PR Newswire | Aug 13, 2020 04:06PM EDT

08/13 15:05 CDT

Purple Innovation Reports Record Second Quarter 2020 ResultsSecond Quarter Net Revenue Increased 60.3% to $165.1 MillionSecond Quarter Operating Income Improved to $32.0 MillionCash and Cash Equivalents at June 30, 2020 Increased to $95.4 Million LEHI, Utah, Aug. 13, 2020

LEHI, Utah, Aug. 13, 2020 /PRNewswire/ -- Purple Innovation, Inc. (NASDAQ: PRPL) ("Purple"), a comfort innovation company known for creating the "World's First No Pressure (tm) Mattress," today announced results for the second quarter ended June 30, 2020.

Second Quarter Financial Summary (Comparisons versus Second Quarter 2019)1

* Net revenue increased 60.3% to $165.1 million, compared to $103.0 million. * Direct-to-Consumer (DTC) revenue increased 127.9%; Wholesale revenue decreased 49.3%

* Gross margin improved to 49.4% compared to 41.5%. * Operating expenses as a percent of net revenue were 30.1% compared to 43.8%. * Operating income was $32.0 million compared to operating loss of $(2.4) million. * Net loss was $(5.8) million compared to a net loss of $(7.3) million. Adjusted net income was $30.6 million compared to $2.6 million. * EBITDA was $(37.8) million compared to $(5.2) million. Adjusted EBITDA was $35.2 million compared to $6.2 million.

"It was a record breaking quarter from both a revenue and operating income standpoint as our organization successfully capitalized on the strengths of our business model and the changes in consumer buying behavior brought on by COVID-19," said Joe Megibow, Chief Executive Officer. "Following a brief scale back in our operations early in the pandemic, we quickly ramped production and fulfillment capabilities and pivoted back to our digital roots, shifting our efforts into a mostly direct-to-consumer business to capture the growing online demand. In addition to driving an increase in online purchasing, shelter-at-home directives also fueled higher demand for many categories tied to the home. This was certainly true for Purple as our direct-to-consumer mattress business grew triple digits as did several of our other categories led by seat cushions, pillows and sheets. Our exceptional digital performance more than offset the decline in wholesale revenue, which was down due to significant store closures and reduced traffic, particularly during the first half of the quarter."

Megibow continued, "Looking ahead, we remain optimistic. The positive momentum in our business has carried over into the third quarter and our strong cash position is allowing us to further invest in our key growth initiatives. This includes a new 520,000 square foot facility in Georgia opening later this year that will significantly expand our domestic manufacturing capacity over time. In terms of channel performance, we have seen a resurgence in wholesale sales as partner doors continue to reopen and resume more normalized store operations. We are encouraged with the improvement in this channel, as brick and mortar retail - both third party and Company-owned - is an important part of our omni-channel strategy. While we still have much work to be done, we are pleased with how our team is navigating through these unprecedented times and are confident that the long-term growth prospects for our Company are stronger than ever."

^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.

Second Quarter 2020 Review

Second quarter 2020 net revenue increased 60.3% to $165.1 million, compared to $103.0 million in the second quarter of 2019. The increase in net revenue was driven by strong growth in mattress sales in the DTC channel along with higher demand for pillows, sheets and seat cushions, partially offset by lower wholesale revenue due to the disruption in partner store operations including temporary closures in response to COVID-19. Net revenue, compared to order totals announced during the quarter, include the impact of customer returns and cancellations as well as timing of deliveries that drive revenue recognition. With order totals exceeding capacity for a portion of the quarter, some orders placed in the quarter will not be fulfilled and recognized as revenue until the third quarter.

Gross margin for the second quarter 2020 improved to 49.4% compared to 41.5% in the year ago period. The 790 basis point increase in gross margin year-over-year was primarily attributable to the higher proportion of DTC channel revenue, which carries higher gross margins than the wholesale channel as well as other cash preservation efforts early in the quarter. In addition, given constraints imposed by COVID-19, we have temporarily suspended white glove delivery to the home, passing along the cost savings to our consumer and thereby maintaining gross margin dollars, while showing an increase in gross margin percentage. DTC revenues comprised approximately 88% of net revenue for the quarter, compared with approximately 62% in the same quarter last year, and 66% in the first quarter of 2020. With partner doors continuing to reopen and resuming more normalized store operations, the Company expects wholesale revenue to increase as a percentage of overall revenue during the second half of 2020 compared with the second quarter.

