Purple Innovation, Inc. Q4 FY2020 Earnings Call

Good morning, everyone. Welcome to the Purple Innovation Fourth Quarter 2020 Earnings Conference Call. I would like to introduce your host, Mr. Brendon Frey from ICR. Please proceed, sir.

Thank you for joining Purple Innovation's fourth quarter 2020 earnings call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Purple's innovation judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting the company's business. Accordingly, you should not place undue reliance on these forward-looking statements. For more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our fourth quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. Today's presentation will include references to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. With that, I'll turn the call over to Joe Megibow. Joe?

Thank you, and good morning, everyone. With me on the call today is John Legg, our Chief Operating Officer; and Craig Phillips, our Chief Financial Officer. Following our prepared remarks, we'll be happy to take your questions. We entered 2020 with a lot of momentum resulting from the many operational initiatives in manufacturing, distribution, marketing and omnichannel retailing that our amazing team successfully executed in 2019. We had a sound plan in place to build on our success and accelerate growth, which we outlined on our fourth quarter earnings call this time a year ago. Soon thereafter, our plan was interrupted by the outbreak of COVID-19 in the U.S. and the measures to help slow the spread of the virus, which significantly altered everyday life for most Americans and disrupted commerce across the country for many companies. 2020 proved to be a year like no other, as the global health pandemic created challenges for most businesses. I'm incredibly proud of how the Purple organization skillfully navigated volatile market conditions throughout the year and quickly adapted to changing consumer behavior. Early in the outbreak, we leaned heavily into our digital expertise to capitalize on the accelerated shift to online buying, while nonessential brick-and-mortar retail, including a large portion of our wholesale channel, was shut down. Our business also received a boost from the increased spending on categories tied to the home during the pandemic. This was true for not only our mattresses, but created significant opportunity for our differentiated pillows and seat cushions as well. We also took advantage of our vertically integrated manufacturing capabilities, quickly ramping production back up after a brief pause at the start of the outbreak to capture the heightened demand we experienced for our brand and product portfolio in 2020. This included finishing the work to bring two additional Max Machines online in the first half of the year that increased our production capacity by approximately 40%. The accelerated shift to online channels created by COVID-19 positively impacted 2020 revenue and margins, which, along with savings from certain cost actions and lower advertising rates earlier in the pandemic, fueled a significant improvement in profitability and cash generation. A few of the notable 2020 financial highlights include: net revenue increasing 51% with direct-to-consumer up 83%; gross margins improving 290 basis points; net income of $10.9 million compared to a net loss of $12.4 million; adjusted EBITDA increasing 164% to $88.1 million, with adjusted EBITDA margins improving 580 basis points to 13.6%; and cash at end of the year of $123 million, up 267% from the end of 2019. In addition to our strong financial performance, there were a number of important strategic and operational accomplishments this past year. As I mentioned, we added two more Max Machines, #6 and #7, which completed our capacity in our Grantsville, Utah facility. We opened Purple South, a new 525,000 square-foot facility south of Atlanta in the fall, which will ultimately house six more Max Machines. I'll speak more on Purple South later in the call. We grew our innovative pillows and seat cushions by over 140% year-over-year, crossing over one million lifetime units sold in total for each, as we put more resources into broadening awareness and driving demand for these product lines. Finally, we meaningfully increased our share of the U.S. mattress market. We estimate our overall market share to be over 3%, while our share of the premium category above $1,000 price point to be nearly 6%. With respect to the fourth quarter, it was no different from the rest of 2020 in that consumer behavior did not follow historical trends. Following a strong start to the holiday season, both online and in stores, we experienced a slowdown in wholesale orders during the last few weeks of the year, which was related to some reported brick-and-mortar softness as well as aggressive buys by our partners earlier in the quarter. This was followed by a significant rebound in January, indicating a possible delay in consumer purchasing as well as our wholesale partner's sell-down of inventory at the end of the year. Our wholesale business was also impacted by unanticipated store closures, particularly in Canada, where close to 65% of Sleep Country's locations were forced to shut due to new restrictions implemented in early December to help slow the second wave of the virus. Despite these challenges, in Q4, we delivered 40% net revenue growth, including a 57% gain in our direct-to-consumer channel, an 83% improvement in net loss and a 112% increase in adjusted EBITDA. Coming off an incredibly strong year, we have never been better positioned for expansion and growth. Our focus in 2021 is on further investing in the business to drive market share gains over the near and long term. There are three big themes we are focusing on this year. The first theme I call customers, not transactions, as we move from our historical profitable single transaction success to a true lifetime value view of servicing our loyal and satisfied customers. In support of this comes the second theme, which is multi-category, as we move from everything centering around the mattress to also driving our bedding and seat cushion businesses as primary opportunities. The majority of our pillow and cushion customers are new to Purple and, as suggested in the first theme, are potential mattress buyers down the road. It also turns out that pillow and seat cushion customers are much more likely to buy another pillow or seat cushion from us. The final theme is product differentiation, as we get much more aggressive on