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What changed in Purple Innovation, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Purple Innovation, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+676 added−791 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-22)

Top changes in Purple Innovation, Inc.'s 2023 10-K

676 paragraphs added · 791 removed · 449 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

101 edited+32 added−37 removed31 unchanged
Biggest changeThis vertical integration enables us to continuously refine our existing products and manufacturing processes, as well as introduce new offerings, with the potential to attract new customers and drive repeat sales. ● New product launches— We have focused intensively on innovation, and we expect to launch more new mattresses in 2023 than all other years of our operations combined to support our long-range growth plan, with more to come.
Biggest changeOur vertical integration, which enables us to continuously refine our existing products and manufacturing processes, combined with our strengthened research and development disciplines and go-to-market processes allows us to further develop our current product categories with new offerings, enhance gross margins through improved pricing, and position our business to eventually expand to additional categories with the potential to attract new customers and drive repeat sales. ● New product launches— We focus intensively on innovation, to support our long-range growth plan.
The development of the Hyper-Elastic Polymer technology is only one of numerous innovations we have developed to produce a range of unique and effective comfort products across the sleep, seat cushion and other categories. ● Proprietary technologies and manufacturing expertise provide a significant competitive advantage— We believe the combination of patent protection, proprietary manufacturing equipment and decades of accumulated knowledge creates a competitive advantage through barriers to imitation.
Hyper-Elastic Polymer technology is only one of numerous innovations we have developed to produce a range of unique and effective comfort products across the sleep, seat cushion and other categories. ● Proprietary technologies and manufacturing expertise provide a significant competitive advantage— We believe the combination of patent protection, proprietary manufacturing equipment and decades of accumulated knowledge creates a competitive advantage through barriers to imitation.
It will immediately flex to support the sleeper’s position and spring back into place as the sleeper readjusts during the night. ● Durable— Hyper-Elastic Polymer material is a highly durable gel that we believe is more durable than most foams. The Hyper-Elastic Polymer technology also has numerous applications beyond mattress products including seat cushions, pillows, and others.
It will immediately flex to support the sleeper’s position and spring back into place as the sleeper readjusts during the night. ● Durable— Hyper-Elastic Polymer material is a highly durable gel that we believe is more durable than most foams. The Hyper-Elastic Polymer technology also has numerous applications beyond mattress products including seat cushions and pillows.
Sales associates have been trained and we believe are effective in educating consumers regarding our unique benefits as well as shifting the mix upward to our more premium and higher-margin mattresses. We expect to grow our placements with wholesale partners to give our customers the opportunity to feel the difference of our Hyper-Elastic Polymer technology for themselves.
Sales associates have been trained and we believe are effective in educating consumers regarding our unique benefits as well as shifting the mix upward to our more premium and higher-margin mattresses. We expect to continue to grow our placements with wholesale partners to give our customers the opportunity to feel the difference of our Hyper-Elastic Polymer technology for themselves.
Proprietary Technologies The Purple innovation team, through their scientific journey to get to the root causes of pressure sores, designed the Hyper-Elastic Polymer material and other proprietary comfort technologies in order to improve the lives of “every body.” Each different cushioning product line requires unique molding techniques. Our Hyper-Elastic Polymer material is non-toxic and hypoallergenic.
Proprietary Technologies The Purple innovation team, through their scientific journey to get to the root causes of pressure sores, designed the Hyper-Elastic Polymer material and other patented and proprietary comfort technologies in order to improve the lives of “every body.” Each different cushioning product line requires unique molding techniques. Our Hyper-Elastic Polymer material is non-toxic and hypoallergenic.
The soft and flexible columns also return to their original position as forces lessen and are capable of immediately providing support. Proprietary Machinery Internally designed, developed and built, our patented and proprietary molding machines are the only machines able to mold our Hyper-Elastic Polymer material into large-format king-sized mattresses at scale.
The soft and flexible columns also return to their original position as forces lessen and are capable of immediately providing support. Proprietary Machinery Internally designed, developed and built, our patented and proprietary molding machines are able to mold our Hyper-Elastic Polymer material into large-format king-sized mattresses at scale.
In 2022, we acquired Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”), a premium sleep and health wellness company that was a pre-existing licensee of our founders of some of our technologies. That acquisition resulted in us owning the sole right to use all of our Hyper-Elastic Polymer technologies in our beds.
In 2022, we acquired Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”), a premium sleep and health wellness company that was a pre-existing licensee of the founders of some of our technologies. This acquisition resulted in us owning the sole right to use all of our Hyper-Elastic Polymer technologies in our beds.
