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Purple Innovation Reports Record Fourth Quarter and Full Year 2020 Results


PR Newswire | Mar 4, 2021 07:01AM EST

03/04 06:00 CST

Purple Innovation Reports Record Fourth Quarter and Full Year 2020 ResultsFourth Quarter Net Revenue Increased 40% and Operating Income Increased 171%Full Year Revenues Increased 51% and Operating Income Increased 339%Establishes 2021 Revenue Guidance Range of $840 to $880 Million LEHI, Utah, March 4, 2021

LEHI, Utah, March 4, 2021 /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 fourth quarter and year ended December 31, 2020.

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

* Net revenue increased 39.9% to $173.9 million as compared to $124.3 million. * Direct-to-Consumer (DTC) revenue increased 57%; Wholesale revenue increased 9%

* Gross margin was 47.2% compared to 47.7%. * Operating expenses as a percent of net revenue were 42.9% as compared to 45.4%. * Operating income increased 171.1% to $7.5 million as compared to $2.8 million. * Net loss was $(2.1) million as compared to a net loss of $(12.7) million. Adjusted net income was $5.0 million, or $0.07 per diluted share as compared to $1.2 million, or $0.02 per diluted share. * EBITDA was $(7.7) million as compared to $(9.3) million. Adjusted EBITDA was $12.2 million compared to $5.8 million.

Full Year 2020 Financial Summary (Comparisons versus Full Year 2019)1

* Net revenue increased 51.4% to $648.5 million as compared to $428.4 million. * Direct-to-Consumer (DTC) revenue increased 83%; Wholesale revenue increased slightly, reflecting COVID-19 related retail partner store closures.

* Gross margin increased 290 basis points to 47.0% as compared to 44.1%. * Operating expenses as a percent of net revenue improved to 36.1% as compared to 40.3%. * Operating income increased 339.3% to $71.2 million as compared to $16.2 million. * Net income was $10.9 million as compared to a net loss of $(12.4) million. Adjusted net income was $49.6 million, or $0.78 per diluted share as compared to $8.6 million, or $0.16 per diluted share. * EBITDA was $(20.2) million as compared to $(3.0) million. Adjusted EBITDA was $88.1 million compared to $33.4 million. * Net cash provided by operating activities increased to $81.3 million as compared to $22.9 million. * Ended the year with cash and cash equivalents of $123.0 million, an increase of $89.5M throughout the year.

"We concluded an amazing year of profitable growth for Purple with a strong fourth quarter performance," said Joe Megibow, Chief Executive Officer. "Despite the many challenges in 2020, our teams leaned-in and executed successfully, including this holiday season, identifying and capitalizing on market opportunities while at the same time investing in future growth. With our coveted and innovative products, internal manufacturing capabilities, and omni-channel distribution strategy combined with effective marketing and promotional programs, we have doubled our share of the U.S. premium mattress market over the past two years. Fiscal 2021 is off to a solid start and we believe we are well positioned to build on our recent accomplishments and intend to continue investing in capacity expansion, innovation and company showrooms to further expand our market share for years to come."

Reconciliations for non-GAAP financial measures to the most directly comparable1 GAAP financial measures are included in the "RECONCILIATION OF GAAP TO NON-GAAP MEASURES" tables at the end of this press release.

Fourth Quarter 2020 Review

Fourth quarter 2020 net revenue increased 39.9% to $173.9 million, compared to $124.3 million in the fourth quarter of 2019. The increase in net revenue was driven primarily by an increase of 57% in the DTC channel, led by strong mattress sales along with higher demand for pillows, sheets and seat cushions.

Gross margin for the fourth quarter 2020 was 47.2% compared to 47.7% in the year ago period. The decline in gross margin was primarily attributable to start-up costs of $1.2 million or 0.5% related to the new Georgia facility and one-time favorable warranty reserve adjustments of $1.6 million or 1.3% in the fourth quarter of 2019. DTC revenues comprised approximately 72% of net revenue for the quarter, compared with approximately 64% in the same quarter last year.