educating the market on what makes Purple so unique as well as continuing to bring innovative and better products to our customers. I'm going to walk through six specific initiatives we intend to execute in support of these themes that will shape our results this year and beyond. The six are: expanding manufacturing capacity; growing our wholesale presence; launching a new e-commerce platform; accelerating the rollout of Purple showrooms; introducing innovative new products; and finally, debuting a new brand campaign. Starting with manufacturing expansion, we are pleased to report that our eighth Max Machine, the first in our new facility outside Atlanta, produced its first units on time in late January and, as of last Monday, is now officially in production, along with an assembly line behind it. We are also in the final stages of preparing Max 9 to be online by early Q2, with Max 10 and Max 11 to follow later this year. These four machines are expected to increase our mattress output by over 65% by the end of 2021, which will further expand as we bring on Max 12 and 13 next year. With our success in launching the Georgia facility, we were finally able to retire Max 1 this quarter. Max 1 was built in our original headquarters as a prototype, with a design different from any of our other machines. The cost of maintaining Max 1 versus investing in new machines was no longer viable. She served us well, and we owe her a debt of gratitude. As for overall capacity, we are quickly getting to the point that we are growing capacity faster than our business is growing, which is exactly what we have been working hard to accomplish. This additional capacity will allow us to run our entire manufacturing base more efficiently over the long range by providing us the ability to more easily take machines offline for planned maintenance, lean into unplanned surges and growth, and have manufacturing resiliency, should we ever have unplanned downtime. On top of the additional Max Machines in Georgia, we have already installed our first injection molding machine used for seat cushion and pillow production, and anticipate bringing another five machines online in the first half of the year and an additional two machines later this year. All in, we expect that this will increase our current capacity by more than 85%. This will allow us to better meet the heightened demand for these two fast-growing categories. Moving to growing our wholesale presence, we ended 2020 with more than 2,200 wholesale doors, up from nearly 1,600 at the end of 2019. The modest growth of door count last year was driven by the impact COVID-19 had on brick-and-mortar retail, combined with the inventory constraints we experienced due to the surge in our direct business. With our additional manufacturing capacity coming online, we intend to lean into accelerated wholesale door growth. Our current plan is to add approximately 1,500 new doors in 2021, with a focus on both expanding our footprint with existing partners as well as launching with additional leading regional furniture players. Based on our current schedule, we project our channel mix to be roughly 70% direct-to-consumer, 30% wholesale for the full year, which does create some margin pressure as compared to the nearly 75% DTC mix we realized in 2020. Now to launching a new e-commerce platform. We have been developing the new design and platform for much of 2020. In order to capitalize on immediate opportunities during the stay-at-home fueled demand, we deferred some of the work into this quarter. With that said, we are thrilled that we are currently beta testing the first phase of the new platform and plan to start rolling it out by the end of this quarter. This release includes an in-house developed promotions engine that we believe will give us a unique competitive advantage. This release will also unify our site, showroom point-of-sale and contact center systems with a single customer record. Throughout the year, we will continue with our phased launch, including an all-new design, with heavy focus on product education as well as even more sophistication for our contact center, which continues to outperform and is now consistently representing double-digit share of DTC sales. The new platform also enables accounts and a customer-centric content capability, finally opening the door to CRM best practices, which we believe has significant opportunity as our assortment grows. Shifting to accelerating the rollout of Purple showrooms. We began 2021 with nine locations after opening four Purple showrooms in Q4 of 2020 and are now preparing to pick up the pace in the coming quarters. The plan is to add between 20 and 25 showrooms this year, primarily in major metro areas. We recently introduced a new store design that looks amazing, with elevated presentation and an opportunity to tell the full brand story with our complete assortment. All of our showrooms are performing well, with our earlier showrooms now exceeding pre-pandemic sales volumes and our newest locations scaling faster than any of our original locations. With respect to new product introductions, with many new products in development for this year, including line expansions and upgrades to our pillows and cushions as well as higher margin and higher price point on our mattresses, we have some very exciting new products we intend to launch toward the end of the year, which we believe will fuel significant opportunity into 2022. We anticipate the first of the new products to launch next quarter in early Q2. Finally, we are about to launch a new campaign that we are very excited about. We have been maturing the brand story as we lean harder into our unique and proprietary benefits. This year will be all about our products first, and we are not going to be shy about what makes our products better. With our medical cushioning roots, 25 years of experience and over 1 million mattresses sold, the benefits have become increasingly clear, and our happy customers are still our best promoters. Expect to see more research, claims and testimonials in the years to come. Based on the expected outcome and timing of these initiatives, partially offset by the challenging prior year comparisons we are up against in the second and third quarters, we are planning for another year of strong growth. We currently expect full year revenue to increase between 30% and 36% over 2020, with adjusted EBITDA between $90 million to $100 million. I'll now turn it over to Craig, who will review the financials and our outlook in more detail.

