Purple Innovation Reports Third Quarter 2022 Results

LEHI, Utah, Nov. 9, 2022 /PRNewswire/ -- Purple Innovation, Inc. (NASDAQ: PRPL) ("Purple"), a comfort innovation company known for creating the "World's First No Pressure ™ Mattress," today announced results for the third quarter ended September 30, 2022.

Third Quarter Financial Summary (Comparisons versus Third Quarter 2021 and Second Quarter 2022)1

• Net revenue was $143.3 million, a decrease of 16.1% compared to 3Q21 and relatively flat compared to 2Q22.
• Wholesale revenue increased 1.3% compared to 3Q21 and decreased 6.1% compared to 2Q22.
• Direct-to-Consumer (DTC) revenue decreased 25.0% compared to 3Q21 while advertising spend decreased 56.8% compared to 3Q21.
• Gross margin increased 570 basis points year-over-year to 41.5% from 35.8% in 3Q21 and increased 760 basis points compared with 33.9% in 2Q22.
• Operating expenses as a percent of net revenue were 40.6% compared to 39.6% in 3Q21 and 42.3% in 2Q22.
• Operating income inclusive of $3.4 million in one-time expenses related to the Intellibed acquisition was $1.3 million compared to an operating loss of $(6.6) million in 3Q21 and $(12.1) million in 2Q22.
• Net income was $2.3 million as compared to $2.2 million in 3Q21 and a net loss of $(8.3) million in 2Q22.
• Adjusted net income was $2.8 million, or $0.03 per diluted share as compared to adjusted net loss of $(4.9) million, or $(0.07) per diluted share in 3Q21 and adjusted net loss of $(8.8) million or $(0.11) per diluted share in 2Q22.
• EBITDA was $5.9 million compared to $2.4 million in 3Q21 and $(8.0) million in 2Q22.
• Adjusted EBITDA was $12.1 million compared to $0.6 million in 3Q21 and $(0.3) million in 2Q22.
• Cash and cash equivalents, including restricted cash, were $59.1 million at September 30, 2022.

"I am pleased with the significant improvement in profitability we delivered on both a year-over-year and quarter-over-quarter basis in a very difficult environment," said Chief Executive Officer Rob DeMartini. "Execution of our manufacturing and supply chain efficiency initiatives, along with earlier actions to right size headcount and align marketing spend with the current demand environment fueled a meaningful increase in our third quarter Adjusted EBITDA. While industry conditions remain challenging due to high inflation and a shift in consumer spending away from home related categories, we are optimistic that the work we are doing around product innovation and channel development will translate into sustainable market share gains. This includes our recent acquisition of Intellibed which elevated and strengthened our product offering and provides us with an immediate entrée into the high-margin, luxury mattress category. We are making tangible progress positioning Purple as a leading sleep and wellness brand and setting the Company up for long-term success."

Third Quarter 2022 Review

Third quarter 2022 net revenue decreased 16.1% to $143.3 million, compared to $170.8 million in the third quarter of 2021. This decrease was primarily due to changing demand for home related products, inflationary pressure on discretionary consumer spending and an intentional reduction in advertising spend which was down 56.8% compared with a year ago. By channel, versus prior year, direct to consumer net revenues declined 25.0%, in-line with the overall market. Within DTC, ecommerce declined 36.6%, meaningfully less than our decline in advertising spend, which underscores our significant improvement in advertising spend efficiency. The ecommerce decline was primarily driven by market conditions and compounded by a normalization of consumer consumption patterns. Showroom net revenue increased 110.4% driven largely by the opening of 32 net new showrooms over the past 12 months. These declines in the DTC channel were partially offset by an increase in wholesale net revenue of 1.3%, driven in part by the Intellibed acquisition which added $2.6 million of wholesale net revenues from the date of acquisition through September 30, 2022.

Gross margin for the third quarter 2022 increased to 41.5% compared to 35.8% in the year ago period. This increase was largely due to the cost reduction initiatives implemented in 2022, partially offset by an increased proportion of wholesale channel revenue which carries a lower average selling price than sales from our DTC channel. Wholesale net revenues comprised approximately 41% of net revenue for the quarter compared with approximately 34% in the same quarter last year. Additionally, the gross profit percentage in the third quarter of 2021 was adversely impacted by inefficiencies related to the resolution of prior year production issues.