We have modified other molding machines to manufacture additional products containing Hyper-Elastic Polymer material. We also acquired in the Intellibed acquisition the patented manufacturing machine and process we owned that had been licensed by our founders, preventing others from obtaining access to that technology.
We have modified other molding machines to manufacture additional products containing Hyper-Elastic Polymer material. We also acquired in the Intellibed acquisition the patented manufacturing machine and process that had been licensed by our founders, preventing others from obtaining access to that technology.
In general, direct to consumer mattress companies offer convenience, free shipping and returns, and low prices, while leveraging third-party manufacturing and distribution. Materials used by online mattress retailers include layers of foam cushioning that are assembled, compressed and folded into a box for distribution. This market is highly fragmented, commoditized and competitive, with customer purchase decisions based primarily on price.
In general, direct-to-consumer mattress companies offer convenience, flexible shipping and returns, and low prices, while leveraging third-party manufacturing and distribution. Materials used by online mattress retailers include layers of foam cushioning that are assembled, compressed and folded into a box for distribution. This market is highly fragmented, commoditized and competitive, with customer purchase decisions based primarily on price.
We’ll also continue to harness the evangelism of the ever-growing base of Purple owners whose advocacy of our products is one of the brand’s greatest strengths. ● Further direct-to-consumer growth and penetration— We believe that we are well positioned to leverage our brand, leading product portfolio, vertical integration and strong marketing capabilities to continue to attract new customers via our e-commerce channel.
We will also continue to harness the evangelism of the ever-growing base of Purple owners whose advocacy of our products is one of our brand’s greatest strengths. ● Further direct-to-consumer growth and penetration— We believe that we are well positioned to leverage our brand, leading product portfolio, vertical integration and strong marketing capabilities to continue to attract new customers via our e-commerce channel.
Across these channels, some key factors that impact competition in our industry include comfort feel, product features, reliable logistics and manufacturing capabilities, marketing efficacy and efficiency, brand differentiation, expertise of sales associates, customer care, pace of innovation and product roadmap, price of products and services, financial stability and ability to invest in innovation. 2 What Makes Purple Different?
Across these channels, some key factors that impact competition in our industry are comfort feel, product features, reliable logistics and manufacturing capabilities, marketing efficacy and efficiency, brand differentiation, expertise of sales associates, customer care, pace of innovation and product roadmap, price of products and services, financial stability and ability to invest in innovation. 2 What Makes Purple Different?
Our intellectual property portfolio is integral to our continued success in this industry, with respect to our Hyper-Elastic Polymer material as well as our molding processes and machines.
Our intellectual property portfolio is integral to our continued success in this industry, particularly with respect to our Hyper-Elastic Polymer material as well as our molding processes and machines.
To complement our DTC efforts, we have developed multiple wholesale relationships with best-in-class retailers in the furniture, mattress specialty, home décor, and department store spaces. Our goal is to provide opportunities for each customer to learn, shop, and buy in the way that works for them.
To complement our DTC efforts, we have developed multiple wholesale relationships with best-in-class retailers in the furniture, mattress specialty, and home décor spaces. Our goal is to provide opportunities for each customer to learn, shop, and buy in the way that works for them.
Amidst this changing category dynamic, Purple’s manufacturing capabilities paired with our strategic mix of showrooms, e-commerce and third-party retailers, has allowed us to gain share and be a leader in the sleep products category.
Amidst this changing category dynamic, Purple’s product differentiation and manufacturing capabilities paired with our strategic mix of showrooms, e-commerce and third-party retailers, has allowed us to gain share and be a leader in the sleep products category.
Purple currently sells four types of seat cushions and one back cushion, all in varying sizes and shapes to meet the needs of our customers. 5 Technology Technology is key to our unique position within the sleep products industry. The introduction of our proprietary Hyper-Elastic Polymer material is the first major innovation to the consumer mattress category in decades.
Purple currently sells four types of seat cushions and one back cushion, all in varying sizes and shapes to meet the needs of our customers. 6 Technology Technology is key to our unique position within the sleep products industry. The introduction of our proprietary Hyper-Elastic Polymer material was the first major innovation in the consumer mattress category in decades.
DeMartini held various leadership positions with Procter & Gamble, The Gillette Company, and Tyson Foods, Inc. He also currently serves on the boards of Welch’s Foods and Q30 Innovations/Q30 Sports Canada, and formerly served on the boards of Advanced Functional Fabrics of America, The American Apparel & Footwear Association, and Aloha. Mr.
DeMartini held various leadership positions with Procter & Gamble, The Gillette Company, and Tyson Foods, Inc. He also currently serves on the board of directors of Welch’s Foods and Q30 Innovations/Q30 Sports Canada, and formerly served on the board of directors of Advanced Functional Fabrics of America, The American Apparel & Footwear Association, and Aloha. Mr.