Thanks, Joe. As Joe outlined, it was another strong quarter from both a revenue and adjusted profitability standpoint, even with some late December wholesale sales appearing to shift into January. For the three months ended December 31, 2020, net revenue was $173.9 million, up 39.9% compared to $124.3 million in the prior year period. The revenue increase was driven primarily by strong growth in mattresses in our DTC channel, along with higher demand for pillows, sheets and seat cushions. Our wholesale business was up, but less than we expected, as demand slowed in the last few weeks of December, before picking back up early in January 2021. For the quarter, DTC channel net revenue increased 57% year-over-year, while wholesale channel net revenue grew 9%. Gross profit dollars were $82 million during the fourth quarter of 2020 compared to $59.2 million during the same period in 2019, with gross margin at 47.2% versus 47.7% in the fourth quarter of 2019. This gross margin decrease of 50 basis points year-over-year can be attributed primarily to start-up costs related to the new Georgia facility and one-time favorable inventory reserve adjustments recorded in the fourth quarter of 2019. This was partially offset by a channel mix shift toward DTC and a product mix shift towards non-mattress revenue as well as price increases on several models in July of 2020. 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 versus 45.4% in the prior year period. This improvement of 250 basis points was driven by efficiencies in marketing and selling costs, offset by additional administrative costs to support continued accelerated growth. Marketing and sales expense as a percentage 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. For the fourth quarter, we reported operating income of $7.5 million compared to $2.8 million in the fourth quarter of 2019, an increase of 171.1%. Net loss for the quarter was $2.1 million compared to a net loss of $12.7 million in the year-ago period. The fourth quarter 2020 included a $16.1 million non-cash expense associated with the change in fair value of warrant liabilities, a $7.9 million income tax benefit and a $0.6 million non-cash expense associated with the tax receivable agreement. The fourth quarter 2019 included a $13.4 million non-cash expense associated with the change in fair value of warrant liabilities and a $0.5 million non-cash expense associated with the tax receivable agreement. Excluding these items, adjusted net income was $5 million or $0.07 per diluted share based on an adjusted weighted average diluted share count of 68.6 million compared to adjusted net income of $1.2 million or $0.02 per diluted share based on an adjusted weighted average diluted share count of 55.5 million. Adjusted net income has 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 quarter was negative $7.7 million compared to negative EBITDA of $9.3 million in the fourth quarter of 2019. Adjusted EBITDA, which excludes certain non-cash and other items, and we do not consider in the evaluation of our ongoing performance as detailed in today's earnings release, was $12.2 million compared to $5.8 million in the same quarter last year, an increase of 114%. Now to our full year results, which were very strong across the board, highlighted by our second consecutive year of approximately 50% top line growth and a 164% increase in adjusted EBITDA, which is on top of a 412% increase the year before. For the 12 months ended December 31, 2020, net revenue was $648.5 million, up 51.4% compared to $428.4 million in the prior year period. The revenue increase was driven by strong growth in mattresses in our DTC channel, along with higher demand for pillows, sheets and seat cushions. For the year, DTC channel net revenue increased 83%. Our wholesale channel net revenue was relatively consistent with the prior year. Gross profit dollars in 2020 increased 61.5% to $305.1 million compared to $189 million in 2019. For the year, gross margin improved 290 basis points to 47% from 44.1% driven primarily by a higher proportion of DTC channel revenue, which carries higher gross margins than our wholesale channel. For the year, DTC revenues comprised approximately 75% compared with approximately 62% in 2019. Operating expenses were 36.1% of net revenue in 2020 versus 40.3% in the prior year period. This improvement of 440 basis points was driven by leverage on higher net revenue and more efficient marketing spend, partially offset by incremental investments in increasing brand awareness and the addition of company-owned showrooms. For 2020, marketing and sales expense as a percentage of net revenue decreased to 29% compared with 33.1% last year due to focused efforts to improve efficiency in marketing spend as well as lower advertising costs. For the year, we reported operating income of $71.2 million, an improvement of $55 million or 339.3% compared to operating income of $16.2 million in 2019. Net income for the year was $10.9 million or $0.08 per diluted share compared to a net loss of $12.4 million or $0.40 per diluted share the year before. Net income for 2020 included a $59.4 million non-cash expense associated with the change in fair value of warrant liabilities, a $43.7 million income tax benefit, 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. 