Operating expenses declined $9.6 million to $58.1 million compared to $67.7 million in the third quarter of 2021. This reduction in operating expenses was largely driven by a decrease in marketing and sales expense of $11.8 million, or 24.2%, due to the intentional reduction in advertising spend to improve marketing efficiency. This decline in marketing and sales expense was partially offset by an increase in general and administrative expense of $2.1 million, or 12.5%, to $19.2 million for the third quarter compared to $17.0 million for the prior year period. This increase was primarily due to an increase in legal and professional fees associated with the Intellibed acquisition. Excluding the impact of Intellibed acquisition costs, legal and professional fees declined $1.4 million during the quarter due to lower consulting and legal fees. Operating expenses were 40.6% of net revenue for the third quarter of 2022 compared to 39.6% in the year ago period as a result of lower net revenues.

Operating income was $1.3 million for the third quarter 2022 compared to an operating loss of $(6.6) million in the prior year period.

Net income was $2.3 million for the third quarter 2022 compared to a net income of $2.2 million in the year ago period. As previously disclosed, the Company determined that its outstanding warrants should be accounted for as liabilities and recorded at fair value on the date of the transaction and subsequently re-measured to fair value at each reporting date. For the three months ended September 30, 2022 and 2021, the Company recognized non-cash loss of $(0.1) million and a non-cash gain of $5.4 million, respectively, associated with the change in fair value of warrant liabilities.

Adjusted net income which excludes adjustments for certain non-cash items and other items the Company does not consider in the evaluation of ongoing operational performance, including gains associated with the change in fair value of warrant liabilities and acquisition adjustments, was $2.8 million, or $0.03 per adjusted diluted share, compared to $(4.9) million, or $(0.07) per adjusted diluted share in the prior year period. Adjusted net income and adjusted net loss has also been adjusted to reflect an estimated effective income tax rate of 23.7% for the current year period and 25.4% for the comparable prior year period.

EBITDA for the third quarter 2022 was $5.9 million compared to $2.4 million in the third quarter 2021. Adjusted EBITDA, which excludes the adjustment for non-cash gain or loss associated with the change in fair value of warrant liabilities, Tax Receivable Agreement benefit, new production facility start-up costs, non-cash stock-based compensation, executive search costs, severance, showroom opening costs, acquisition expenses, previous period sales tax liability expense and COVID-19 related expenses was $12.1 million compared to Adjusted EBITDA of $0.6 million in the prior year period.

Balance Sheet
As of September 30, 2022, the Company had cash and cash equivalents, including restricted cash, of $59.1 million compared to $91.6 million as of December 31, 2021 and $41.2 million at June 30, 2022. The increase compared with June 30,2022 was driven primarily by cash from operations of $22.3 million, partially offset by capital expenditures of $8.0 million primarily related to showroom expansion. The Company also acquired $3.6 million in cash and restricted cash from the acquisition. In addition to the $59.1 million in cash at the end of the third quarter, the Company has the full $55.0 million amount available under its credit facility. Based on its current projections, the Company believes its cash on hand, amounts available under its revolving line of credit, and expected cash to be generated from e-commerce, wholesale, and Purple retail store channels will be sufficient to meet its working capital requirements, comply with debt covenants and cover anticipated capital expenditures for at least the next 12 months.

Inventories at September 30, 2022 were $91.4 million, a decrease of 7.4% compared with $98.7 million at December 31, 2021. The decrease in inventories since the end of 2021 was driven by a reduction in mattress inventories and resale finished goods as the Company aligns its inventories to the current demand environment.

2022 Outlook
The Company is reiterating its previous outlook for 2022 full year revenue in the range of $570 to $590 million, which it provided on August 9, 2022 prior to the acquisition of Intellibed. It anticipates Purple brand revenue to be toward the lower end of the range with contributions from Intellibed to put overall Company revenue at approximately the mid-point of the range.

The Company is raising its 2022 full year Adjusted EBITDA outlook and now expects Adjusted EBITDA to range from $2 million to $7 million, up from its prior range of $(15) million to $(5) million. While the Company is pleased with the improvement in profitability it experienced in the third quarter, management is more cautious about fourth quarter profitability primarily due to expensive advertising rates during the holiday period, and the expectation of increased discounting for Black Friday and Cyber Monday promotions which is expected to negatively impact gross margins in the fourth quarter.

Conference Call and Webcast Information
Purple Innovation, Inc. will host a live conference call to discuss financial results on November 9, 2022 at 4:30 p.m. Eastern Time. To access the call dial (888) 394-8218 (domestic) or (646) 828-8193 (international) and provide the Conference ID: 6449123. The call is also being webcast and can be accessed on the investor relations section of the Company's website, investors.purple.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.