Operating expenses were 42.9% of net revenue for the fourth quarter of 2020 compared to 45.4% in the year ago period. The improvement in operating expenses as a percent of net revenue was driven by efficiencies in marketing and selling costs offset by additional administrative costs to support continued accelerated growth. For the fourth quarter 2020, marketing and sales expense as a percent of net revenue decreased to 34.9% compared with 38.6% last year due to leverage on higher net revenue and more efficient marketing spend, partially offset by additional marketing spend to increase brand awareness and the addition of company-owned showrooms.

Operating income increased 171.1% to $7.5 million for the fourth quarter 2020 compared to $2.8 million in the prior year period.

Net loss was $(2.1) million for the fourth quarter 2020 compared to a net loss of $(12.7) million in the year ago period. Net loss in the fourth quarter 2020 included a $(16.1) million non-cash expense associated with the change in fair value of warrant liabilities and a $(0.6) million non-cash expense associated with the Tax Receivable Agreement (see complete reconciliation in the table below). The fourth quarter 2019 included a $(13.4) million non-cash expense associated with the change in fair value of warrant liabilities. Adjusted net income, which excludes adjustments for certain non-cash items and other items that we do not consider in the evaluation of ongoing operational performance, including expenses associated with the change in fair value of warrant liabilities and the Tax Receivable Agreement, was $5.0 million, or $0.07 per diluted share, compared to $1.2 million, or $0.02 per diluted share in the prior year period. Adjusted net income has also been adjusted to reflect an estimated effective income tax rate of 25.4% for the current year period and 25.6% for the comparable prior year period.

EBITDA for the fourth quarter 2020 was $(7.7) million compared to $(9.3) million in the fourth quarter 2019. Adjusted EBITDA, which excludes non-cash expenses associated with the change in fair value of warrant liabilities, the Tax Receivable Agreement, the loss on extinguishment of debt, new production facility start-up costs, stock-based compensation expense, legal fees, severance, previous period sales tax liability, showroom opening costs and COVID-19 related expenses, was $12.2 million. This compares to Adjusted EBITDA of $5.8 million in the prior year period.

Full Year 2020 Review

Full year 2020 net revenue increased 51.4% to $648.5 million, compared to $428.4 million in 2019. The increase in net revenue was driven primarily by strong growth in mattress sales in the DTC channel along with higher demand for pillows, sheets and seat cushions.

Gross margin for the full year 2020 was 47.0% compared to 44.1% in the prior year. The 290 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. DTC revenues comprised approximately 75% of net revenue for the year, compared with approximately 62% in 2019. This mix shift more than offset difficult gross margin comparisons resulting from higher materials and freight costs as well as the initial cost to ramp opening of the Company's new manufacturing and warehouse facility in Georgia.

Operating expenses were 36.1% of net revenue for 2020 compared to 40.3% in the prior year. The improvement in operating expenses as a percent of net revenue was driven by leverage on higher net revenue and more efficient marketing spend, partially offset by additional marketing spend to increase brand awareness and the addition of company-owned showrooms. For 2020, marketing and sales expense as a percent of net revenue decreased to 29.0% compared with 33.1% last year due to focused efforts to improve efficiency in marketing spend as well as lower advertising costs.

Operating income increased 339.3% to $71.2 million, compared to $16.2 million in the prior year.

Net income for 2020 was $10.9 million compared to a net loss of $(12.4) million in the year ago period. Net income in 2020 included a $(59.4) million non-cash expense associated with the change in fair value of warrant liabilities, a $(5.8) million loss on the extinguishment of debt related to the retirement of the Company's previous debt agreement, and a $(34.2) million non-cash expense associated with the Tax Receivable Agreement (see complete reconciliation in the table below). Fiscal 2019 included a $(16.8) million non-cash expense associated with the change in fair value of warrant liabilities and a $(6.3) million loss on the extinguishment of debt. Adjusted net income, which excludes adjustments for certain non-cash items and other items that we do not consider in the evaluation of ongoing operational performance, including expenses associated with the change in fair value of warrant liabilities, the Tax Receivable Agreement, and the loss on extinguishment of debt, was $49.6 million, or $0.78 per diluted share for 2020, compared to $8.6 million, or $0.16 per diluted share in 2019. Adjusted net income has also been adjusted to reflect an estimated effective income tax rate of 25.4% for 2020 and 25.6% for 2019.