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 extinguishment of debt; a $0.4 million tax expense; and a $0.5 million non-cash expense associated with the tax receivable agreement. Excluding these items, adjusted net income was $49.6 million or $0.78 per diluted share based on an adjusted weighted average diluted share count of 63.6 million compared to adjusted net income of $8.6 million or $0.16 per diluted share based on an adjusted weighted average diluted share count of 55 million. Adjusted net income has been adjusted to reflect an estimated effective income tax rate of 25.4% for the current year period and 25.6% for the last year. EBITDA for 2020 was negative $20.2 million compared to negative EBITDA of $3 million in 2019. Adjusted EBITDA was $88.1 million versus adjusted EBITDA of $33.4 million last year. Moving to our balance sheet. As of December 31, 2020, the company had cash and cash equivalents of $123 million, up from $33.5 million at 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 our Utah facility earlier in 2020 and our showroom expansion. Net inventories totaled $65.7 million at December 31, 2020, compared to $47.6 million at December 31, 2019. The increase in inventory is in support of planned growth with wholesale partners, supplier delivery schedules, expected delays in ocean freight, delays from production interruptions from the Lunar New Year, and in advance of the President's Day promotion period. Turning to guidance. While there continues to be uncertainty in the overall economy due to COVID-19, we are encouraged by our momentum at the start of 2021 and our prospects for continued market share gains. With our strong balance sheet, we are well positioned to continue investing in our business, including additional manufacturing capacity, company showrooms, brand building, and innovation initiatives. Based on our current plans, we expect full year revenue to be in the range of $840 million to $880 million, an increase of 30% to 36% over 2020 results, with adjusted EBITDA between $90 million and $100 million, as we strategically invest in growth, capacity and infrastructure, realizing a shift to a more normalized approximately 30% wholesale mix of direct revenue and seeing marketing rates return to pre-COVID levels. For the year, CapEx is projected to be in the range of $45 million to $50 million, with the majority of the spend going towards continued build-out of our new Georgia manufacturing facility, acceleration of showroom expansion, improvement and expansion of wholesale displays, and additional equipment for production and innovation in our Utah facilities. While historically we haven't provided quarterly guidance, given that we are more than two-thirds of the way through the first quarter, we are sharing some specific details. For the first quarter of 2021, we are forecasting revenue to be in the range of $160 million to $170 million, an increase of 31% to 39% over the first quarter of 2020; and adjusted EBITDA of between $11 million and $14 million, reflecting seasonality in the company's investments and expanding capacity necessary for our 2021 targets. Looking to the second quarter, it's helpful to reflect on the Q2 of last year when COVID-19 necessitated significant wholesale door closures, resulting in a substantial reduction in our wholesale business. We then correspondingly saw a 128% increase in our DTC business as offline consumers shifted to online channels and record numbers. In addition, reduced marketing costs drove efficiency improvements. This distorted both net revenue and gross margin as compared to pre-COVID trends. Comparing that to the second quarter this year, we anticipate a significant mix shift back to wholesale, supported by planned wholesale door expansion and more normalized consumer behaviors, along with more typical marketing rates. We'll also continue investing in the build-out of the new Georgia facility and new e-commerce platform. Because of the atypical 2020 comparison and the new investment in future growth, second quarter adjusted EBITDA margins will be correspondingly lower than last year. Finally, for modeling purposes, I want to point out that we ended 2020 with approximately 63.9 million outstanding Class A shares, following the completion of the public and incremental loan warrant redemption in the fourth quarter of last year. There are still approximately 8 million sponsor warrants outstanding that are not redeemable and may be exercised by the holder on a cash or cashless basis, which, if exercised, would result in a total of 4 million additional shares issued. I'll now turn it back to Joe for his closing comments.

