8-K
Purple Innovation, Inc. (PRPL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):August 9, 2022
Purple Innovation, Inc.
(Exact Name of Registrant as Specified in itsCharter)
| Delaware | 001-37523 | 47-4078206 |
|---|---|---|
| (State of Incorporation) | (Commission File Number) | (IRS Employer<br><br> <br>Identification No.) |
| 4100 North Chapel Ridge Rd., Suite 200 | |
|---|---|
| Lehi, Utah | 84043 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including
area code: (801) 756-2600
(Former name or former address, if changed sincelast report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencements communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on whichregistered |
|---|---|---|
| Class A Common Stock, par value $0.0001 per share | PRPL | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIALCONDITION
On August 9, 2022, Purple Innovation, Inc. (the “Company”) issued a press release announcing its financial results for the second quarter ended June 30, 2022, and providing revised guidance for 2022. A copy of the Company’s press release is attached as Exhibit 99.1 to this report and incorporated by reference.
The information furnished pursuant to this Item 2.02 and the exhibit hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such filing.
The press release furnished herewith in Exhibit 99.1 contains non-GAAP financial measures. Management believes non-GAAP financial measures assist management and investors in evaluating and comparing period-to-period results and projections in a more meaningful and consistent manner. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the press release.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
EXHIBIT INDEX
| Exhibit Number | Description |
|---|---|
| 99.1 | Press Release dated August 9, 2022, regarding financial results for the second quarter ended June 30, 2022, and revised 2022 guidance. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 9, 2022 | PURPLE INNOVATION, INC. | |
|---|---|---|
| By: | /s/ Bennett Nussbaum | |
| Bennett Nussbaum | ||
| Interim Chief Financial Officer |
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Exhibit 99.1
Purple Innovation Reports Second Quarter 2022Results
Lehi, Utah, August 9, 2022 – Purple Innovation, Inc. (NASDAQ: PRPL) (“Purple”), a comfort innovation company known for creating the “World’s First No Pressure ™ Mattress,” today announced results for the second quarter ended June 30, 2022.
Second Quarter Financial Summary (Comparisonsversus Second Quarter 2021 and First Quarter 2022)^1^
| ● | Net revenue was $144.1 million, a decrease of 21.1% compared to 2Q21 and an increase of 0.6% compared<br>to 1Q22. |
|---|---|
| o | Wholesale revenue decreased 5.9% compared to 2Q21 and increased 8.4% compared to 1Q22. |
| --- | --- |
| o | Direct-to-Consumer (DTC) revenue decreased 29.8% compared to 2Q21 and 4.6% compared to 1Q22, while advertising<br>spend decreased 56.0% compared to 2Q21 and 20.6% compared to 1Q22. |
| --- | --- |
| ● | Gross margin was 33.9% compared to 44.7% in 2Q21 and 36.1% in 1Q22. |
| --- | --- |
| ● | Operating expenses as a percent of net revenue were 42.3% compared to 46.1% in 2Q21 and 48.9% in 1Q22. |
| --- | --- |
| ● | Operating loss was $(12.1) million compared to $(2.5) million in 2Q21 and $(18.4) million in 1Q22. |
| --- | --- |
| ● | Net loss was $(8.3) million as compared to a net income of $2.6 million in 2Q21 and $(13.6) million in 1Q22. |
| --- | --- |
| o | Adjusted net loss was $(8.8) million, or $(0.11) per diluted share as compared to adjusted net income of $3.6 million, or $0.05 per<br>diluted share in 2Q21 and adjusted net loss of $(16.5) million or $(0.24) per diluted share in 1Q22. |
| --- | --- |
| ● | EBITDA was $(8.0) million compared to $3.9 million in 2Q21 and $(10.6) million in 1Q22. |
| --- | --- |
| o | Adjusted EBITDA was $(0.3) million compared to $11.0 million in 2Q21 and $(9.6) million in 1Q22. |
| --- | --- |
| ● | Cash and cash equivalents were $41.2 million at June 30, 2022. |
| --- | --- |
“We continue to make important progress improving Purple’s operational health despite increasing macro headwinds,” said Chief Executive Officer Rob DeMartini. “The meaningful improvement in second quarter adjusted EBITDA compared with the first quarter on similar revenue underscores the work we’ve done since the start of this year right sizing our cost structure. While the continued shift in demand away from home related categories and the impact of inflation on consumer discretionary spending is delaying our top-line recovery, we remain confident that our four strategic initiatives – operational excellence, brand elevation, channel development and accelerating innovation – are the right building blocks for delivering long-term profitable growth. We are moving forward focused on executing our plans and preparing the Company to emerge from the current macroeconomic environment well positioned to accelerate growth and expand market share.”