EBITDA for 2020 was $(20.2) million compared to $(3.0) million in 2019. Adjusted EBITDA, which excludes non-cash expenses associated with the change in fair value of warrant liabilities, the Tax Receivable Agreement, new production facility start-up costs, the loss on extinguishment of debt, stock-based compensation expense, legal fees, interim CFO & consulting costs, severance, vendor impairment, showroom opening costs, product reserves, previous period sales tax liability and COVID-19 related expenses, was $88.1 million for 2020. This compares to Adjusted EBITDA of $33.4 million in the prior year period.

Balance Sheet

As of December 31, 2020, the Company had cash and cash equivalents of $123.0 million compared to $33.5 million as of December 31, 2019. The increase was driven by $81.3 million generated by cash flow from operations and $48.4 million from the exercise of warrants and options. This was partially offset by capital expenditures of $27.9 million primarily related to manufacturing capacity expansion including the Company's new 525,000 square foot facility in Georgia as well as two additional Max Machines added to the Utah facility earlier in 2020.

Inventories as of December 31, 2020 totaled $65.7 million compared with $47.6 million as of December 31, 2019, as the Company was building inventory to support planned growth with wholesale partners, supplier delivery schedules, the new Georgia manufacturing facility, anticipation of slower ocean freight, Lunar New Year interruptions, and in support of the President's Day sale period.

2021 Outlook

For 2021, the Company currently expects full year revenue to be in the range of $840 to $880 million, an increase of 30% to 36% over 2020 results. Adjusted EBITDA for 2021 is expected to be between $90 million and $100 million, primarily reflecting a channel mix shift back towards wholesale and planned investments in growth, capacity and infrastructure.

The company expects capital expenditures for 2021 to be in the range of $45 to $50 million consisting primarily of approximately $20 million for the continued buildout of the Georgia manufacturing facility and $19 million related to the acceleration of showroom expansion, as well as expansion of wholesale displays and additional equipment for production and innovation facilities in Utah.

For the first quarter of 2021, the Company currently expects revenue to be in the range of $160 to $170 million, an increase of 31% to 39% over the first quarter of 2020 and adjusted EBITDA between $11 million and $14 million, reflecting seasonality and the Company's investments in expanding capacity necessary for our 2021 targets.

In the second quarter last year, the Company saw significant wholesale decline as the result of COVID required wholesale door closures and saw a corresponding 128% increase in DTC as offline consumers shifted to online channels in record numbers. In addition, reduced marketing costs drove efficiency improvements. This distorted both net revenue and gross margin as compared to prior trends. For the second quarter this year, the Company anticipates a significant mix-shift back to wholesale, supported by planned wholesale door expansion and more normalized consumer behaviors, along with more typical marketing rates. The Company will also continue investing in the buildout of the new Georgia facility and new e-commerce platform. Because of the atypical 2020 comparison and the new investments in future growth, second quarter adjusted EBITDA margins will be correspondingly lower than last year.

For the balance of the year, the Company expects revenue growth to be driven by both its wholesale and DTC channels, with wholesale delivering a higher growth rate as it realizes the benefit of new door expansion while DTC growth will be fueled by investments in e-commerce and marketing capabilities as well as significant showroom expansion. Based on its current outlook, the Company expects to achieve modest improvement in adjusted EBITDA over the comparable prior year period as it leverages costs associated with its Georgia facility and other operating expenses on higher revenue, partially offset by the continued channel shift to wholesale.

