related charges in the amount of $3.0 million in the second quarter of 2025. These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plans. Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring, impairment or other related charges not reflected.
In addition, we continue to implement additional cost savings measures in 2025 beyond those implemented pursuant to our 2024 Restructuring Plan.
Debt Financings
On March 12, 2025, Purple LLC, Purple Inc. and Intellibed (collectively, the “Loan Parties”), entered into an Amendment to the Amended and Restated Credit Agreement (the “2025 Amendment”) with Coliseum Capital Partners (“CCP”) and Blackwell Partners LLC – Series A (“Blackwell”) (collectively the “2025 Lenders”), which amends the Amended and Restated Credit Agreement. The Amendment, among other things, provides for an increase in the initial principal amount of the Related Party Loan by $19.0 million (the “First Incremental Loan”) from an initial Related Party Loan principal amount of $61.0 million to an initial aggregate principal amount of $80.0 million, and allows the Loan Parties to request one or more additional term loans from CCP, Blackwell and other lenders (collectively, the “Lenders”) in an initial aggregate principal amount not to exceed $20.0 million on terms to be agreed to by the parties and subject to the approval of the Required Lenders (as defined in the Amended and Restated Credit Agreement). The First Incremental Loan will bear interest at the same rate as the Initial Loan, which may be paid in cash or in kind at our option.
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The 2025 Amendment also provides that (i) the First Incremental Loan shall be senior in right of repayment to the Related Party Loan and (ii) in any voluntary or mandatory prepayment in part or in full of the First Incremental Loan for any reason, the Company will be required to pay an amount equal to the greater of (i) the Make-Whole Premium (as defined below) and (ii) 2.50% of the aggregate principal amount of the First Incremental Loan so prepaid, replaced or assigned. The “Make-Whole Premium” is determined as follows: on the date of prepayment, the excess of (A) (x) 100% of the principal amount of such First Incremental Loan, plus (y) the present value at such date of all remaining scheduled interest payments due on such First Incremental Loan from the prepayment date through the maturity date, assuming that all such interest accrues at the Make-Whole Premium Rate (as defined in the 2025 Amendment), computed using a discount rate equal to the Treasury Rate as of such prepayment date plus 50 basis points, over (B) the principal amount of such First Incremental Loan on such prepayment date.
In addition, we also paid (i) an amendment fee equal to 2% of the outstanding principal and accrued and unpaid interest under the Related Party Loan held by the 2025 Lenders, paid in kind and (ii) a 2% work fee of the initial aggregate principal amount of the First Incremental Loan paid to the 2025 Lenders, deducted from the proceeds at closing. Total fees and expenses of $2.1 million were recorded as debt issuance costs in March 2025.
In connection with the 2025 Amendment, we issued to the 2025 Lenders, warrants (the “2025 Warrants”) to purchase 6.2 million shares of our Class A common stock at a price of $1.50 per share, subject to certain adjustments (see Note 11 – Warrant Liabilities). These warrants include full-ratchet anti-dilution protections, subject to a floor of $0.6979 with respect to adjustments to the exercise price and expire on March 12, 2035.
On May 2, 2025, the Loan Parties entered into a Second Amendment to the Amended and Restated Credit Agreement (the “Second 2025 Amendment”) with the 2025 Lenders (as defined in the Second 2025 Amendment), which amends the Amended A&R Credit Agreement. The Second 2025 Amendment, among other things, provides for a commitment increase pursuant to Section 2.18 of the Amended A&R Credit Agreement in the initial principal amount of the senior secured term loan facility by $20.0 million (the “Second Incremental Loan”) from an aggregate principal amount of up to $80.0 million (the “Existing Loan”) to an initial aggregate principal amount of up to $100.0 million (the “Loan”) and allows the Loan Parties to request one or more additional term loans from the Lenders in an initial aggregate principal amount not to exceed $20.0 million on terms to be agreed to by the parties and subject to the approval of the Required Lenders (as defined in the Amended A&R Credit Agreement). The Second Incremental Loan will bear interest at the same rate as the Existing Loan, which may be paid in cash or in kind at our option.
The Second 2025 Amendment also provides that (i) the Second Incremental Loan shall be senior in right of repayment to the initial $61.0 million loan under the Amended and Restated Credit Agreement and pari passu with the First Incremental Loan and (ii) in any voluntary or mandatory prepayment in part or in full of the Second Incremental Loan for any reason, the Company will be required to pay an amount equal to the greater of (a) the Make-Whole Premium (as defined below) and (b) 2.5% of the aggregate principal amount of the Second Incremental Loan so prepaid, replaced or assigned. The “Make-Whole Premium” is determined as follows: on the date of prepayment, the excess of (A) (x) 100% of the principal amount of such Second Incremental Loan, plus (y) the present value at such date of all remaining scheduled interest payments due on such Second Incremental Loan from the prepayment date through the maturity date, assuming that all such interest accrues at the Make-Whole Premium Rate (as defined in the Second 2025 Amendment), computed using a discount rate equal to the Treasury Rate as of such prepayment date plus 50 basis points, over (B) the principal amount of such Second Incremental Loan on such prepayment date.