| ^1^ | Reconciliations for non-GAAP financial measures to the most<br>directly comparable GAAP financial measures are included in the “RECONCILIATION OF GAAP TO NON-GAAP MEASURES” tables at the<br>end of this press release. |
|---|
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Second Quarter 2022 Review
Second quarter 2022 net revenue decreased 21.1% to $144.1 million, compared to $182.6 million in the second quarter of 2021. This decrease was primarily due to the challenging year-over-year comparison created by the pull forward of demand driven by the effects of COVID and economic stimulus in the second quarter of 2021, changing demand for home related products, inflationary pressure on discretionary consumer spending, and an intentional reduction in advertising spend, which was down 56.0% compared with a year ago. By channel, versus prior year, wholesale net revenue declined 5.9% and direct to consumer net revenues declined 29.8%. Within DTC, ecommerce declined 39.2%, reflecting the aforementioned pullback in ad spend. This was partially offset by a 150% increase in showroom net revenue driven largely by the opening of 27 net new showrooms over the past 12 months.
Gross margin for the second quarter 2022 declined to 33.9% compared to 44.7% in the year ago period. This decline was primarily attributed to lower revenue with an increased wholesale channel revenue, which carries a lower gross margin than DTC channel revenue and unfavorable cost absorption from lower than planned production volumes in prior months. Additionally, the decline in gross margin reflects the impact of elevated levels of materials, labor and overhead costs, partially offset by benefits realized from our workforce restructuring. Wholesale net revenues comprised approximately 43% of net revenue for the quarter compared with approximately 36% in the same quarter last year.
Operating expenses were 42.3% of net revenue for the second quarter of 2022 compared to 46.1% in the year ago period. The decrease in operating expenses as a percent of net revenue compared with the prior year period was driven primarily by the intentional reduction in advertising spend to improve marketing efficiency and stabilize profitability in the current environment and the restructuring of the marketing organization that occurred in the second quarter of this year. Advertising spend for the second quarter was reduced $24.1 million, or 56.0% year-over-year and $4.9 million, or 20.6% from the first quarter of 2022.
Operating loss was $(12.1) million for the second quarter 2022 compared to $(2.5) million in the prior year period.
Net loss was $(8.3) million for the second quarter 2022 compared to a net income of $2.6 million in the year ago period. As previously disclosed, the Company determined that its outstanding warrants should be accounted for as liabilities and recorded at fair value on the date of the transaction and subsequently re-measured to fair value at each reporting date. For the three months ended June 30, 2022 and 2021, the Company recognized non-cash gains of $0.3 million and $4.9 million, respectively, associated with the change in fair value of warrant liabilities.
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 gains associated with the change in fair value of warrant liabilities, was $(8.8) million, or $(0.11) per adjusted diluted share, compared to adjusted net income of $3.6 million, or $0.05 per adjusted diluted share in the prior year period. Adjusted net loss has also been adjusted to reflect an estimated effective income tax rate of 31.7% for the current year period resulting in an adjusted income tax benefit and 25.4% for the comparable prior year period resulting in an adjusted income tax benefit.