Conference Call and Webcast Information

Purple Innovation, Inc. will host a live conference call to discuss financial results today, March 4, 2021 at 8:30 a.m. Eastern Time. To access the call dial 877-425-9470 (domestic) or 201-389-0878 (international) and provide the Conference ID: 13716791. 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 relating to our expected continuing expansion of market share from investment in capacity, innovation and showrooms, expected future growth of revenue and earnings and anticipated growth rates, demand for our products, operating expense leverage, changes in channel mix, extent of increased costs, pressure on gross margins, changes in EBITDA margins, changes in consumer behavior, our ability to expand our wholesale operations, the impact of our new manufacturing facility on our business, and expected financial and operating results for the first and second quarter and full year 2021. 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: uncertainties regarding the extent and duration of the impact of the COVID-19 pandemic on many aspects of our business, operations and financial performance; changes in economic, financial and end-market conditions in the markets in which we operate; fluctuations in raw material prices; the financial condition of our customers and suppliers; competitive pressures, including the need for technology improvement, successful new product development and introduction; 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 on March 9, 2020 and our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2020, August 13, 2020, and November 10, 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, 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 the first quarter and full year 2021, 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, ICRbrendon.frey@icrinc.com203-682-8200

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

PURPLE INNOVATION, INC.Consolidated Balance Sheets(In thousands, except par value)

December 31,

2020 2019

Assets

Current assets:

Cash and cash equivalents $ 122,955 $ 33,478

Accounts receivable, net 29,111 28,692

Inventories, net 65,726 47,628

Prepaid inventory 826 879

Other current assets 10,453 3,442

Total current assets 229,071 114,119

Property and equipment, net 61,486 31,979

Operating lease right-of-use assets 41,408 -

Intangible assets, net 9,945 1,101

Deferred income taxes 211,244 -

Other long-term assets 1,578 525

Total assets $ 554,732 $ 147,724

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:

Accounts payable $ 69,594 $ 50,240

Accrued sales returns 8,428 7,271

Accrued compensation 14,209 7,954

Customer prepayments 6,253 6,258

Accrued sales tax 6,015 5,602

Accrued rebates and allowances 10,891 5,311

Operating lease obligations - current portion 3,235 -

Other current liabilities 13,583 4,229

Total current liabilities 132,208 86,865

Debt, net of current portion 41,410 35,399

Operating lease obligations, net of current portion 48,936 -

Warrant liabilities - 21,622

Tax receivable agreement liability 165,426 -

Other long-term liabilities, net of current portion 6,503 8,570

Total liabilities 394,483 152,456

Commitments and contingencies

Stockholders' equity (deficit):

Class A common stock; $0.0001 par value, 210,000 sharesauthorized; 63,914 issued and outstanding at December 6 231, 2020 and 22,494 issued and outstanding at December31, 2019

Class B common stock; $0.0001 par value, 90,000 sharesauthorized; 536 issued and outstanding at December 31, - 32020 and 31,394 issued and outstanding at December 31,2019

Additional paid-in capital 164,460 5,990

Accumulated deficit (4,561) (8,349)

Total stockholders' equity (deficit) 159,905 (2,354)

Noncontrolling interest 344 (2,378)

Total stockholders' equity (deficit) 160,249 (4,732)

Total liabilities and stockholders' equity (deficit) $ 554,732 $ 147,724

PURPLE INNOVATION, INC.Consolidated Statements of Operations(In thousands, except per share amounts)

Three Months Ended Year Ended December 31, 2020 December 31, 2020

2020 2019 2020 2019

Revenues, net $ 173,889 $ 124,300 $ 648,471 $ 428,358

Cost of revenues 91,859 65,064 343,374 239,387

Gross profit 82,030 59,236 305,097 188,971

Operating expenses:

Marketing and sales 60,678 47,936 187,991 141,975

General and administrative 12,613 7,675 39,925 26,918

Research and development 1,243 860 5,955 3,864

Total operating expenses 74,534 56,471 233,871 172,757

Operating income 7,496 2,765 71,226 16,214

Other income (expense):

Interest expense (609) (1,379) (4,654) (5,180)

