PR Newswire
LEHI, Utah, Aug. 9, 2023
Largest Product Introduction Points Business in the Right Direction
LEHI, Utah, Aug. 9, 2023 /PRNewswire/ -- Purple Innovation, Inc. (NASDAQ: PRPL) ("Purple"), a comfort innovation company known for creating the "World's First No Pressureâ„¢ Mattress," today announced results for the second quarter ended June 30, 2023.
Second Quarter Financial Summary (Comparisons versus Second Quarter 2022)1
- Net revenue decreased 16.1% to $120.9 million compared to $144.1 million.
- Wholesale revenue decreased 15.5% and Direct-to-Consumer (DTC) revenue decreased 16.6%.
- Gross margin decreased 210 basis points to 31.8% compared to 33.9%.
- Excluding discounts and transitional costs associated with the new product transition, second quarter 2023 adjusted gross margin was 38.6%
- Operating expenses were $75.7 million, or 62.7% of revenue compared to $60.9 million, or 42.3% of revenue.
- Advertising spend increased 6.0% to $20.1 million, compared to $18.9 million.
- Operating loss was $(37.3) million compared to an operating loss of $(12.1) million.
- Net loss was $(37.5) million as compared to $(8.3) million.
- Adjusted net loss was $(21.1) million, or $(0.20) per diluted share as compared to $(8.8) million, or $(0.11) per diluted share.
- EBITDA was $(31.3) million compared to $(8.0) million.
- Adjusted EBITDA was $(18.5) million compared to $(0.3) million.
- Cash and cash equivalents were $26.9 million at June 30, 2023.
- New, less restrictive debt facility signed on August 7, 2023, as disclosed in the second quarter 10-Q
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. | ||||||||
"This was an important quarter for Purple Innovation, marked by the largest product and brand refresh in the company's history as we introduced 11 all-new, innovative products supported by a more premium brand position," said Chief Executive Officer Rob DeMartini. "This new 'Path to Premium Sleep' strategy, while not immediately evident in our topline results due to the mid-quarter timing of the launch and ongoing industry-wide pressures, demonstrated several positive indications to reinforce that we have set the right course for the next stage of growth for the Company. June, the first full month with our new product in-market, was the strongest month of 2023 with a revenue run rate up 18% to the first 5 months of the year, and we've seen that momentum continue into the third quarter. This budding momentum, along with the continued rollout of our new product with additional wholesale partners in the coming months, positions us to deliver improved results in the second half of the year."
Second Quarter 2023 Review
Second quarter 2023 net revenue decreased 16.1% to $120.9 million, compared to $144.1 million in the second quarter of 2022. This decrease was primarily due to softening demand for home-related products, inflationary pressure on discretionary consumer spending, forward buying of consumers in recent years, industry-standard price reductions on the sell-in of new mattress and adjustable base floor models to wholesale partners, and increased discounting of discontinued models sold through our DTC channels. By channel, wholesale revenue decreased 15.5% and DTC revenue decreased 16.6%. DTC net revenues declined due to lower e-commerce revenue partially offset by growth in Purple retail showroom revenue driven by the addition of 16 showrooms over the previous 12 months.
Gross margin for the second quarter 2023 decreased to 31.8% compared to 33.9% in the year ago period. Excluding discounts and one-time costs associated with the product transition, gross margin in the current year quarter was 38.6%. These discounts and costs include industry standard price reductions on the sell-in of new mattress floor models to wholesale partners coupled with increased discounting of discontinued models sold through our DTC channels as we transitioned to our new premium and luxury product lineups. The 470-basis point improvement year-over-year was driven by the ongoing realization of efficiency and cost saving initiatives put in place during the first half of 2022.
Operating expenses were $75.7 million, or 62.7% of net revenue for the second quarter of 2023 compared to $60.9 million, or 42.3% of net revenue in the year ago period. This increase in operating expenses was largely driven by an increase in legal and professional fees of $8.2 million incurred by the Special Committee, including a $4.0 million accrual made in the second quarter of 2023 for the settlement amount owed to Coliseum. Marketing and sales expenses were higher in the second quarter as management increased advertising spend to align with the launch of our new premium and luxury product lineup in May 2023.
Operating loss was $(37.3) million for the second quarter 2023 compared to $(12.1) million in the prior year period.
Net loss attributable to Purple Innovation, Inc. was $(37.5) million for the second quarter 2023 compared to $(8.3) 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 ending June 30, 2023, there was no change in the fair value of warrant liabilities, while for the three months ended June 30, 2022, the Company recognized a non-cash gain of $0.4 million associated with the change in fair value of warrant liabilities. As of June 30, 2023, all outstanding warrants have expired.