2
EBITDA for the second quarter 2022 was $(8.0) million compared to $3.9 million in the second quarter 2021. Adjusted EBITDA, which excludes the adjustment for non-cash gain associated with the change in fair value of warrant liabilities, Tax Receivable Agreement benefit, new production facility start-up costs, non-cash stock-based compensation, executive search costs, vendor separation fee, severance, showroom opening costs, product reserve and COVID-19 related expenses, was $(0.3) million compared to Adjusted EBITDA of $11.0 million in the prior year period.
Balance Sheet
As of June 30, 2022, the Company had cash and cash equivalents of $41.2 million compared to $91.6 million as of December 31, 2021 and $62.7 million at March 31, 2022. The decrease compared with March 31, 2022 was driven primarily by cash used in operations of $8.5 million, capital expenditures of $13.0 million primarily related to showroom expansion. In addition to the $41.2 million in cash at the end of the second quarter, the Company has the full $55 million amount available under its credit facility. Based on its current projections, the Company believes its cash on hand, amounts available under its revolving line of credit, and expected cash to be generated from e-commerce, wholesale, and Purple retail store channels will be sufficient to meet its working capital requirements, comply with debt covenants and cover anticipated capital expenditures for the next 12 months and beyond.
Inventories at June 30, 2022 were $84.9 million, a decrease of 14% compared with $98.7 million at December 31, 2021 and a decrease of 19.8% compared with $105.8 million at March 31, 2022. The decrease in inventories since the end of Q1 driven by a reduction in mattress inventories and resale finished goods as we right-size our inventories to the current demand environment.
2022 Outlook
Based on second quarter results combined with a more cautious view on the remainder of the year due to the current macroeconomic environment, the Company is amending its 2022 outlook. It now expects full year 2022 net revenue to be between $570 million and $590 million, compared with its prior range of $650 million to $690 million.
Adjusted EBITDA for 2022 is now expected to be between $(15) million and $(5) million, compared with its prior range of $21 million to $27 million.
The Company expects second half 2022 gross margins to improve compared with second quarter 2022 levels and exit the year with gross margins between 37% to 38%.
Conference Call and Webcast Information
Purple Innovation, Inc. will host a live conference call to discuss financial results today, August 9, 2022 at 4:30 p.m. Eastern Time. To access the call dial (888) 882-4478 (domestic) or (646) 828-8193 (international) and provide the Conference ID: 6808645. 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.
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About Purple
Purple is a digitally-native vertical brand with a mission to help improve lives through innovative comfort solutions. We design and manufacture a variety of innovative, premium, branded comfort products, including mattresses, pillows, bedding, frames 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, GelFlex Grid, is the foundation of 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. Visit Purple online at purple.com and “like” Purple on Facebook and “follow” on Instagram.
Forward Looking Statements
Certain statements made in this release that are not historical facts are “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements include but are not limited to statements relating to our expected continuing expansion of market share from investment in capacity, innovation and showrooms; our ability to achieve profitability; expected improvements in performance quarter-over-quarter; expected improvement in margin rates; our ability to successfully execute on improvement strategies; expected improvements in our operating performance; our ability to improve brand recognition; demand for our products; expectations regarding consumer behavior; our ability to develop and expand our distribution channels; our ability to accelerate production innovation; the adequacy of our cash other capital resources; and expected financial and operating results for the full year 2022. 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; disruptions to our manufacturing processes; 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; and the risk factors outlined in the “Risk Factors” section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2022, as amended by our Annual Report on Form 10-K/A filed with the SEC on March 16, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2022. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Non-GAAP Financial Measures
EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share are non-GAAP financial measures that remove the impact of certain non-cash and non-recurring costs. Management believes that the use of such non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. Refer to the attached table for the reconciliation of such non-GAAP financial measures to the most comparable GAAP financial measure.