Other income (expense), (200) 172 (91) 545net

Loss on extinguishment of - - (5,782) (6,299)debt

Change in fair value - (16,110) (13,386) (59,418) (16,758)warrant liabilities

Tax receivable agreement (643) (501) (34,155) (501)expense

Total other expense, net (17,562) (15,094) (104,100) (28,193)

Net loss before income (10,066) (12,329) (32,874) (11,979)taxes

Income tax benefit 7,931 (400) 43,749 (400)(expense)

Net income (loss) (2,135) (12,729) 10,875 (12,379)

Net income (loss)attributable to (91) (8,576) 7,087 (8,352)noncontrolling interest

Net income (loss)attributable to Purple $ (2,044) $ (4,153) $ 3,788 $ (4,027)Innovation, Inc.

Net income (loss) pershare:

Basic $ (0.03) $ (0.29) $ 0.10 $ (0.40)

Diluted $ (0.03) $ (0.29) $ 0.08 $ (0.40)

Weighted average commonshares outstanding:

Basic 60,372 14,242 39,219 10,006

Diluted 60,372 14,242 44,706 10,006

PURPLE INNOVATION, INC.Consolidated Statements of Cash Flows(In thousands)

Three Months Ended Year Ended December 31, December 31,

2020 2019 2020 2019

Cash flows from operatingactivities:

Net income (loss) $ (2,135) $ (12,729) $ 10,875 $ (12,379)

Adjustments to reconcilenet income (loss) to netcash provided by operatingactivities:

Depreciation and 1,533 1,816 7,899 4,308amortization

Non-cash interest 132 874 3,105 3,313

Paid-in-kind interest - - (6,616) -

Loss on extinguishment of - - 5,782 6,299debt

Loss on change in fair 16,110 13,386 59,418 16,758value - warrant liabilities

Tax receivable agreement 643 501 34,155 501expense

Stock-based compensation 626 323 2,185 10,063

Non-cash lease expense 3,128 - 3,128 -

Deferred income taxes (9,994) - (45,812) -

Changes in operating assetsand liabilities:

Accounts receivable (7,217) (2,005) (419) (18,451)

Inventories (14,951) (12,810) (18,098) (24,688)

Prepaid inventory and other 693 378 (5,047) (2,557)assets

Accounts payable 6,371 14,030 16,049 25,132

Accrued sales returns (1,857) 1,977 1,157 1,814

Accrued compensation 1,694 2,433 6,255 5,263

Customer prepayments 46 (1,434) (5) (1,264)

Operating lease obligations (1,732) - (1,732) -

Other accrued liabilities 767 321 8,978 8,768

Net cash provided by (used (6,143) 7,061 81,257 22,880in) operating activities

Cash flows from investingactivities:

Purchase of property and (13,684) (4,802) (27,878) (10,459)equipment

Investment in intangible (371) (74) (11,261) (320)assets

Net cash used in investing (14,055) (4,876) (39,139) (10,779)activities

Cash flows from financingactivities:

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

Proceeds from term loan - - 45,000 -

Payments on related-party - - (37,497) -loan

Payments on term loan (563) - (563) -

Proceeds from exercise of 44,235 - 46,359 -warrants

Proceeds from exercise of 2,007 - 2,007 -stock options

Repurchase of stock options - - - (97)

Payments for debt issuance - - (2,460) (758)costs

Distributions to members (481) - (5,487) -

Net cash provided by 45,198 - 47,359 9,145financing activities

Net increase in cash 25,000 2,185 89,477 21,246

Cash and cash equivalents, 97,955 31,293 33,478 12,232beginning of the year

Cash and cash equivalents, $ 122,955 $ 33,478 $ 122,955 $ 33,478end of the year

Supplemental disclosures ofcash flow information:

Cash paid during the period $ 7,213 $ 505 $ 8,167 $ 1,869for interest

Cash paid during the period $ - $ - $ 2,060 $ 122for income taxes

Supplemental schedule ofnon-cash investing andfinancing activities:

Property and equipmentincluded in accounts $ 519 $ 588 $ 3,305 $ 743payable

Issuance of liability $ - $ - $ - $ 4,864warrants

Non-cash leasehold $ 4,532 $ 1,938 $ 5,147 $ 1,938improvements

Tax distribution payable $ 668 $ 308 $ 668 $ 308

Tax Receivable Agreement $ 2,371 $ - $ 137,314 $ -liability

Deferred income taxes $ (3,630) $ - $ 165,676 $ -

Exercise of liability $ 81,040 $ - $ 81,040 $ -warrants

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

Management believes that the use of the following non-GAAP financial measuresprovides investors with additional useful information with respect to theimpact of various adjustments, which we view as a better measure of ouroperating performance. These non-GAAP financial measures are EBITDA, adjustedEBITDA, adjusted net income, and adjusted net income per diluted share. Othercompanies may calculate these non-GAAP measures differently than we do. Thesenon-GAAP measures have limitations as analytical tools, and you should notconsider them in isolation or as a substitute for our financial resultsprepared 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 EBITDAand adjusted EBITDA is provided below. EBITDA represents net income (loss)income before interest expense, other (income) expense, net, and depreciationand amortization. Adjusted EBITDA represents EBITDA excluding costs incurreddue to stock-based compensation expense, debt extinguishment, warrantliability, nonrecurring legal fees, interim CFO and consulting fees andseverance costs. We believe EBITDA and Adjusted EBITDA provide additionaluseful information with respect to the impact of various adjustments andprovide meaningful measures of our operating performance.

Three Months Ended Year Ended

December 31, December 31,

2020 2019 2020 2019

GAAP net income (loss) $ (2,135) (12,729) 10,875 (12,379)

Interest expense 609 1,379 4,654 5,180

Income tax (benefit) (7,931) 400 (43,749) 400expense

Other (income) expense, 200 (172) 91 (545)net

Depreciation and 1,533 1,816 7,899 4,308amortization

EBITDA (7,724) (9,306) (20,230) (3,036)

Adjustments:

Debt extinguishment and 16,110 13,386 65,200 23,057warrant liability

Stock-based compensation 626 323 2,185 10,063expense

Product reserve - - 500 -

Tax Receivable Agreement 643 501 34,155 501expense

Legal fees 488 390 1,544 809

Interim CFO and consulting - 30 - 706

Severance costs 196 30 329 730

Vendor impairment - - 1,660 -

Intangible asset - 404 - 404adjustment

Previous period sales tax 322 - 1,011 200liability

Showroom opening costs 222 - 222 -

New production facility 1,237 - 1,237 -start-up costs

COVID-19 related expenses 104 - 311 -

Adjusted EBITDA $ 12,224 $ 5,758 $ 88,124 $ 33,434

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

Our presentation of adjusted net income assumes that all net income isattributable to Purple Innovation, Inc. (i.e. there is no allocation of netincome or loss to noncontrolling interests), which assumes the full exchangeat the beginning of the period of all outstanding Paired Securities forshares of Class A common stock of Purple Innovation, Inc., adjusted forcertain nonrecurring items that we do not believe directly reflect our coreoperations. Adjusted net income per share, diluted, is calculated by dividingadjusted net income by the total shares of Class A common stock outstandingplus any dilutive warrants, options and restricted stock as calculated inaccordance with GAAP and assuming the full exchange of all outstanding PairedSecurities as of the beginning of each period presented. Adjusted net incomeand adjusted net income per diluted share, are supplemental measures ofoperating performance that do not represent, and should not be considered,alternatives to net income and earnings per share, as calculated inaccordance with GAAP. We believe adjusted net income and adjusted net incomeper diluted share, supplement GAAP measures and enable us to more effectivelyevaluate our performance period-over-period. A reconciliation of net income(loss), the most directly comparable GAAP measure, to adjusted net income andthe computation of adjusted net income per diluted share, are set forthbelow:

(in thousands, except Three Months Ended Year Endedper share amounts) December 31, December 31,

2020 2019 2020 2019

Net income (loss) $ (2,135) $ (12,729) $ 10,875 $ (12,379)