Operating expenses were $49.7 million in the second quarter 2020 compared to $45.1 million in the prior year period. As a percent of net revenue, operating expenses were 30.1% compared with 43.8% in the year ago period. The increase in operating expenses was primarily attributable to a modest increase in marketing spend aimed at driving demand and increased brand awareness as well as the addition of company-owned retail showrooms in the fourth quarter 2019. For the second quarter 2020, marketing and sales expense as a percent of net revenue decreased to 23.9% compared with 34.9% last year due to creative efforts to improve efficiency in marketing spend as well as several non-recurring factors including lower market rates near the onset of COVID-19 and intentional reductions in ad spend early in the quarter in an effort to preserve cash. The Company expects marketing and sales expense as a percent of net revenue to return to historical levels during the second half of 2020 driven in part by higher market rates due to increased advertising ahead of the November elections.

Operating income increased to $32.0 million for the second quarter 2020 compared to an operating loss of $(2.4) million in the prior year period.

Net loss was $(5.8) million for the second quarter 2020 compared to a net loss of $(7.3) million in the year ago period. Adjusted net income, which excludes adjustments for non-cash expenses associated with the change in fair value of warrant liabilities, the Tax Receivable Agreement, non-recurring stock-based compensation, and release of deferred tax asset reserves, was $30.6 million, compared to $3.1 million in the prior year period. The second quarter 2020 included a $39.0 million non-cash expense associated with the change in fair value of warrant liabilities, a $32.8 million non-cash expense associated with our Tax Receivable Agreement and a $35.4 million income tax benefit. The income tax benefit was primarily related to the release of a reserve for deferred tax assets created when Paired Class B shareholders exchanged their shares for Class A shares creating an amortizable tax basis difference. The second quarter 2019 included a $3.7 million non-cash expense associated with the change in fair value of warrant liabilities and a $6.2 million non-cash compensation expense related to InnoHold's distribution of Paired Class B securities to then current Purple employees.

EBITDA for the second quarter 2020 was $(37.8) million compared to $(5.2) million in the second quarter 2019. Adjusted EBITDA, which excludes the adjustment for non-cash expense associated with the change in fair value of warrant liabilities, non-cash expense associated with the loss on extinguishment of debt, Tax Receivable Agreement expense, non-cash stock based compensation, legal fees, interim CFO & consulting costs, severance and COVID-19 related expenses, was $35.2 million, compared to Adjusted EBITDA of $6.2 million in the prior year period.

Balance Sheet

As of June 30, 2020, the Company had cash and cash equivalents of $95.4 million compared to $33.5 million as of December 31, 2019, an increase of 184.8%. Compared with March 31, 2020, cash and cash equivalents at June 30, 2020 increased 261.7%. The Company expects to invest a portion of these resources into capital expansion and company-owned store expansion and may be impacted by a channel shift back to wholesale.

Inventories as of June 30, 2020 totaled $39.8 million compared with $47.6 million as of December 31, 2019 and compared with $42.1 million as of March 31, 2020.

Outlook

For the year ending December 31, 2020, the Company previously withdrew guidance as a result of uncertainty due to the COVID-19 pandemic. Due to the continued uncertainty in the overall economy, the Company is not providing an update at this time.

Webcast and Conference Call Information

Purple Innovation, Inc. will host a live conference call to discuss financial results today, August 13, 2020 at 4:30 p.m. Eastern Time. To access the call dial (877)425-9470 (domestic) or (201) 389-0878 (international) at 4:25 p.m. ET and provide the Conference ID: 13708191. 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(r), 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 previewing our third quarter and second half revenue, gross margin, channel mix, and marketing expenses. 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 the risk factors outlined in the "Risk Factors" section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2020 and our Form 10-Q filed with the Securities and Exchange Commission on May 11, 2020 and August 13, 2020. 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, and Adjusted EBITDA 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.