With respect to the Company’s Adjusted EBITDA outlook for full year 2022, a quantitative reconciliation to the corresponding GAAP information cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted, including but not limited to warrant liabilities and stock based compensation. For the same reasons, the Company is unable to assess the probable significance of the unavailable information, which could have a material impact on its future GAAP financial results.
**Investor Contact:**Brendon Frey, ICR
brendon.frey@icrinc.com
203-682-8200
4
PURPLE INNOVATION, INC.
Condensed Consolidated Balance Sheets
(unaudited - in thousands, except par value)
| December 31,<br> 2021 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | 41,169 | $ | 91,616 | ||
| Accounts receivable, net | 31,578 | 25,430 | |||
| Inventories, net | 84,886 | 98,690 | |||
| Prepaid expenses | 5,111 | 8,064 | |||
| Other current assets | 5,369 | 5,702 | |||
| Total current assets | 168,113 | 229,502 | |||
| Property and equipment, net | 127,752 | 112,614 | |||
| Operating lease right-of-use assets | 88,986 | 68,037 | |||
| Intangible assets, net | 14,687 | 13,204 | |||
| Deferred income taxes | 223,952 | 217,791 | |||
| Other long-term assets | 1,617 | 1,322 | |||
| Total assets | 625,107 | $ | 642,470 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable | 39,986 | $ | 79,752 | ||
| Accrued sales returns | 5,111 | 7,116 | |||
| Accrued compensation | 9,370 | 8,928 | |||
| Customer prepayments | 5,132 | 10,854 | |||
| Accrued sales tax | 3,129 | 4,672 | |||
| Accrued rebates and allowances | 7,315 | 10,169 | |||
| Operating lease obligations – current portion | 9,882 | 7,053 | |||
| Warrant liabilities | 69 | — | |||
| Other current liabilities | 8,047 | 13,470 | |||
| Total current liabilities | 88,041 | 142,014 | |||
| Debt, net of current portion | 37,198 | 94,113 | |||
| Operating lease obligations, net of current portion | 103,457 | 81,159 | |||
| Warrant liabilities | — | 4,343 | |||
| Tax receivable agreement liability, net of current portion | 161,970 | 162,239 | |||
| Other long-term liabilities, net of current portion | 15,320 | 12,061 | |||
| Total liabilities | 405,986 | 495,929 | |||
| Commitments and contingencies (Note 13) | |||||
| Stockholders’ equity: | |||||
| Class A common stock; 0.0001 par value, 210,000 shares authorized; 82,764 issued and outstanding at June 30, 2022 and 66,493 issued and outstanding at December 31, 2021 | 8 | 7 | |||
| Class B common stock; 0.0001 par value, 90,000 shares authorized; 448 issued and outstanding at June 30, 2022 and at December 31, 2021 | — | — | |||
| Additional paid-in capital | 501,997 | 407,591 | |||
| Accumulated deficit | (283,667 | ) | (261,825 | ) | |
| Total stockholders’ equity | 218,338 | 145,773 | |||
| Noncontrolling interest | 783 | 768 | |||
| Total stockholders’ equity | 219,121 | 146,541 | |||
| Total liabilities and stockholders’ equity | 625,107 | $ | 642,470 |
All values are in US Dollars.
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PURPLE INNOVATION, INC.