Income tax (benefit) (7,931) 400 (43,749) 400expense, as reported

Loss on extinguishment - - 5,782 6,299of debt

Tax receivable 643 501 34,155 501agreement expense

Change in fair value - 16,110 13,386 59,418 16,758warrant liabilities

Adjusted net income 6,687 1,558 66,481 11,579before income taxes

Adjusted income taxes^ (1,698) (399) (16,886) (2,964)(1)

Adjusted net income $ 4,989 $ 1,159 $ 49,595 $ 8,615

Adjusted net income $ 0.07 $ 0.02 $ 0.78 $ 0.16per share, diluted

Adjustedweighted-average 68,582 55,453 63,572 54,977shares outstanding,diluted^(2)

Represents the estimated effective tax rate of 25.4% and 25.6% for the three months and year ended December 31 2020 and 2019, respectively,(1) applied to adjusted net income before income taxes. The estimated effective tax rates are what the Company would be subject to and consist of the combined federal statutory tax rate and the Company's blended state tax rates.

Assumes dilutive warrants, options and restricted stock calculated in(2) accordance with GAAP and the full exchange of all outstanding Paired Securities for shares of Class A common stock as of the beginning of the period.

A reconciliation of net income (loss) per share, diluted, to adjusted netincome per diluted share is set forth below for the three months and year endedDecember 31, 2020 and 2019:

For the Three Months Ended

December 31, 2020 December 31, 2019

Weighted Net Weighted Net Average Income Net Average Income Net Income Shares, per Income Shares, per Diluted Share, Diluted Share, Diluted Diluted

Net income(loss)attributable $ (2,044) 60,372 $ (0.03) $ (4,153) 14,242 $ (0.29)to PurpleInnovationInc.^(1)

Assumedexchange of (91) 574 (8,576) 38,263shares^(2)

Net income (2,135) (12,729)(loss)

Adjustments toarrive atadjusted 8,822 7,636 14,287 2,948income beforetaxes^(3)

Adjustedincome before 6,687 1,558taxes

Adjustedincome taxes^ (1,698) (399)(4)

Adjusted net $ 4,989 68,582 $ 0.07 $ 1,159 55,453 $ 0.02income

For the Year Ended

December 31, 2020 December 31, 2019

Weighted Net Weighted Net Average Income Net Average Income Net Income Shares, per Income Shares, per Diluted Share, Diluted Share, Diluted Diluted

Net incomeattributableto Purple $ 3,788 44,706 $ 0.08 $ (4,027) 10,006 $ (0.40)InnovationInc.^(1)

Assumedexchange of 7,087 16,253 (8,352) 42,512shares^(2)

Net income 10,875 (12,379)(loss)

Adjustments toarrive atadjusted 55,606 2,613 23,958 2,459income beforetaxes^(3)

Adjustedincome before 66,481 11,579taxes

Adjustedincome taxes^ (16,886) (2,964)(4)

Adjusted net $ 49,595 63,572 $ 0.78 $ 8,615 54,977 $ 0.16income

Represents net income attributable to Purple Innovation, Inc. and the(1) associated weighted average diluted shares, of Class A common stock outstanding.

Assumes the full exchange of all outstanding Paired Securities for shares of Class A common stock as of the beginning of the period. Also assumes the(2) addition of net income attributable to noncontrolling interests corresponding with the assumed exchange of the Paired Securities for shares of Class A common stock.

Represents the total impact of all adjustments identified in the adjusted(3) net income table above to arrive at adjusted income before income taxes. Also assumes the dilutive warrants, options and restricted stock as calculated in accordance with GAAP.

Represents the estimated effective tax rate of 25.4% and 25.6% for the three months and year ended December 31, 2020 and 2019, respectively,(4) applied to adjusted net income before income taxes. The estimated effective tax rates are what the Company would be subject to and consist of the combined federal statutory tax rate and the Company's blended state tax rates.

View original content: http://www.prnewswire.com/news-releases/purple-innovation-reports-record-fourth-quarter-and-full-year-2020-results-301240381.html

SOURCE Purple Innovation, Inc.






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