Investor Contact:Brendon Frey, ICRbrendon.frey@icrinc.com203-682-8200

Media Contact:Alecia Pulman, ICRpurplePR@icrinc.com646-277-1200

Purple Innovation, Inc.Misty BondDirector of Purple Communicationsmisty.b@purple.com385-498-1851

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

June 30, December 31,

2020 2019

Assets

Current assets:

Cash and cash equivalents $ 95,402 $ 33,478

Accounts receivable, net 19,029 28,692

Inventories, net 39,821 47,628

Prepaid inventory 2,175 879

Other current assets 5,195 3,442

Total current assets 161,622 114,119

Property and equipment, net 38,285 31,979

Intangible assets, net 2,320 1,101

Deferred income taxes 100,643 -

Other long-term assets 525 525

Total assets $ 303,395 $ 147,724

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:

Accounts payable $ 51,424 $ 50,240

Accrued sales returns 11,949 7,271

Accrued compensation 10,328 7,954

Customer prepayments 8,338 6,258

Accrued sales tax 6,741 5,602

Income tax payable 8,498 274

Accrued rebates and allowances 4,420 5,311

Other current liabilities 9,520 3,955

Total current liabilities 111,218 86,865

Long-term debt, related-party 38,190 35,399

Warrant liabilities 46,958 21,622

Tax receivable agreement liability, net of current 78,076 -portion

Other long-term liabilities, net of current portion 11,484 8,570

Total liabilities 285,926 152,456

Commitments and contingencies (Note 11)

Stockholders' equity (deficit):

Class A common stock; $0.0001 par value, 210,000shares authorized; 36,468 issued and outstanding at 4 2June 30, 2020 and 22,494 issued and outstanding atDecember 31, 2019

Class B common stock; $0.0001 par value, 90,000shares authorized; 17,510 issued and outstanding at 2 3June 30, 2020 and 31,394 issued and outstanding atDecember 31, 2019

Additional paid-in capital 20,584 5,990

Accumulated earnings (deficit) (1,495) (8,349)

Total stockholders' equity (deficit) 19,095 (2,354)

Noncontrolling interest (1,626) (2,378)

Total equity (deficit) 17,469 (4,732)

Total liabilities and stockholders' equity (deficit) $ 303,395 $ 147,724

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenues, net $ 165,096 $ 103,004 $ 287,471 $ 186,652

Cost of revenues 83,465 60,221 152,658 109,800

Gross profit 81,631 42,783 134,813 76,852

Operating expenses:

Marketing and sales 39,423 35,967 76,107 59,984

General and administrative 8,677 7,933 16,225 12,498

Research and development 1,580 1,244 3,025 1,934

Total operating expenses 49,680 45,144 95,357 74,416

Operating income (loss) 31,951 (2,361) 39,456 2,436

Other income (expense):

Interest expense (1,424) (1,301) (2,813) (2,445)

Other income, net 16 6 106 235

Loss on extinguishment of - - - (6,299)debt

Change in fair value - (38,970) (3,685) (25,337) (1,988)warrant liabilities

Tax receivable agreement (32,823) - (32,945) -expense

Total other income (73,201) (4,980) (60,989) (10,497)(expense), net

Net loss before income taxes (41,250) (7,341) (21,533) (8,061)

Income tax benefit 35,428 - 35,712 -

Net income (loss) (5,822) (7,341) 14,179 (8,061)

Net income (loss)attributable to (3,841) (6,003) 7,325 (6,593)noncontrolling interest

Net income (loss)attributable to Purple $ (1,981) $ (1,338) $ 6,854 $ (1,468)Innovation, Inc.