About Purple

Purple is a digitally-native vertical brand with a mission to help people feel and live better through innovative comfort solutions. We design and manufacture a variety of innovative, premium, branded comfort products, including mattresses, pillows, cushions, frames, sheets and more. Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology, Hyper-Elastic Polymer®, underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors' products. We market and sell our products through our direct-to-consumer online channels, traditional retail partners, third-party online retailers and our owned retail showrooms. For more information on Purple, visit purple.com.

Forward Looking Statements

Certain statements made in this release that are not historical facts are "forward looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements include but are not limited to statements relating to our expected continuing expansion of market share from investment in capacity, innovation and showrooms; our ability to achieve profitability; expected improvements in performance quarter-over-quarter; expected improvement in margin rates; our ability to successfully execute on improvement strategies; expected improvements in our operating performance; our ability to improve brand recognition; demand for our products; expectations regarding consumer behavior; our ability to develop and expand our distribution channels; our ability to accelerate product innovation and develop a path to premium products; the adequacy of our cash other capital resources; the impact of the Intellibed acquisition on our operating results and ability to enter new categories; the impact of expected advertising expense rates and discounting for Black Friday and Cyber Monday promotions; and expected financial and operating results for the full year 2022, including net revenue and Adjusted EBITDA. Statements based on historical data are not intended and should not be understood to indicate the Company's expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Factors that could influence the realization of forward-looking statements include, among others: changes in economic, financial and end-market conditions in the markets in which we operate; fluctuations in raw material prices and cost of labor; the financial condition of our customers and suppliers; competitive pressures, including the need for technology improvement, successful new product development and introduction; changes in consumer demand, including pullbacks in consumer spending; uncertainties regarding the extent and duration of the impact of the COVID-19 pandemic on many aspects of our business, operations and financial performance; disruptions to our manufacturing processes; and the risk factors outlined in the "Risk Factors" section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2022, as amended by our Annual Report on Form 10-K/A filed with the SEC on March 16, 2022 and our Quarterly Reports on Form 10-Q filed with the SEC. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share are non-GAAP financial measures that remove the impact of certain non-cash and non-recurring costs. Management believes that the use of such non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. Refer to the attached table for the reconciliation of such non-GAAP financial measures to the most comparable GAAP financial measure.

With respect to the Company's Adjusted EBITDA outlook for full year 2022, a quantitative reconciliation to the corresponding GAAP information cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted, including but not limited to warrant liabilities and stock based compensation. For the same reasons, the Company is unable to assess the probable significance of the unavailable information, which could have a material impact on its future GAAP financial results.

Investor Contact:
Brendon Frey, ICR
brendon.frey@icrinc.com
203-682-8200

1 Reconciliations for non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the "RECONCILIATION OF GAAP TO NON-GAAP MEASURES" tables at the end of this press release.

PURPLE INNOVATION, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands)

Management believes that the use of the following non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. These non-GAAP financial measures are EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share. Other companies may calculate these non-GAAP measures differently than we do. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for our financial results prepared in accordance with GAAP.

Reconciliation of GAAP Net Income (Loss) to Non-GAAP EBITDA and Adjusted EBITDA
A reconciliation of GAAP net income (loss) to the non-GAAP measures of EBITDA and adjusted EBITDA is provided below. EBITDA represents net income (loss) income before interest expense, other (income) expense, net, and depreciation and amortization. Adjusted EBITDA represents EBITDA excluding costs incurred due to stock-based compensation expense, debt extinguishment, warrant liability, vendor separation fee, nonrecurring legal fees, acquisition expenses, interim CFO and consulting fees and severance costs. We believe EBITDA and Adjusted EBITDA provide additional useful information with respect to the impact of various adjustments and provide meaningful measures of our operating performance.

Reconciliation of GAAP Net Income to non-GAAP Adjusted Net Income and Adjusted Net Income per Diluted Share

Our presentation of adjusted net income assumes that all net income is attributable to Purple Innovation, Inc. (i.e. there is no allocation of net income or loss to noncontrolling interests), which assumes the full exchange at the beginning of the period of all outstanding Paired Securities for shares of Class A common stock of Purple Innovation, Inc., adjusted for certain nonrecurring items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing adjusted net income by the total shares of Class A common stock outstanding plus any dilutive warrants, options and restricted stock as calculated in accordance with GAAP and assuming the full exchange of all outstanding Paired Securities as of the beginning of each period presented. Adjusted net income and adjusted net income per diluted share, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe adjusted net income and adjusted net income per diluted share, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted net income and the computation of adjusted net income per diluted share, are set forth below:

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SOURCE Purple Innovation, Inc.