Condensed Consolidated Statements of Income
(unaudited - in thousands, except per shareamounts)
| Three Months Ended<br> June 30, | Six Months Ended<br> June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues, net | $ | 144,109 | $ | 182,586 | $ | 287,288 | $ | 369,015 | ||||
| Cost of revenues | 95,297 | 100,899 | 186,850 | 199,804 | ||||||||
| Gross profit | 48,812 | 81,687 | 100,438 | 169,211 | ||||||||
| Operating expenses: | ||||||||||||
| Marketing and sales | 40,373 | 59,844 | 90,332 | 114,212 | ||||||||
| General and administrative | 18,779 | 22,461 | 36,667 | 36,987 | ||||||||
| Research and development | 1,748 | 1,923 | 3,891 | 3,646 | ||||||||
| Total operating expenses | 60,900 | 84,228 | 130,890 | 154,845 | ||||||||
| Operating income (loss) | (12,088 | ) | (2,541 | ) | (30,452 | ) | 14,366 | |||||
| Other income (expense): | ||||||||||||
| Interest expense | (707 | ) | (569 | ) | (1,730 | ) | (1,139 | ) | ||||
| Other income (expense), net | (136 | ) | 26 | (119 | ) | (42 | ||||||
| Change in fair value – warrant liabilities | 346 | 4,860 | 4,274 | 14,007 | ||||||||
| Tax receivable agreement expense | — | (381 | ) | — | (207 | ) | ||||||
| Total other income (expense), net | (497 | ) | 3,936 | 2,425 | 12,619 | |||||||
| Net income (loss) before income taxes | (12,585 | ) | 1,395 | (28,027 | ) | 26,985 | ||||||
| Income tax benefit (expense) | 4,175 | 1,167 | 5,986 | (3,484 | ) | |||||||
| Net income (loss) | (8,410 | ) | 2,562 | (22,041 | ) | 23,501 | ||||||
| Net income (loss) attributable to noncontrolling interest | (70 | ) | (16 | ) | (199 | ) | 99 | |||||
| Net income (loss) attributable to Purple Innovation, Inc. | $ | (8,340 | ) | $ | 2,578 | $ | (21,842 | ) | $ | 23,402 | ||
| Net income (loss) per share: | ||||||||||||
| Basic | $ | (0.10 | ) | $ | 0.04 | $ | (0.29 | ) | $ | 0.36 | ||
| Diluted | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.29 | ) | $ | 0.14 | |
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 82,703 | 66,277 | 74,924 | 65,439 | ||||||||
| Diluted | 83,151 | 66,864 | 75,372 | 68,341 |
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PURPLE INNOVATION, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
| Three Months Ended<br><br> June 30, | Six Months Ended<br> <br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | (8,410 | ) | $ | 2,562 | $ | (22,041 | ) | $ | 23,501 | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | 3,741 | 1,995 | 7,583 | 3,544 | ||||||||
| Non-cash interest | 212 | 128 | 360 | 257 | ||||||||
| Change in fair value - warrant liabilities | (346 | ) | (4,860 | ) | (4,274 | ) | (14,007 | ) | ||||
| Tax receivable agreement expense | — | 381 | — | 207 | ||||||||
| Stock-based compensation | 1,275 | 1,113 | 1,817 | 1,592 | ||||||||
| Deferred income taxes | (4,249 | ) | 1,335 | (6,161 | ) | 3,170 | ||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (2,572 | ) | 16,514 | (6,148 | ) | 4,007 | ||||||
| Inventories | 20,940 | (1,513 | ) | 13,804 | 931 | |||||||
| Prepaid inventory and other assets | 2,460 | (4,372 | ) | 3,481 | (2,263 | ) | ||||||
| Operating lease, net | 3,760 | 641 | 4,178 | 785 | ||||||||
| Accounts payable | (21,127 | ) | (1,375 | ) | (37,027 | ) | (11,783 | ) | ||||
| Accrued sales returns | (35 | ) | (1,318 | ) | (2,005 | ) | (1,466 | ) | ||||
| Accrued compensation | (2,403 | ) | (567 | ) | 354 | (5,002 | ) | |||||
| Customer prepayments | 271 | 9,433 | (5,722 | ) | 11,081 | |||||||
| Accrued rebates and allowances | 306 | 1,306 | (2,854 | ) | (4,021 | ) | ||||||