Beginning in 2015, the market for sleep products underwent a fundamental transformation with the rise of e-commerce-based brands and direct to consumer distribution, which disrupted the traditional category dynamics and drove the majority of category growth (versus traditional mattress companies) for several years.
Beginning in 2015, the market for sleep products underwent a fundamental transformation with the rise of e-commerce-based brands and direct-to-consumer distribution. This market change disrupted the traditional category dynamics and drove the majority of category growth (versus traditional mattress companies) for several years.
We also amplify the voices of our evangelical product owners, whose word-of-mouth recommendation is one of our most powerful (and ownable) marketing vehicles. Deep engagement with current customers enables us to increase additional product sales across our portfolio of offerings. The success we have achieved through our marketing campaigns has been key to rapidly building our branding and awareness.
We also amplify the voices of our evangelical product owners, whose word-of-mouth recommendations are one of our most powerful (and ownable) marketing vehicles. Deep engagement with current customers enables us to increase additional product sales across our portfolio of offerings. The success we have achieved through our marketing campaigns has been key to rapidly building our branding and awareness.
Furthermore, we have extensive in-house fabrication capabilities, which enable us to design, manufacture, install and maintain new equipment as well as optimize the performance and efficiency of our existing machinery based on real-time insights gained from our vertically integrated operations. Marketing We have developed a brand that resonates with consumers.
Furthermore, we have in-house fabrication capabilities enabling us to design, manufacture, install and maintain new equipment as well as optimize the performance and efficiency of our existing machinery based on real-time insights gained from our vertically integrated operations. Marketing We have developed a brand that resonates with consumers.
We intend to continue to develop and introduce new comfort technologies and products to improve how people live. Our vertical integration is a key differentiator that enhances the effectiveness of our research and development capabilities. By gaining real-time feedback, we can integrate these insights into our manufacturing process, digital marketing, products and equipment.
We intend to continue to develop and introduce new comfort technologies and products. Our vertical integration is a key differentiator that enhances the effectiveness of our research and development capabilities. By gaining real-time feedback, we can integrate these insights into our manufacturing process, digital marketing, products and equipment.
We believe Purple’s founders were the first to leverage this technology in mattresses after its success in licensing its proprietary Hyper-Elastic Polymer technology to medical manufacturers for use in wheelchairs, critical care beds and to this day, hospital beds.
We believe Purple’s founders were the first to leverage this technology in mattresses after their success in licensing their proprietary Hyper-Elastic Polymer technology to medical manufacturers for use in wheelchairs, critical care beds and hospital beds.
Hutchings served in various engineering and director roles at HARMAN International Mr. Hutchings holds a BS in Computer Engineering from University of Utah. Jeffery S. Kerby has served as the Chief of Owned Retail Officer of the Company since January 2023. Prior to joining the Company, Mr.
Hutchings served in various engineering and director roles at HARMAN International. Mr. Hutchings holds a Bachelor of Science degree in Computer Engineering from the University of Utah. Jeffery S. Kerby has served as the Chief of Owned Retail Officer of the Company since January 2023. Prior to joining the Company, Mr.
Prior to joining Luxottica Group, he was the Vice President of Human Resources for Starbucks Corporation from 2004 to 2012. Mr. Roddy holds a master’s degree from Columbia University on Organizational Psychology and a bachelor’s degree in Organizational Behavior from Brigham Young University – Hawaii. 12
Roddy was the senior vice president of human resources for Luxottica Group. Prior to joining Luxottica Group, he was the vice president of human resources for Starbucks Corporation from 2004 to 2012. Mr. Roddy holds a Master’s degree from Columbia University in Organizational Psychology and a Bachelor’s degree in Organizational Behavior from Brigham Young University – Hawaii. 13
Our patented and proprietary molding processes and machines allow for large-format injection molding of gels efficiently and at scale. ● Growing a brand with a passionate following— Our brand mirrors our passion for uncompromising performance, quality and durability, and our dedication to improving lives by delivering better sleep and better comfort We believe our brand awareness and consideration rivals category leaders, after only seven years.
Our patented and proprietary molding processes and machines allow for large-format injection molding of gels efficiently and at scale. ● Growing a brand with a passionate following— Our brand mirrors our passion for uncompromising performance, quality and durability, and our dedication to improving lives by delivering better sleep and better comfort We believe our brand awareness rivals category leaders.