In addition, we also paid (i) an amendment fee equal to 0.25% of the outstanding principal and accrued and unpaid interest under the Existing Loan, paid in kind to the 2025 Lenders, (ii) a work fee equal to 0.1% of the outstanding principal and accrued and unpaid interest under the Existing Loan, paid in cash to the Required Lenders, (iii) a waiver fee, to induce the Required Lenders to waive certain preemptive and right of first refusal rights, equal to 0.15% of the outstanding principal and accrued and unpaid interest under the Existing Loan, paid in cash to the Required Lenders, and (iv) a commitment fee equal to $150,000, paid in cash to the Required Lenders.
In connection with the Second 2025 Amendment, we issued to the 2025 Lenders, warrants (the “2025 Additional Warrants”) to purchase 6.6 million shares of our Class A common stock at a price of $1.50 per share, subject to certain adjustments. These 2025 Additional Warrants include full-ratchet anti-dilution protections, subject to a floor of $0.6979 with respect to adjustments to the exercise price and expire on March 12, 2035.
Warrants
In connection with the 2025 Amendment, we issued to the 2025 Lenders the 2025 Warrants to purchase 6.2 million shares of our Class A common stock. Each 2025 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 with a floor of $0.6979 and expire on March 12, 2025. The 2025 Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for the 2025 Warrants was recorded at a fair value of $5.4 million 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. During the three months ended March 31, 2025, we incurred a loss of $0.2 million due to the increase in the fair value of the 2025 Warrants outstanding at March 31, 2025.
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In connection with the Second 2025 Amendment, we issued to the 2025 Lenders the 2025 Additional Warrants to purchase 6.6 million shares of our Class A common stock. Each 2025 Additional 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 with a floor of $0.6979 and expire on March 12, 2035.
In connection with the SGI Agreement, we issued to SGI, warrants to purchase 8.0 million shares of our Class A common stock at a strike price of $1.50 per share (the “SGI Warrants”). The SGI Warrants include full-ratchet anti-dilution protections, subject to a floor of $0.6979 with respect to adjustments to the exercise price and expire on March 12, 2035.
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.
Registration Rights Agreements
In connection with the issuance of the 2025 Warrants, on March 12, 2025, we entered into a Second Amended and Restated Registration Rights Agreement (the “2025 Registration Rights Agreement”) with CCP, Blackwell, and Coliseum Capital Co-Invest III, L.P., (the “2025 Holders”), providing for the registration under the Securities Act of the 2025 Warrants, the shares issuable upon the exercise of the 2025 Warrants, other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders as of such date (the “2025 Registrable Securities”), subject to customary terms and conditions.
In connection with the issuance of the 2025 Additional Warrants, on May 2, 2025, we entered into a Third Amended and Restated Registration Rights Agreement (the “2025 Amended Registration Rights Agreement”) with the 2025 Holders, providing for the registration under the Securities Act of the 2025 Additional Warrants, the shares issuable upon the exercise of the 2025 Additional Warrants, other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders as of such date (the “2025 Additional Registrable Securities”), subject to customary terms and conditions.
In connection with the issuance of the SGI Warrants, on May 2, 2025, we entered into a Registration Rights Agreement (the “SGI Registration Rights Agreement” and collectively with the 2025 Registration Rights Agreement and 2025 Amended Registration Rights Agreement, the “Registration Rights Agreements”) with SGI, providing for the registration under the Securities Act of the SGI Warrants, the shares issuable upon the exercise of the SGI Warrants, and the Class A common stock held by SGI as of such date (the “SGI Registrable Securities” and collectively with the 2025 Registrable Securities and 2025 Additional Registrable Securities, the “Registrable Securities”), subject to customary terms and conditions.
The Registration Rights Agreements entitle the investors party thereto to demand registration of the Registrable Securities and also to piggyback on the registration of Company securities by us and other Company securityholders. We will be responsible for the payment of the investors’ expenses in connection with any offering or sale of Registrable Securities, 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 Agreements provide that on or prior to May 30, 2025, or July 16, 2025, if Form S-3 is not then available, we will be 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.
NOL Rights Plan
On June 27, 2024, our Board of Directors (“Board”) adopted, and we entered into, a limited-duration stockholder rights agreement (the “NOL Rights Plan”) with a stated expiration date of June 30, 2025. Our Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use our June 30, 2024 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 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, our 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. The NOL Rights Plan was ratified at a special meeting of our stockholders on October 15, 2024 (the “Special Meeting”). On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan and the NOL Protective Charter Amendment, to May 7, 2025.
NOL Protective Charter Amendment
In connection with the NOL Rights Plan, our Board adopted a 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 Protective Charter Amendment was approved by our stockholders at the Special Meeting. On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan and the NOL Protective Charter Amendment to May 7, 2025.
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Review of Strategic Alternatives
We regularly engage in dialogue with market participants regarding potential business combinations, partnerships and other strategic alternatives. Based on certain recent preliminary inquiries, the Board has formed a special committee of independent directors and we have engaged a financial advisor to support them in evaluating any indications of interest and exploring other potential strategic alternatives. If we are unsuccessful in engaging in a favorable strategic alternative, then our ability to grow our business and compete with larger, including combined, competitors may be adversely affected.
Impact of United States Tariff Policy
We continue to closely monitor the potential impact of recent United States tariff policies. Importantly, all of our mattresses are manufactured in the United States, and about 15% of our cost of goods is tied to products sourced from overseas. This limited exposure is primarily concentrated in the textile side of the business, which includes sheets and mattress covers, but also includes the import of bases and foundations. Based on current tariff rates, we estimate the potential annual cost impact to be approximately $10 million. The tariff landscape remains fluid, and we are actively evaluating sourcing alternatives and pricing strategies on a case-by-case basis, which we believe will mitigate at least a portion of expected costs increases. We believe that our vertically integrated model and strong vendor relationships give us the flexibility to remain agile and responsive to changes in tariff policies, and we believe that we will be able to mitigate these impacts through a combination of supply chain repositioning, vendor collaborations, and selective pricing actions.