Thanks so much, Craig. We are very excited for 2021. Coming off the incredible share gains we achieved last year, significant momentum and with the strongest balance sheet we've ever had, we are now able to appropriately invest in capacity, R&D and maturing our operations. The 2020 distorted profitability from pandemic-fueled mix shift to online sales, along with catch-up and new investment in 2021 does create gross margin and EBITDA pressure year-over-year, though that misses the point. We have continued to drive intrinsic improvements across the board as compared to our multi-year trends. More importantly, this comes from the incredible hard work and diligence of our team in 2018 and 2019 as we've stabilized and built a foundation for scale. This proven execution ability allowed us to lean in and disproportionately capture opportunity last year and is now allowing us to invest in significant long-term growth. Having worked alongside the amazing Purple team for the last 2.5 years, I am confident in what they can accomplish and look forward to continuing to share our progress and success with customers and investors alike. We are just getting started. At this time, we will open the call up to questions.

The first question comes from Seth Basham with Wedbush Securities.

Congrats on a great year. My question is first thinking about the near term here, Joe. It seems like things slowed in the wholesale channel in December, but have since picked up. But it seems like your revenue growth guidance for the first quarter is still a little bit lighter to expectations. Are you seeing an overall deceleration in demand that's causing that?

Seth, great to connect again. Yes, we're actually very pleased with our performance right now. I would say, as you indicated, that wholesale hasn't rebounded quite as quickly as we had anticipated many months ago, late Q4, a lot of the industry reporting on this. Wholesale, definitely it's converted, call it. Brick-and-mortar is definitely coming back, again, with the later waves of the pandemic not quite as quickly as some of us had hoped. That said, our wholesale demand has never been stronger against traffic patterns. Our partnerships remain very strong, and our DTC business continues to grow quite at healthy rates. So no, we are not seeing any indication of deceleration in demand. I just - we're just maturing the overall scale of the business.

That's helpful. And just a follow-up on the wholesale channel and the outlook there. Do you still have many accounts that are on allocation? And when do you expect to have that supply to meet all the wholesale demand with your current partners?

Yes. Right now, we are meeting all orders coming in, so we have no partners on allocation at this point. Again, we've been diligently building out our capacity, as you heard in the prepared remarks. We're in our strongest capacity position right now. The pace that John Legg and his team are building out new Max Machines and new injection molding machines for our pillows and cushions. With the addition of Atlanta, we have significantly better labor pool to pull from where - this is the year we grow capacity faster than our demand is growing. And that's, again, given the prepared remarks that we just said, that's exactly what we've been trying to do.

Got it. If I may, just to make sure I understand the wholesale outlook. When you think about your existing partners versus new partners you plan on signing up and the number of doors you plan on expanding into, I presume that the majority of the new doors that you're expanding into are with existing partners in 2021.

Yes. Well, our preference is to support the partners we have, for sure, and we're in early days with some of our larger partners on building out our penetration. That said, there's a large market out there, and there are many ways for us to get the share we need. So we have the luxury of a few paths forward right now, but we continue to have a very healthy relationship with our existing partners and anticipate meaningful expansion there.

And let me add my congratulations on a great 2020. Joe, it seems like you have a lot of really exciting initiatives in the pipeline here to drive organic growth and market share gains. If I piece apart the guidance, I think you are implying that you all would be doing about 30% revenue growth, give or take, after 1Q through the balance of the year. As we think about piecing that apart, how are you thinking about the D2C growth versus the wholesale growth in those quarters?

So our DTC business is certainly at the scale we're operating and maturing, but we still anticipate very healthy growth there. Part of this is supported by some very strong growth engines we have in DTC, one of which is the showrooms that we largely paused for 2020 given the general slowdown or outright shutdown in brick-and-mortar. We finally turned it back on in Q4 with four additional showrooms and, as we said in the prepared remarks, are anticipating five or more per quarter on average, which is the pace we've been signaling for quite some time. The other is our contact center, which we've spoken several times on. Our contact center continues to execute extremely well. It's driving double-digit percentages of our online business with higher conversion rates, higher average order value and higher units per transaction. In nearly every measure, putting associates on the phone with customers who are very focused on helping our customers out is a magical combination and is helping to fuel significant growth as well. And then we - finally, we have the new e-commerce platform that we did not launch last year as we deferred into early this year given all the short-term opportunity we found ourselves facing last year. But we've got an entirely new platform, a complete rebuild top to bottom, all new design and an entirely homegrown promotions engine. We looked at the market and didn't find any third-party options that could meet the approach and complexity that are needed to service our customer, and those become significant assets driving our growth as well.