Adjusted net loss, which excludes adjustments for certain non-cash items and other items the Company does not consider in the evaluation of ongoing operational performance, including losses associated with the extinguishment of debt and the expenses incurred by the Board's Special Committee, was $(21.1) million, or $(0.20) per diluted share, compared to $(8.8) million, or $(0.11) per diluted share in the prior year period. Adjusted net income has also been adjusted to reflect an estimated effective income tax rate of 25.9% for the current year period and 31.7% for the comparable prior year period.
EBITDA for the second quarter 2023 was $(31.3) million compared to $(8.0) million in the second quarter 2022. Adjusted EBITDA, which excludes the expenses of the Board's Special Committee, legal fees, non-cash stock-based compensation, severance and showroom opening costs, was $(18.5) million compared to Adjusted EBITDA of $(0.3) million in the prior year period.
Balance Sheet
As of June 30, 2023, the Company had cash and cash equivalents of $26.9 million compared to $41.8 million as of December 31, 2022. The decrease was driven primarily by cash used in operations of $38.1 million, capital expenditures of $5.8 million primarily related to additional investments made in our manufacturing facilities and the repayment of the full $24.7 million outstanding on the term loan. This was partially offset by cash provided from net proceeds of $57.0 million received from the public offering completed in February 2023. Inventories as of June 30, 2023 totaled $78.4 million compared with $73.2 million as of December 31, 2022.
On August 7, 2023, the Company closed on a new debt facility consisting of a $25 million term loan with Callodine Commercial Finance and an ABL credit agreement led by Bank of Montreal that provides up to $50 million in financing. This facility, which replaces Purple's prior credit agreement, is less restrictive, including no minimum EBITDA requirement, allowing for more flexibility to invest in accelerating growth initiatives and increasing market share.
2023 Outlook
Based on results for the first half of 2023 and a more cautious view of industry demand for the remainder of the year, the Company is adjusting its outlook. It now expects net revenue to be in the range of $560 to $590 million and adjusted EBITDA between $(10) million and breakeven.
Based on results for the first half of 2023 and a more cautious view of industry demand for the remainder of the year, the Company is adjusting its outlook. It now expects net revenue to be in the range of $560 to $590 million and adjusted EBITDA between $(10) million and breakeven.
Conference Call and Webcast Information
Purple Innovation, Inc. will host a live conference call to discuss financial results today, August 9, 2023 at 4:30 p.m. Eastern Time. To access the call dial (844) 825-9789 (domestic) or (412) 317-5180 (international). 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, the leading premium mattress company with the #1 Gel Grid technology in the world, the GelFlex® Grid, thoughtfully engineers products that make restorative sleep effortless for every kind of sleeper. The result of over 30 years of innovation and in comfort technologies, Purple's GelFlex Grid is the most significant advancement in mattresses in decades and is proven to reduce aches and pains. It instantly adapts as you move, balances temperature, relieves pressure and offers support in all the right places. Purple products, including mattresses, pillows, cushions, frames, sheets, and more, can be found online at Purple.com, in over 57 Purple stores and over 3,000 retailers nationwide. Sleep Better. Live Purple.