Executive Summary – Results of Operations
Net revenues decreased $15.9 million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March 31, 2024. The drop in revenue was primarily driven by industry-wide demand softness for home-related products. From a sales channel perspective, e-commerce net revenues decreased $4.1 million, or 8.2%, and wholesale net revenues decreased $13.0 million, or 24.2%, respectively. This decrease was partially offset by our showrooms channel net revenue increase of $1.2 million or 7.4%. The increase in our showrooms channel represents an 11.0% year-over-year increase for all stores that have been open for 13 or more months. This is the second consecutive quarter of year-over-year growth in the showrooms channel, driven by increased order values through effective upselling and product bundling.
Gross profit decreased $0.7 million, or 1.6%, to $41.0 million for the three months ended March 31, 2025 compared to $41.7 million for the three months ended March 31, 2024. Our gross profit percentage increased to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, from improved production effectiveness due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry a higher average selling price than sales from our wholesale channels. During the three months ended March 31, 2025, we incurred $0.9 million in costs associated with the Restructuring Plan. We expect to record additional cost of revenue restructuring related charges in the amount of $1.4 million through the second quarter of 2025. These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plans. Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.
Operating expenses decreased $9.3 million, or 14.4% to $55.5 million for the three months ended March 31, 2025 compared to $64.9 million for the three months ended March 31, 2024. This decrease was driven by $4.8 million decrease in employee related expenses, $3.8 million decrease in legal and consulting fees and $0.8 million decrease in all other operating expenses. These decreases are the result of our restructuring efforts, the in-sourcing of certain functions in marketing and finance and other cost reduction efforts.
Other expense, net decreased $22.4 million, or 82.8% to $4.6 million for the three months ended March 31, 2025 compared to $27.1 million for the three months ended March 31, 2024. The other expense, net in the first quarter of 2025 consists of interest expense of $4.8 million, partially offset by $0.1 in other income and gain on change in fair value of warrants. The other expense, net in the first quarter of 2024 consists of $23.6 million loss on change in fair value of warrants, $4.5 million in interest expense, $3.4 million loss on extinguishment of debt, partially offset by $4.4 million in other income. Net loss attributable to Purple Inc. was $19.1 million for the three months ended March 31, 2025 compared to a net loss of $50.2 million for the three months ended March 31, 2024. The $31.1 million decrease in net loss was primarily due to increased gross margin and reduced operating expenses as we are realizing the benefits from our Restructuring Plan, supply chain initiatives, operational efficiency improvements and other cost reduction efforts throughout the Company and the decrease in loss from change in fair value of the warrants.
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Outlook for Growth
We believe, given the Restructuring Plan and our new grid innovation, that we are well positioned to grow our business in this challenging market. We are focused on the following three key initiatives to drive sustainable and profitable market share:
| ● | Pioneer new technologies to maintain our competitive advantage. Our strategy focuses on offering a differentiated product that provides unique benefits and higher customer satisfaction, all fueled by our proprietary flexible gel technology. Advancements and innovation in our grid technology has led to a new grid technology marking a significant advancement in our product lineup. Our new DreamLayer grid, stacked with our original grid, creates a unique combination that continues to differentiate us in the market while driving superior comfort and support for an even more premium sleep experience. This upgrade will result in a refresh of our current Rejuvenate line. The new Rejuvenate 2.0 collection launches in the second quarter 2025 through our direct-to-consumer channels, followed by a full wholesale roll-out expected to be complete by the third quarter 2025. In addition, we are significantly expanding our distribution of pillows by launching our renowned DreamLayer and Freeform pillows into our wholesale channel. |
| ● | Promote our product differentiation to drive sales. We started as a brand built on differentiation. In recent years, the category has relied extensively on discount messaging to attract customers, with less focus on product benefits. Our goal is to refocus our messaging to lead with our product differentiation. We intend to effectively articulate the unique qualities of sleeping on our gel grid layer to be more effective and reach more consumers. In our selling channels, we expect refocusing our messaging on promoting our differentiation will drive more and better quality traffic while improving conversion both online and in stores, and increase our share of retailer sales in our wholesale channel. |
| ● | Prioritize gross margin improvements. We expect continued gross margin gains to come from driving cost savings through plant consolidation efficiency gains, supplier diversification efforts, and improved scrap and yield results from continuous improvements efforts. We are also ramping up in-house pillow production, changing vendors for key mattress components like coils and mattress covers and improving our delivery program to drive cost improvements and better deliveries. These savings will enable us to reinvest in innovation and marketing to drive growth. |
There is no guarantee that we will be able to effectively execute on 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 SEC on March 14, 2025 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 March 31, 2025 and 2024