I just want to dive into the fourth quarter a little bit and then ask a couple of questions about 2021 and beyond. But for the fourth quarter, when we spoke in November, what was the biggest delta versus the kind of revenue, I don't want to call it guidance, but soft guidance that was given in 3Q of having that growth rate compared to the growth rate in 4Q comparable to 3Q? Was it on the wholesale side? Was it on DTC? Like what slowed versus your expectations in November?

Yes. Certainly, it was a little softer than we had hoped. It was largely led by wholesale. As we said in the prepared remarks, later in the quarter in terms of our sell in, we saw lighter buys than we had anticipated, which, later, as we looked at sell-through data and market data indicated a little more malaise in brick-and-mortar in the back half of December. Again, we have seen a catch-up on that in early Q1, which is what you would certainly hope to see, but wholesale was the biggest delta there. DTC performed well, as you see in our overall Q4 results. I think we were hoping - again, it really was driven in the back half of December. We were hoping for a little more, came in a little lighter than we had anticipated. But the other challenge, and we're clearly correcting that for this year, I mean, we did not give formal guidance for Q4. We gave sort of some directional hints, and I think some of the gap was just a lack of specificity in Q4. We were a lot closer to what we thought we would do internally. So this year, we definitely, as you're saying, are going to try to be much more transparent and communicative with what we see going on and anticipate keeping a much more open dialogue moving forward.

Okay. That's helpful. And then for the wholesale aspect, I mean, is it more just customers had a little too much inventory or there was just moving parts around your retailers, other products? Because I'm just asking the context that while, of course, COVID obviously had an impact on the retail market, some of your peers that are majority wholesale did have pretty strong quarters in their wholesale business. So was there just some timing shifts there? Or are you getting enough visibility to see that there's not changes happening on the floor for the Purple products?

Yes. So certainly, as compared to balance of year, Q4 was opening back up. So for those who leaned heavily into brick-and-mortar, Q4 was a very optimistic quarter. We just saw some very healthy buys early in the quarter that - and consider we were coming out of allocation, so I think we also had some of our wholesale partners trying to build their stores on our product when they could. So some very healthy inventory positions early in the quarter and, as a result of, I think, just burning that down. The sell-through data shows pretty consistent sales volume. I just - I think they bought heavy early in the quarter, sold that down and then held back their rebuys until early this year.

So I just don't want to get ahead of ourselves. I know you're not giving a 2022 guidance. But just kind of thinking about taking a step back and thinking about the margin profile longer term, do you guys still envision something potentially sort of in the 15% range in terms of EBITDA? I think it's kind of all else equal, 2022, I think, should be higher than '21 just given the lower proportion of investments and more capacity added at that point and all those sort of things. How should we sort of all kind of think that out in terms of the market profile for the next, I don't know, call it, 2 to 3 years?

We're doing a lot of work internally right now on building out our multi-year roadmap, and we anticipate being able to share some of that in the near future. But we see - we are going to continue to invest in scale and growth. There is a lot of opportunity in front of us, and we believe we are heading down the path of being a very major player in this category as well as in other categories. That said, there are absolutely opportunities for leverage as we continue to build out our Atlanta facility and get that complete. Even as we open new facilities as a percentage of total expenditures, the new investment becomes smaller, and we're absorbing that overhead. Marketing, which this year, we're continuing around our traditional path of about 30% of net revenue in advertising and selling, we don't anticipate as our total net revenue continues to grow that it will continue to be at that rate. So there's absolutely going to be opportunity for leverage as we move forward in G&A as well and other areas of the business. So yes, I think in 2022, it's reasonable that we could start to see some leverage and beyond. And I mentioned earlier, the manufacturing improvements and the other intrinsic margin improvements with new products built with better margin profiles as well as our ability to continue to raise prices, so, yes, there's a lot to be optimistic about in our ability to bring up both gross margins and EBITDA margins. And there are very specific and describable initiatives to get there. It's just, right now, our focus is obviously a little more near-term on taking this foundation we've built and demonstrating how much scale and share we can get from it.