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 expanded product lines, innovation and showrooms; our ability to achieve profitability; expected improvements in performance quarter-over-quarter and growth in the second half of the year; expected improvement in margin rates; our ability to successfully execute on improvement strategies, including right-sizing our cost structure and improving supply chain and manufacturing efficiency, and related impacts on our operating results; expected improvements in our operating performance, including wholesale relationships; demand for our products; expectations regarding consumer behavior; the timing and impact of the introduction of new product lines; the adequacy of our cash other capital resources; and expected financial and operating results for the second quarter or full year 2023, 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; 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 22, 2023 as amended on Form 10-K/A filed with the SEC on May 1, 2023, and in our other filings made 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. Adjusted gross margin is a financial measure that removes the impact of reduced revenues relating to the sales of floor model mattresses and adjustable bases and increased one-time costs associated with the transition to our new Premium and Luxe product lineups. 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 tables 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 second quarter and full year 2023, 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
[email protected]
203-682-8200
PURPLE INNOVATION, INC. Condensed Consolidated Balance Sheets (unaudited - in thousands, except par value) | ||||||||
June 30, | December 31, | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash, cash equivalents and restricted cash | $ | 26,949 | $ | 41,754 | ||||
Accounts receivable, net | 22,769 | 34,566 | ||||||
Inventories, net | 78,402 | 73,197 | ||||||
Prepaid expenses | 5,669 | 7,821 | ||||||
Other current assets | 3,881 | 4,117 | ||||||
Total current assets | 137,670 | 161,455 | ||||||
Property and equipment, net | 131,493 | 136,673 | ||||||
Operating lease right-of-use assets | 99,858 | 102,541 | ||||||
Goodwill | 5,021 | 4,897 | ||||||
Intangible assets, net | 23,688 | 26,221 | ||||||
Other long-term assets | 2,958 | 1,546 | ||||||
Total assets | $ | 400,688 | $ | 433,333 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 48,742 | $ | 46,441 | ||||
Accrued sales returns | 4,197 | 5,107 | ||||||
Accrued compensation | 4,190 | 6,691 | ||||||
Customer prepayments | 5,477 | 4,452 | ||||||
Accrued sales and use tax | 1,674 | 2,978 | ||||||
Accrued rebates and allowances | 5,827 | 9,804 | ||||||
Operating lease obligations – current portion | 14,390 | 13,708 | ||||||
Other current liabilities | 7,359 | 8,130 | ||||||
Total current liabilities | 91,856 | 97,311 | ||||||
Debt | — | 23,657 | ||||||
Operating lease obligations, net of current portion | 113,549 | 115,599 | ||||||
Other long-term liabilities, net of current portion | 17,717 | 17,876 | ||||||
Total liabilities | 223,122 | 254,443 | ||||||
Commitments and contingencies (Note 14) | ||||||||
Stockholders' equity: | ||||||||
Class A common stock; $0.0001 par value, 210,000 shares authorized; 105,045 issued and outstanding at June 30, 2023 and 91,380 issued and outstanding at December 31, 2022 | 11 | 9 | ||||||
Class B common stock; $0.0001 par value, 90,000 shares authorized; 448 issued and outstanding at June 30, 2023 and 448 issued and outstanding at December 31, 2022 | — | — | ||||||
Additional paid-in capital | 589,145 | 529,466 | ||||||
Accumulated deficit | (412,323) | (351,514) | ||||||
Total stockholders' equity attributable to Purple Innovation, Inc. | 176,833 | 177,961 | ||||||
Noncontrolling interest | 733 | 929 | ||||||
Total stockholders' equity | 177,566 | 178,890 | ||||||
Total liabilities and stockholders' equity | $ | 400,688 | $ | 433,333 | ||||
PURPLE INNOVATION, INC. Condensed Consolidated Statements of Income (unaudited - in thousands, except per share amounts) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues, net | $ | 120,872 | $ | 144,109 | $ | 230,244 | $ | 287,288 | ||||||||
Cost of revenues | 82,408 | 95,297 | 148,557 | 186,850 | ||||||||||||
Gross profit | 38,464 | 48,812 | 81,687 | 100,438 | ||||||||||||
Operating expenses: | ||||||||||||||||
Marketing and sales | 46,379 | 40,373 | 84,552 | 90,332 | ||||||||||||
General and administrative | 26,437 | 18,779 | 50,104 | 36,667 | ||||||||||||
Research and development | 2,925 | 1,748 | 6,297 | 3,891 | ||||||||||||
Total operating expenses | 75,741 | 60,900 | 140,953 | 130,890 | ||||||||||||
Operating income (loss) | (37,277) | (12,088) | (59,266) | (30,452) | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (352) | (707) | (554) | (1,730) | ||||||||||||
Other income (expense), net | 37 | (136) | 110 | (119) | ||||||||||||
Change in fair value – warrant liabilities | — | 346 | — | 4,274 | ||||||||||||
Loss on extinguishment of debt | — | — | (1,217) | — | ||||||||||||
Total other income (expense), net | (315) | (497 | (1,661) | 2,425 | ||||||||||||
Net loss before income taxes | (37,592) | (12,585) | (60,927) | (28,027) | ||||||||||||
Income tax benefit (expense) | (72) | 4,175 | (144) | 5,986 | ||||||||||||
Net loss | (37,664) | (8,410) | (61,071) | (22,041) | ||||||||||||
Net loss attributable to noncontrolling interest | (155) | (70) | (262) | (199) | ||||||||||||
Net loss attributable to Purple Innovation, Inc. | $ | (37,509) | $ | (8,340) | $ | (60,809) | ||||||||||