The following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our unaudited condensed consolidated statements of operations (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||||
| 2025 | % of Net Revenues | 2024 | % of Net Revenues | |||||||||||||
| Revenues, net | $ | 104,171 | 100.0 | % | $ | 120,033 | 100.0 | % | ||||||||
| Cost of revenues: | ||||||||||||||||
| Cost of revenues | 62,207 | 59.7 | 78,313 | 65.2 | ||||||||||||
| Cost of revenues - restructuring related charges | 918 | 0.9 | — | — | ||||||||||||
| Total cost of revenues | 63,125 | 60.6 | 78,313 | 65.2 | ||||||||||||
| Gross profit | 41,046 | 39.4 | 41,720 | 34.8 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Marketing and sales | 36,626 | 35.2 | 41,462 | 34.5 | ||||||||||||
| General and administrative | 14,487 | 13.9 | 19,728 | 16.4 | ||||||||||||
| Research and development | 2,452 | 2.4 | 3,666 | 3.1 | ||||||||||||
| Restructuring, impairment and other related charges | 1,960 | 1.9 | — | — | ||||||||||||
| Total operating expenses | 55,525 | 53.3 | 64,856 | 54.0 | ||||||||||||
| Operating loss | (14,479 | ) | (13.9 | ) | (23,136 | ) | (19.3 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (4,764 | ) | (4.6 | ) | (4,474 | ) | (3.7 | ) | ||||||||
| Other income, net | 69 | 0.1 | 4,394 | 3.7 | ||||||||||||
| Loss on extinguishment of debt | — | — | (3,394 | ) | (2.8 | ) | ||||||||||
| Change in fair value – warrant liabilities | 49 | — | (23,599 | ) | (19.7 | ) | ||||||||||
| Total other income (expense), net | (4,646 | ) | (4.5 | ) | (27,073 | ) | (22.6 | ) | ||||||||
| Net loss before income taxes | (19,125 | ) | (18.4 | ) | (50,209 | ) | (41.8 | ) | ||||||||
| Income tax expense | (41 | ) | — | (59 | ) | — | ||||||||||
| Net loss | (19,166 | ) | (18.4 | ) | (50,268 | ) | (41.9 | ) | ||||||||
| Net loss attributable to noncontrolling interest | (29 | ) | — | (51 | ) | — | ||||||||||
| Net loss attributable to Purple Innovation, Inc. | $ | (19,137 | ) | (18.3 | ) | $ | (50,217 | ) | (41.8 | ) | ||||||
Revenues, Net
Net revenues decreased $15.9 million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March 31, 2024. This decrease was primarily driven by the continuing industry-wide demand softness for home-related products. From a sales channel perspective, e-commerce net revenues decreased $4.1 million, or 8.2%, showrooms net revenues increased $1.2 million, or 7.4%, and wholesale net revenues decreased $13.0 million, or 24.2%.
Total Cost of Revenues
Total cost of revenues decreased $15.2 million, or 19.4%, to $63.1 million for the three months ended March 31, 2025, compared to $78.3 million for the three months ended March 31, 2024. This decrease was due primarily to reduced sales volumes coupled with lower production costs that were largely attributable to supply chain initiatives and operational efficiency improvements implemented over the last 12 months. Our gross profit percentage, increased to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, due to improved production effectiveness due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry a higher average selling price than sales from our wholesale channels. During the three months ended March 31, 2025, we incurred $0.9 million in costs associated with the Restructuring Plan. We expect to record additional cost of revenue restructuring related charges in the amount of $1.4 million through the second quarter of 2025. These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plans. Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.
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Marketing and Sales
Marketing and sales expense decreased $4.8 million, or 11.7%, to $36.6 million for the three months ended March 31, 2025 compared to $41.5 million for the three months ended March 31, 2024. This decrease primarily consisted of a $2.2 million decrease in employee related costs due to headcount reductions, $1.3 million decrease in wholesale marketing and sales expenses, a $0.9 million decrease in showrooms marketing and sales expenses and $0.4 million decrease in all other marketing and sales expenses. Advertising expense remained consistent between the two period at $14.6 million and $14.5 million for the three months ended March 31, 2025 and 2024, respectively.
General and Administrative
General and administrative expense decreased $5.2 million, or 26.6%, to $14.5 million for the three months ended March 31, 2025 compared to $19.7 million for the three months ended March 31, 2024. This decrease was due to a $2.3 million decrease in employee related costs due to headcount reductions, $1.7 million decrease in consulting fees, $0.8 million reduction in legal fees and $0.4 million decrease in all other general and administrative expenses.
Research and Development
Research and development expense decreased $1.2 million, or 33.1%, to $2.5 million for the three months ended March 31, 2025 compared to $3.7 million for the three months ended March 31, 2024. This decrease is the result of a $0.3 million decrease in employee related costs due to headcount reductions and a $0.9 million decrease in other product development expenses as we focused on specific product development projects.
Restructuring, Impairment and Other Related Charges
In August 2024, we initiated a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress production in our Georgia plant. The Restructuring Plan also provided for a headcount reduction at our Utah headquarters to drive additional operating efficiencies. The $2.0 million of restructuring and impairment charges recorded during the first quarter of 2025 included $1.2 million of moving and transition related costs, $0.6 million related to disposal of long-lived assets or equipment in progress that will not be put in service, and $0.2 million in employee related costs. We expect to record additional restructuring and other related charges in the amount of $1.6 million in the second quarter of 2025 related to continued moving and transition costs.
These charges include certain estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution of our plans. Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring, impairment or other related charges not reflected.