| Other accrued liabilities | (2,346 | ) | (543 | ) | 1,851 | 936 | ||||||
| Net cash provided by (used in) operating activities | (8,523 | ) | 20,860 | (52,804 | ) | 11,469 | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property and equipment | (11,602 | ) | (13,877 | ) | (24,233 | ) | (26,162 | ) | ||||
| Investment in intangible assets | (1,375 | ) | (216 | ) | (1,822 | ) | (285 | ) | ||||
| Net cash used in investing activities | (12,977 | ) | (14,093 | ) | (26,055 | ) | (26,447 | ) | ||||
| Cash flows from financing activities: | ||||||||||||
| Payments on term loan | — | (562 | ) | (2,531 | ) | (1,125 | ) | |||||
| Payments on revolving line of credit | — | — | (55,000 | ) | — | |||||||
| Payments for debt issuance costs | — | — | (1,242 | ) | — | |||||||
| Proceeds from stock offering | — | — | 93,125 | — | ||||||||
| Payments for public offering costs | (29 | ) | — | (259 | ) | — | ||||||
| Proceeds from InnoHold indemnification payment | — | — | — | 4,142 | ||||||||
| Tax receivable agreement payments | — | — | (5,847 | ) | (628 | ) | ||||||
| Distributions to members | — | (308 | ) | — | (853 | ) | ||||||
| Proceeds from exercise of warrants | — | — | — | 116 | ||||||||
| Proceeds from exercise of stock options | — | 369 | 166 | 452 | ||||||||
| Net cash provided by (used in) financing activities | (29 | ) | (501 | ) | 28,412 | 2,104 | ||||||
| Net increase (decrease) in cash | (21,529 | ) | 6,266 | (50,447 | ) | (12,874 | ) | |||||
| Cash, beginning of the period | 62,698 | 103,815 | 91,616 | 122,955 | ||||||||
| Cash, end of the period | $ | 41,169 | $ | 110,081 | $ | 41,169 | $ | 110,081 | ||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid during the period for interest | $ | 482 | $ | 428 | $ | 1,345 | $ | 858 | ||||
| Cash paid during the period for income taxes | $ | 175 | $ | 3,628 | $ | 219 | $ | 4,434 | ||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||||||
| Property and equipment included in accounts payable | $ | 3,648 | $ | 3,367 | $ | 3,648 | $ | 3,367 | ||||
| Non-cash leasehold improvements | $ | — | $ | 2,538 | $ | — | $ | 3,239 | ||||
| Accrued distributions | $ | 228 | $ | — | $ | 228 | $ | — | ||||
| Tax receivable agreement liability | $ | — | $ | 3 | $ | — | $ | 780 | ||||
| Deferred income taxes | $ | — | $ | 3 | $ | — | $ | 974 | ||||
| Exercise of liability warrants | $ | — | $ | 26 | $ | — | $ | 64,172 |
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PURPLE INNOVATION, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands)
Management believes that the use of the following non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. These non-GAAP financial measures are EBITDA, adjusted EBITDA, adjusted net income, and adjusted net income per diluted share. Other companies may calculate these non-GAAP measures differently than we do. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP EBITDA andAdjusted EBITDA
A reconciliation of GAAP net income (loss) to the non-GAAP measures of EBITDA and adjusted EBITDA is provided below. EBITDA represents net income (loss) income before interest expense, other (income) expense, net, and depreciation and amortization. Adjusted EBITDA represents EBITDA excluding costs incurred due to stock-based compensation expense, debt extinguishment, warrant liability, vendor separation fee, nonrecurring legal fees, interim CFO and consulting fees and severance costs. We believe EBITDA and Adjusted EBITDA provide additional useful information with respect to the impact of various adjustments and provide meaningful measures of our operating performance.