Net income (loss) per share:

Basic $ (0.07) $ (0.16) $ 0.26 $ (0.17)

Diluted $ (0.11) $ (0.16) $ 0.26 $ (0.17)

Weighted average commonshares outstanding:

Basic 29,277 8,457 25,976 8,447

Diluted 53,997 8,457 55,021 8,447

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Cash flows from operatingactivities:

Net income (loss) $ (5,822) $ (7,341) $ 14,179 $ (8,061)

Adjustments to reconcile netincome (loss) to net cashprovided in operatingactivities:

Depreciation and 2,038 852 3,816 1,574amortization

Non-cash interest 1,416 833 2,791 1,565

Loss on extinguishment of - - - 6,299debt

Loss on change in fair value 38,970 3,685 25,337 1,988- warrant liabilities

Tax receivable agreement 32,823 - 32,945 -expense

Stock-based compensation 962 6,733 1,212 6,806

Deferred income taxes (44,007) - (44,007) -

Changes in operating assetsand liabilities:

Decrease (increase) in 4,241 (5,156) 9,663 (14,604)accounts receivable

Decrease (increase) in 2,291 284 7,807 (2,117)inventories

Increase in prepaid (650) (548) (3,049) (1,231)inventory and other assets

Increase in accounts payable 14,120 3,431 903 4,610

Increase in accrued sales 5,212 812 4,678 544returns

Increase in accrued 3,175 1,606 2,374 2,069compensation

Increase (decrease) in 4,800 739 2,080 (2,448)customer prepayments

Increase in income tax 8,244 - 8,224 -payable

Increase in other accrued 4,820 4,509 3,399 5,155liabilities

Net cash provided by 72,613 10,439 72,352 2,149operating activities

Cash flows from investingactivities:

Purchase of property and (3,490) (2,204) (8,010) (3,136)equipment

Investment in intangible (107) (57) (2,435) (121)assets

Net cash used in investing (3,597) (2,261) (10,445) (3,257)activities

Cash flows from financingactivities:

Proceeds from related-party - - - 10,000debt

Proceeds from exercise of 11 - 23 -warrants

Repurchase of stock options - (97) - (97)

Payments for debt issuance - - - (758)costs

Principal payments on (3) (8) (6) (14)capital lease obligations

Net cash provided by (used 8 (105) 17 9,131in) financing activities

Net increase in cash 69,024 8,073 61,924 8,023

Cash, beginning of the 26,378 12,182 33,478 12,232period

Cash, end of the period $ 95,402 $ 20,255 $ 95,402 $ 20,255

Supplemental disclosures ofcash flow information:

Cash paid during the period $ 8 $ 464 $ 22 $ 913for interest

Cash paid during the period $ 9 $ - $ 72 $ -for income taxes

Supplemental schedule ofnon-cash investing andfinancing activities:

Property and equipment $ 142 $ 44 $ 1,025 $ 482included in accounts payable

Equipment acquired through $ - $ - $ - $ 350capital lease

Non-cash leasehold $ - $ - $ 615 $ -improvements

Accrued distributions $ 4,403 $ - $ 4,523 $ -

Tax Receivable Agreement $ 45,266 $ - $ 45,266 $ -liability

Deferred income taxes $ 56,636 $ - $ 56,636 $ -

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 and adjusted operating loss. 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, nonrecurring legal fees, interim CFO and consulting fees and severance and CEO search costs.

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

GAAP net income (loss) $ (5,822) $ (7,341) $ 14,179 $ (8,061)

Interest expense 1,424 1,301 2,813 2,445

Income tax benefit (35,428) - (35,712) -

Other income, net (16) (6) (106) (235)

Depreciation and amortization 2,038 852 3,816 1,574

EBITDA (37,804) (5,194) (15,010) (4,277)

Adjustments:

Debt extinguishment and warrant 38,970 3,685 25,337 8,287liability

Stock-based compensation expense 962 6,733 1,212 6,806

Product reserve (308) - 500 -

Tax Receivable Agreement expense 32,823 - 32,945 -

Legal fees 377 262 608 403

Interim CFO and consulting - 307 - 494

Severance and CEO search costs 62 389 105 411

COVID-19 related expenses 117 - 117 -

Adjusted EBITDA $ 35,199 $ 6,182 $ 45,814 $ 12,124

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SOURCE Purple Innovation, Inc.