Operating Loss
Operating loss decreased $8.7 million, or 37.4%, to $14.5 million, for the three months ended March 31, 2025 compared to $23.1 million for the three months ended March 31, 2024. This decrease in our operating loss is the result of the benefits realized through our Restructuring Plan, supply chain initiatives, operational efficiency improvements and other cost reduction efforts throughout the Company.
Interest Expense
Interest expense totaled $4.8 million for the three months ended March 31, 2025 compared to $4.5 million for the three months ended March 31, 2024. This increase was primarily due to additional interest incurred on a higher principal balance on the Related Party Loan as the Company elected the paid-in-kind option on monthly interest over the past 12 months.
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Other Income, Net
Other income decreased to $0.1 million for the three months ended March 31, 2025 compared to $4.4 million for the three months ended March 31, 2024. This decrease was mainly due to $4.2 million of proceeds received in January 2024 for a partial settlement amount pursuant to 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 relating to the 2023 credit agreements were recorded as loss on extinguishment of debt in the first quarter of 2024.
Change in Fair Value – Warrant Liabilities
In March 2025 and January 2024, in connection with the loans, we issued 6.2 million and 20.0 million warrants, respectively, to the various lenders. These Warrants contained certain provisions that did not meet the criteria for equity classification and therefore are recorded as liabilities with a re-measurement of fair value at each reporting date. For the three months ended March 31, 2025, we recognized a negligible gain related to the net decrease in fair value of the warrant liability comprised of a decrease in fair value of $0.3 million for the warrants issued in 2024 partially offset by an increase in fair value of $0.2 million from the March 2025 issuance date for the warrants issued in March 2025. For the three months ended March 31, 2024, we recognized a $23.6 million loss related to the increase in the fair value of the warrants from the January 2024 issuance date.
Income Tax (Expense) Benefit
We had a de minimis income tax expense for the three months ended March 31, 2025 compared to $0.1 million income tax expense for the three months ended March 31, 2024. The income tax expense amounts in both the first quarter of 2025 and 2024 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 negligible for the three months ended March 31, 2025 and $0.1 million for the three months ended March 31, 2024.
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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 various loan agreements. Principal uses of funds consist of capital expenditures, working capital needs and operating lease payment obligations. In accordance with the terms of our various agreements, we have elected to pay interest in kind on our loans 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 $21.6 million and $29.8 million, respectively, as of March 31, 2025 compared to $29.0 million and $25.4 million, respectively, as of December 31, 2024. Cash used for capital expenditures totaled $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively. Our capital expenditures in the first quarter of 2025 have primarily consisted of additional investments made in our manufacturing operations and showrooms facilities. Additional details about our loan agreements are described above under “Recent Developments in our Business – Debt Financing.”
Our financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. In connection with our preparation of our unaudited condensed consolidated financial statements for the three months ended March 31, 2025, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to our ability to continue as a going concern within one year after the date of the issuance of such financial statements. We had cash and cash equivalents of approximately $21.6 million and an accumulated deficit of $593.0 million at March 31, 2025, a net loss of $19.1 million and net cash used in operating and investing activities of $25.2 million for the three months ended March 31, 2025. We entered into the 2025 Amendment and the Second 2025 Amendment, pursuant to which we received an aggregate of $39.0 million in additional term loan proceeds from the 2025 Lenders.
We have also taken a number of other actions to increase cash flow. In August 2024, we implemented the Restructuring Plan to consolidate manufacturing operations to create efficiencies and cost savings. We have realized and plan to continue to realize direct material cost savings through supply chain initiatives and supplier diversification efforts. We have taken additional cost-saving initiatives in the first quarter of 2025 to maintain liquidity to support our operations and strategies. Additionally, we entered into an agreement with Mattress Firm, a business unit of SGI to expand its inventory of our products across SGI’s national store network from approximately 5,000 mattress slots to a minimum of 12,000 mattress slots.
Accordingly, we concluded that we will have sufficient liquidity to fund our operations for at least one year from the date of this Quarterly Report on Form 10-Q.
Although we currently expect our sources of capital to be sufficient to meet our near-term liquidity needs, there can be no assurance that such sources will be sufficient to satisfy our liquidity requirements in the future. If we cannot generate or obtain needed funds, we might be forced to make substantial reductions in our operating and capital expenses or pursue restructuring plans, which could adversely affect our business operations and ability to execute our current business strategy.
Other Contractual Obligations
Other material contractual obligations primarily include operating lease payment obligations. See Note 8 - Leases of the unaudited condensed consolidated financial statements for additional information on leases.
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Cash Flows for the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024
The following summarizes our cash flows for the three months ended March 31, 2025 and 2024 as reported in our unaudited condensed consolidated statements of cash flows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (23,070 | ) | $ | (16,814 | ) | ||
| Net cash used in investing activities | (2,144 | ) | (3,100 | ) | ||||
| Net cash provided by financing activities | 17,830 | 27,534 | ||||||
| Net increase (decrease) in cash | (7,384 | ) | 7,620 | |||||
| Cash, beginning of the period | 29,011 | 26,857 | ||||||
| Cash, end of the period | $ | 21,627 | $ | 34,477 | ||||
Cash used in operating activities was $23.1 million and $16.8 million for the three months ended March 31, 2025 and 2024, respectively. Significant components of the year-over-year change in cash used in operating activities included a $11.0 million increase in cash used in the changes in operating assets, and liabilities partially offset by a $31.1 million decrease in net loss and a $26.4 million decrease of net noncash adjustments.