| Three Months Ended<br> <br>June 30, | Six Months Ended<br> <br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| GAAP net income (loss) | $ | (8,410 | ) | 2,562 | (22,041 | ) | 23,501 | |||||
| Interest expense | 707 | 569 | 1,730 | 1,139 | ||||||||
| Income tax (benefit) expense | (4,175 | ) | (1,167 | ) | (5,986 | ) | 3,484 | |||||
| Other income, net | 136 | (26 | ) | 119 | 42 | |||||||
| Depreciation and amortization | 3,741 | 1,995 | 7,583 | 3,544 | ||||||||
| EBITDA | (8,001 | ) | 3,933 | (18,595 | ) | 31,710 | ||||||
| Adjustments: | ||||||||||||
| Warrant Liability | (346 | ) | (4,860 | ) | (4,274 | ) | (14,007 | ) | ||||
| Stock-based compensation expense | 1,275 | 1,113 | 1,817 | 1,592 | ||||||||
| Vendor separation fee | 3,136 | — | 3,136 | — | ||||||||
| Tax Receivable Agreement expense | — | 381 | — | 207 | ||||||||
| Legal fees | 104 | 8,547 | 266 | 9,659 | ||||||||
| Executive interim and search costs | 1,356 | 785 | 3,070 | 1,145 | ||||||||
| Severance costs | 1,191 | 122 | 2,469 | 315 | ||||||||
| Showroom opening costs | 900 | 410 | 1,576 | 490 | ||||||||
| New production facility start-up costs | 85 | 504 | 348 | 2,566 | ||||||||
| Previous period sales tax liability | — | 85 | — | 85 | ||||||||
| COVID-19 related expenses | 2 | 1 | 331 | 39 | ||||||||
| Adjusted EBITDA | $ | (298 | ) | $ | 11,021 | $ | (9,856 | ) | $ | 33,801 |
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Reconciliation of GAAP Net Income to non-GAAP Adjusted Net Incomeand Adjusted Net Income per Diluted Share
Our presentation of adjusted net income assumes that all net income is attributable to Purple Innovation, Inc. (i.e. there is no allocation of net income or loss to noncontrolling interests), which assumes the full exchange at the beginning of the period of all outstanding Paired Securities for shares of Class A common stock of Purple Innovation, Inc., adjusted for certain nonrecurring items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing adjusted net income by the total shares of Class A common stock outstanding plus any dilutive warrants, options and restricted stock as calculated in accordance with GAAP and assuming the full exchange of all outstanding Paired Securities as of the beginning of each period presented. Adjusted net income and adjusted net income per diluted share, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe adjusted net income and adjusted net income per diluted share, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of net income (loss), the most directly comparable GAAP measure, to adjusted net income and the computation of adjusted net income per diluted share, are set forth below:
| (in thousands, except per share amounts) | Three Months Ended<br><br> June 30, | Six Months Ended<br><br> June 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net income (loss) | $ | (8,410 | ) | $ | 2,562 | $ | (22,041 | ) | $ | 23,501 | ||
| Income tax (benefit) expense, as reported | (4,175 | ) | (1,167 | ) | (5,986 | ) | 3,484 | |||||
| Tax receivable agreement expense | — | 381 | — | 207 | ||||||||
| Change in fair value – warrant liabilities | (346 | ) | (4,860 | ) | (4,274 | ) | (14,007 | ) | ||||
| Secondary offering expenses | — | 7,858 | — | 7,858 | ||||||||
| Adjusted net income (loss) before income taxes | (12,931 | ) | 4,774 | (32,301 | ) | 21,043 | ||||||
| Adjusted income tax benefit (expense)^(1)^ | 4,106 | (1,213 | ) | 6,977 | (5,345 | ) | ||||||
| Adjusted net income (loss) | $ | (8,825 | ) | $ | 3,561 | $ | (25,324 | ) | $ | 15,698 | ||
| Adjusted net income (loss) per share, diluted | $ | (0.11 | ) | $ | 0.05 | $ | (0.34 | ) | $ | 0.23 | ||
| Adjusted weighted-average shares outstanding, diluted^(2)^ | 83,151 | 67,312 | 75,372 | 68,800 |
(1) Represents the estimated effective tax rate of 31.74% and 21.6% for the three and six months ended June 30, 2022, respectively and 25.4% for the three and six months ended June 30, 2021, 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.