Cash used in investing activities reflected net capital expenditures of $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively. Capital expenditures in the first three months of 2025 primarily consisted of additional investments made in our manufacturing operations.
Cash provided by financing activities was $17.8 million during the three months ended March 31, 2025 compared to $27.5 million during the three months ended March 31, 2024. Financing activities during the first three months of 2025 included $19.0 million of proceeds from the additional financing offset in part by $1.2 million in payments for debt issuance costs. Financing activities during the first three 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 Estimates
We discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K filed with the SEC on March 14, 2025. There have been no significant changes in our critical accounting policies since the end of fiscal 2024.
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, 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 Exchange Act 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.
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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 Related Party Loan 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 March 31, 2025, we had $93.4 million of variable rate debt associated with the Related Party Loan. 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 $0.9 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
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO” and together with the CEO, the “Certifying Officers”), 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 March 31, 2025 at the reasonable assurance level.
(b) Changes in Internal Controls Over Financial Reporting.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 to the unaudited 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 2024 Annual Report on Form 10-K filed with the SEC on March 14, 2025. The disclosure of risks identified below does not imply that the risk has not already materialized.
Changes in U.S. trade policy including the impact of tariffs are having and may continue to have a material adverse effect on our business and results of operations.
Our business and results of operations are being and may continue to be adversely affected by uncertainty and changes in U.S. trade policies, including tariffs, trade agreements or other trade restrictions which may be imposed by the U.S. or other governments with little or no advance notice. For example, the U.S. government recently imposed tariffs on product imports from almost all countries. Some tariff announcements have been followed by the granting of limited exemptions and temporary pauses causing substantial uncertainty and volatility in financial markets. Current U.S. trade policy has and may continue to result in retaliatory measures on U.S. goods. If we are unable to navigate further these unpredictable changes in U.S. or international trade policy, it could have a material adverse impact on our business and results of operations.
Some of our products require materials that may be subject to these recent tariffs, especially our products requiring textiles. Any imposition of or increase in tariffs on imports of these products or components, as well as corresponding price increases for such materials available domestically, could increase our costs. To the extent that we are unsuccessful in finding alternative suppliers that are subject to smaller or no tariffs, negotiating sharing these costs with our suppliers, or failing to pass cost increases on to our customers, such cost increases could adversely affect our business and results of operations. Higher costs could also inhibit our ability to develop new products and innovations.
Tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S. and global financial and economic conditions and commodity markets, declining consumer confidence, significant inflation, and diminished expectations for the economy, and ultimately may reduce demand for our products. Such conditions could have a material adverse impact on our business, results of operations and cash flows. Also, disruptions and volatility in the financial markets may lead to adverse changes in the availability, terms and cost of capital. Such adverse changes could increase our costs of capital and limit our access to financing sources, which could in turn reduce our cash flow and limit our ability to pursue growth opportunities.
Our indebtedness, related covenants, and certain prepayment obligations, including make-whole payments, could limit operational and financial flexibility and adversely affect our business if we breach such covenants or default on such indebtedness.
On January 23, 2024, to refinance existing obligations, we entered into the Amended and Restated Credit Agreement. Upon entry into the Amended and Restated Credit Agreement, we received a term loan in the amount of $61.0 million. The Amended and Restated Credit Agreement imposes various affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness, paying dividends or making distributions and transactions with affiliates, among other customary covenants.
These restrictions may prevent us from taking actions that we believe would be in the best interests of the business and complicate our ability to execute our business strategy or compete with less restricted companies. If we fail to comply with the covenants under the Amended and Restated Credit Agreement, we may need to seek future amendments or waivers and/or alternative liquidity sources, such as subordinated debt, which may not be favorable or available. Before taking any action requiring a waiver under the Amended and Restated Credit Agreement, we must first obtain approval from the Lenders, which may cause us to incur additional costs and may not be granted. Non-compliance could lead to defaults, which could materially adversely affect our financial condition and results of operations, including possible acceleration of our debt, as well as other cross-defaulting debt obligations. Additionally, defaults could significantly impair our ability to secure alternative financing and limit our business strategies. Our compliance with these covenants will depend on successfully implementing our business strategies, as breaches could lead to defaults and acceleration of our debt, potentially forcing us into bankruptcy or liquidation.
In addition, on March 12, 2025, we entered into the 2025 Amendment, pursuant to which the 2025 Lenders agreed to provide us with an incremental term loan of $19.0 million pursuant to Section 2.18 of the Amended and Restated Credit Agreement. On May 2, 2025, we entered into the 2025 Second Amendment, pursuant to which the 2025 Lenders agreed to provide us with an incremental term loan of $20.0 million pursuant to Section 2.18 of the Amended A&R Credit Agreement. The 2025 Amendment also amended the Amended A&R Credit Agreement to (i) provide for an additional term loan from the 2025 Term Loan Lenders (as defined in the 2025 Amendment) in an aggregate amount not to exceed $20.0 million, subject to the approval of the Required Lenders in their discretion, (ii) provide for the payment of substantial make-whole payments in the event we prepay the loans prior to their maturity, and (iii) provide that the incremental term loan will be senior in right of repayment to the initial term loan.
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Under the Amended and Restated Credit Agreement, we have mandatory prepayment obligations, including upon certain asset dispositions, equity issuances, debt incurrences and extraordinary receipts of cash. As amended by the 2025 Amendment, we may be required to make substantial “make-whole” payments to the Lenders. If required to prepay or pay such make-whole payments, we may lack the liquidity to do so, resulting in default. Prepayments, including make-whole payments, would also divert resources from operating expenses, potentially harming relationships with suppliers, hindering growth strategies, and jeopardizing our business continuity. In addition, such payments could result in holders of our Class A Stock not receiving any consideration in a sale of our business, or if we were to liquidate, dissolve, or wind-up, either voluntarily or involuntarily.
We may need additional funds to execute our business plan, maintain our liquidity, repay our debt and fund our operations. We may not be able to obtain such funds on acceptable terms or at all.
We have experienced recurring operating losses and negative cash flows and may continue to generate operating losses and consume significant cash resources in the future. For the years ended December 31, 2024, and 2023, we had negative cash flow from operating activities of $18.0 million and $54.7 million, respectively. As of December 31, 2024, we had unrestricted cash and cash equivalents of $29.0 million and borrowings of $70.7 million under our Amended and Restated Credit Agreement, which will become due on December 31, 2026.
On March 12, 2025, we borrowed an additional $19.0 million under the Amended and Restated Credit Agreement pursuant to the 2025 Amendment, which will also become due on December 31, 2026. On May 2, 2025, we borrowed an additional $20 million under the Amended and Restated Credit Agreement, pursuant to the 2025 Second Amendment. The 2025 Amendment also added certain make-whole payments with respect to our borrowings under the Amended and Restated Credit Agreement, which would require substantial payments in connection with certain pre-payments or refinancing of our outstanding borrowings.
In connection with the preparation of our 2024 financial statements, we undertook a going concern assessment and concluded the Company will have sufficient liquidity for its operations for at least one year from the date these consolidated financial statements are issued. However, there can be no assurance that we will be able to maintain the liquidity necessary to fund our long-term operations and growth strategies, or repay our debt obligations when due. As a result, we may need to secure additional sources of liquidity to fund our long-term operating activities and capital expenditures. However, there can be no assurance that we will be able to obtain additional financing as needed on terms favorable to us, or at all. If we fail to meet liquidity and capital requirements, we may need to scale back or halt our growth plans, risking slower growth, losing suppliers, failing to meet customer demands, and losing employees. We may also need to restructure our obligations or pursue other measures to address any liquidity deficiency.
Under the Amended and Restated Credit Agreement, we can request additional loans, but the Lenders may deny requests, limiting our access to future funds and adversely affecting our liquidity, financial condition and results of operations. As a condition to providing future funds, the Lenders may require other revisions to the Amended and Restated Credit Agreement, such as increasing prepayment or make-whole payments or including additional restrictive covenants, which could adversely affect our business and financial condition.
Future equity or debt financings may involve issuing securities likely to be dilutive to our existing stockholders, such as warrants, as we did on January 23, 2024 when we issued to the Lenders, as partial consideration for their entering into the Amended and Restated Credit Agreement, warrants (the “2024 Warrants”) to purchase 20.0 million shares of our Common Stock (approximately 19% of our currently outstanding Common Stock) at a price of $1.50 per share, subject to certain adjustments. In addition, on March 12, 2025, we issued to the 2025 Lenders, as partial consideration for their entering into the 2025 Amendment, warrants to purchase 6.2 million shares of our Common Stock, on May 2, 2025 we issued to the 2025 Lenders, as partial consideration for their entering into the Second 2025 Amendment, warrants to purchase 6.6 million shares of our Common Stock and on May 2, 2025 we issued to SGI as partial consideration for their entering into the SGI Agreement, warrants to purchase 8.0 million shares of our Common Stock at a price of $1.50 per share, subject to certain adjustments. The exercise of such warrants and/or any additional similar securities in the future would dilute the value and amount of our Common Stock. Similarly, any new securities we may issue may carry preferences, superior voting rights, or additional terms that could adversely affect shareholders of our Common Stock. Future capital raising efforts may incur substantial costs, such as investment banking, legal, and accounting fees, and could lead to non-cash expenses that negatively impact our financial condition.
Our business could suffer if we are unsuccessful in making, integrating and maintaining commercial agreements, strategic alliances and other business relationships.
We rely on commercial agreements and strategic relationships with suppliers, service providers, and wholesale partners. Disruptions in these relationships or strategic decisions by partners could negatively affect our business. For example, (i) one of our competitors has acquired one of our wholesale partners, which could disrupt our relationship or prevent us from continuing to sell our products in favorable placements alongside the competitor’s products or at all in the wholesale partner’s stores, and (ii) one of our competitors owns a manufacturing company with which we have a manufacturing relationship, and that competitor could disrupt that relationship to harm our manufacturing efforts. We may also struggle to maintain or develop these relationships and may not be able to secure new ones on favorable terms.
We sell products through wholesale partnerships and may seek to expand these relationships. However, these wholesale partnerships may not be profitable and could incur additional costs compared to our DTC operations. In addition, an expansion of these relationships may concentrate our business with one customer resulting in greater reliance on that customer, which could adversely affect our ability to grow our business and compete in our industry Wholesale relationships may be terminated or modified, or wholesale partners may reduce orders or fail to meet their obligations, resulting in lost sales and adversely affecting our financial performance, results of operations and financial condition. Disputes with partners or the termination or amendment of agreements could lead to expenses, delayed payments, liabilities, and distractions from our strategic objectives. If we cannot renew or replace agreements on favorable terms, it could harm our business. Wholesale partners may also compete against us in key channels, harming our business. Maintaining these relationships may require significant resources and could limit our sales channels, adversely affecting other areas of our business.