(2) Assumes dilutive warrants, options and restricted stock calculated in 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.
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A reconciliation of net income (loss) per share, diluted, to adjusted net income per diluted share is set forth below for the three and six months ended June 30, 2022 and 2021:
| For the Three Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2022 | June 30, 2021 | |||||||||||||||
| Net <br><br>Income | Weighted<br><br> Average<br> Shares,<br> Diluted | Net Income per Share, Diluted | Net <br><br>Income | Weighted<br><br> Average <br><br>Shares, <br><br>Diluted | Net Income<br><br> per Share, <br><br>Diluted | |||||||||||
| Net income (loss) attributable to Purple Innovation Inc.^(1)^ | $ | (8,340 | ) | 83,151 | $ | (0.10 | ) | $ | 2,578 | 66,864 | $ | (0.03 | ) | |||
| Assumed exchange of shares^(2)^ | (70 | ) | — | (16 | ) | 448 | ||||||||||
| Net income (loss) | (8,410 | ) | 2,562 | |||||||||||||
| Adjustments to arrive at adjusted income (loss) before taxes^(3)^ | (4,521 | ) | 2,212 | |||||||||||||
| Adjusted income (loss) before taxes | (12,931 | ) | 4,774 | |||||||||||||
| Adjusted income tax benefit^(4)^ | 4,106 | (1,213 | ) | |||||||||||||
| Adjusted net income (loss) | $ | (8,825 | ) | 83,151 | $ | (0.11 | ) | $ | 3,561 | 67,312 | $ | 0.05 |
(1) Represents net income attributable to Purple Innovation, Inc. and the associated weighted average diluted shares, of Class A common stock outstanding.
(2) 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 addition of net income attributable to noncontrolling interests corresponding with the assumed exchange of the Paired Securities for shares of Class A common stock.
(3) Represents the total impact of all adjustments identified in the adjusted 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.
(4) Represents the estimated effective tax rate of 31.7% and 25.4% for the three months ended June 30, 2022 and 2021, respectively, 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.
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| For the Six Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2022 | June 30, 2021 | ||||||||||||||
| Net Income | Weighted Average Shares, Diluted | Net Income per Share, Diluted | Net Income | Weighted Average Shares, Diluted | Net Income per Share, Diluted | ||||||||||
| Net income (loss) attributable to Purple Innovation Inc.^(1)^ | $ | (21,842 | ) | 75,372 | $ | (0.29 | ) | $ | 23,402 | 68,341 | $ | 0.14 | |||
| Assumed exchange of shares^(2)^ | (199 | ) | — | 99 | 459 | ||||||||||
| Net income (loss) | (22,041 | ) | 23,501 | ||||||||||||
| Adjustments to arrive at adjusted income before taxes^(3)^ | (10,260 | ) | (2,458 | ) | |||||||||||
| Adjusted income before taxes | (32,301 | ) | 21,043 | ||||||||||||
| Adjusted income tax benefit (expense)^(4)^ | 6,977 | (5,345 | ) | ||||||||||||
| Adjusted net income | $ | 25,324 | 75,372 | $ | (0.34 | ) | $ | 15,698 | 68,800 | $ | 0.23 |
(1) Represents net income attributable to Purple Innovation, Inc. and the associated weighted average diluted shares, of Class A common stock outstanding.
(2) 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 addition of net income attributable to noncontrolling interests corresponding with the assumed exchange of the Paired Securities for shares of Class A common stock.
(3) Represents the total impact of all adjustments identified in the adjusted 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.
(4) Represents the estimated effective tax rate of 21.6% and 25.4% for the six months ended June 30, 2022 and 2021, respectively, 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.
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