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We are expanding Purple showrooms across the U.S., which may compete with our wholesale partners for customers. This omni-channel strategy carries the risk of diminishing sales in other channels, increasing costs, and the potential loss of wholesale partners. Managing this omni-channel strategy may require significant resources, potentially impacting other areas of our business. If our financial performance falls short of expectations, we may struggle to secure favorable payment terms or obtain credit from commercial partners that have extended credit to us.
NASDAQ may delist our securities from its exchange, which could harm our business and limit our stockholders’ liquidity.
Our Common Stock is currently listed on NASDAQ, which has listing criteria. We cannot assure that our Common Stock will continue to be listed on NASDAQ in the future. To continue listing our Common Stock on NASDAQ, we must maintain certain governance, financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity, a minimum number of holders of our Common Stock, and a $1.00 minimum per share bid price for our Common Stock. If we fail to maintain a $1.00 minimum per share bid price for a period of 30 consecutive business days, we have 180 calendar days to maintain our Common Stock at a $1.00 minimum per share bid price for 10 consecutive trading days. If we do not regain compliance within 180 calendar days, NASDAQ may grant a second compliance period of 180 calendar days or it may determine to delist our Common Stock, at which point we would have an opportunity to appeal the delisting determination to a hearings panel. On April 5, 2025, we received written notice from NASDAQ that we were not in compliance with Nasdaq minimum share price rule, since the closing price of our Common Stock had been below $1.00 per share for 30 consecutive business days. We have 180 calendar days, or until October 1, 2025, to regain compliance with the Nasdaq minimum share price rule. To regain compliance, the bid price of our Common Stock must close at $1.00 or more for a minimum of ten consecutive business days. While we intend to actively monitor the bid price of our Common Stock and will consider available options to regain compliance, there can be no guarantee that we will be able to regain compliance or otherwise comply with NASDAQ’s other continued listing requirements.
If we are unable to comply with NASDAQ’S continued listing requirements, our Common Stock may be subject to delisting. If NASDAQ delists our Common Stock from trading on its exchange or if we decide to voluntarily delist from NASDAQ and/or deregister our Common Stock under the federal securities laws, we could face significant material adverse consequences, including but not limited to (i) a limited availability of market quotations for our Common Stock; (ii) reduced liquidity for our Common Stock; (iii) a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; (iv) a limited amount of news and analyst coverage, and in the event of deregistration of our Common Stock, less public disclosure about us; and (v) a decreased ability to issue additional securities or obtain additional financing in the future.
Our stockholders may experience substantial dilution in the value of their investment or may otherwise have their interests impaired if we issue additional debt or equity securities or securities convertible into equity securities, as well as due to the exercise of the currently outstanding Warrants.
We may attempt to increase our capital by entering additional secured or unsecured debt or debt-like financing, or by issuing additional debt or equity securities, including issuances of secured or unsecured notes, preferred stock, hybrid securities or convertible securities. 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.
We have previously sold and may in the future sell additional shares of our Common Stock or convertible securities at prices that are lower than the prices paid by existing stockholders, and investors purchasing shares or other securities could have rights superior to existing stockholders, which could result in substantial dilution of existing stockholders. For example, in February 2023 we issued 13.4 million shares of Common Stock pursuant to a public offering, on January 23, 2024, we issued to the Lenders under the Amended and Restated Credit Agreement the 2024 Warrants to purchase 20.0 million shares of our Common Stock at a price of $1.50 per share, subject to adjustments, and on March 12, 2025, we issued to the 2025 Lenders under the 2025 Amendment the 2025 Warrants to purchase 6.2 million shares of our Common Stock at a price of $1.50 per share, subject to adjustments. In addition, on May 2, 2025, we issued to the 2025 Lenders under the Second 2025 Amendment the 2025 Additional Warrants to purchase 6.6 million shares of our Common Stock at a price of $1.50 per share, subject to adjustments and on May 2, 2025, we issued to SGI as partial consideration for their entering into the SGI Agreement, warrants to purchase 8.0 million shares of our Common Stock at a price of $1.50 per share, subject to adjustments. The exercise of the Warrants will dilute the value of Class A common stock and stockholder voting power. In addition, the Warrants include full-ratchet anti-dilution protections, subject to certain conditions, which could result in the Warrants becoming exercisable for a significantly greater number of shares if we engage in a dilutive financing.
In the event of our liquidation, holders of our debt would receive distributions of our assets before distributions to holders of our Common Stock, including substantial make-whole payments, and holders of securities senior to the Common Stock would receive distributions of our assets before distributions to the holders of our Common Stock. Because future debt and equity offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings. Market conditions could impose less favorable terms for the issuance of our securities in the future.
ITEM 5. OTHER INFORMATION
10b5-1 Trading Plans
During the first quarter of
2025, none of our directors or executive officers
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ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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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: May 6, 2025 | By: | /s/ Robert T. DeMartini |
| Robert T. DeMartini | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 6, 2025 | By: | /s/ Todd E. Vogensen |
| Todd E. Vogensen | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Date: May 6, 2025 | By: | /s/ George T. Ulrich |
| George T. Ulrich | ||
| VP Accounting and Financial Reporting | ||
| (Principal Accounting Officer) |
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