They later created what we call Hyper-Elastic Polymer —an elastomeric polymer that can stretch up to 15x its resting size and never lose shape or function. Our proprietary Hyper-Elastic Polymer technology has since been used in mattresses, seat cushions and pillows. Available Information Our website address is www.purple.com.
They later created what we call Hyper-Elastic Polymer —an elastomeric polymer that can stretch up to 15x its resting size and without losing shape or function. Our proprietary Hyper-Elastic Polymer technology has since been used in mattresses, seat cushions and pillows. 11 Available Information Our website address is www.purple.com.
We back up the quality and durability of our mattress with a 100-night trial and a ten-year warranty.
We back up the quality and durability of our mattress with a 100-night trial and a 10-year warranty.
We believe that the unique properties of our technology enable several improvements to existing sleep products that are not addressed by foam, spring and air mattresses. ● Pressure Relief— Our Hyper-Elastic Polymer technology is designed around the science of column buckling which enables our mattresses to be both firm and soft.
We believe that the unique properties of our technology have resulted in several improvements to existing sleep products that are not addressed by foam, spring or air mattresses. ● Pressure Relief— Our Hyper-Elastic Polymer technology is designed around the science of column buckling which enables our mattresses to be both firm and soft.
We anticipate continual expansion of our showrooms as we optimize the format. ● Expanded wholesale retail relationships— We continue to work closely with existing retail partners to increase market share and sales, and we are forming new partnerships to expand our wholesale footprint.
We anticipate continued expansion of our showrooms as we optimize the format. ● Expanded wholesale retail relationships— We continue to work closely with existing retail partners to improve productivity to increase market share and sales, and we are forming new partnerships to expand our wholesale footprint.
Our Hyper-Elastic Polymer products are manufactured with non-toxic ingredients that are third-party tested and free from carcinogenic chemicals. The patented Hyper-Elastic Polymer technology is used in all Purple mattresses. The buckling columns in our mattresses instantly adapt to your body to cradle your hips and shoulders while supporting your spine’s natural alignment for uniquely buoyant, supportive comfort.
The columns in our Gelflex Grid mattresses instantly adapt to your body to cradle your hips and shoulders while supporting your spine’s natural alignment for uniquely buoyant, supportive comfort. Our GelFlex Grid products are manufactured with non-toxic ingredients that are third-party tested and free from carcinogenic chemicals. Our patented Gelflex Grid technology is used in all Purple mattresses.
The Purple PerfectStay Duvet cover offers a unique patent-pending lay-and-zip design that solves the problem of inserting the duvet into the cover, and ensures the duvet stays put within the cover without ties, pins, or bulky attachments. ● Mattress Protector —Like our sheets, our mattress protector is designed to optimize the functionality of our Hyper-Elastic Polymer technology in our mattress.
The Purple PerfectStay Duvet cover offers a unique patent-pending lay-and-zip design that solves the problem of inserting the duvet into the cover, and ensures the duvet stays put within the cover without ties, pins, or bulky attachments. ● Mattress Protector — Like our sheets, our mattress protector is designed to optimize the functionality of our Gelflex Grid in our mattress.
Krausz attended Cornell University as an undergraduate and received her MBA from Dartmouth College. John J. Roddy IV has served as Chief People Officer of the Company since October 2021. Mr. Roddy brings to the Company over 20 years of experience in culture transformation, talent development, organization design and change leadership. Prior to joining the Company, Mr.
Krausz attended Cornell University as an undergraduate and received her Masters of Business Administration degree from Dartmouth College. John J. Roddy IV has served as Chief People Officer of the Company since October 2021. Mr. Roddy brings to the Company over 20 years of experience in culture transformation, talent development, organization design and change leadership.
We are investing in brand demand-driving marketing and advertising to create awareness, engagement, and preference for the Purple brand and for our products across all our sales channels. We also plan on developing a reimagined brand associated with life enhancing sleep.
We are investing in brand demand-driving marketing and advertising to create awareness, engagement and preference for the Purple brand and for our products across all our sales channels. We developed a reimagined brand associated with life enhancing sleep.
Purple has also expanded into many of these regional furniture retailers.
Purple has also expanded into many of these regional and local furniture retailers.
Whether it’s getting a better night’s rest or elevating the work from home experience, we design and manufacture truly innovative, differentiated products that put our customers’ comfort first. Sleep Products The sleep products category encompasses a variety of products including mattresses, pillows, bases, foundations, sheets, mattress protectors, blankets and duvets.
Whether it’s getting a better night’s rest or elevating every day life, we design and manufacture innovative, differentiated products that put our customers’ comfort first. Sleep Products The sleep products category encompasses a variety of products including mattresses, pillows, bases, foundations, sheets, mattress protectors, blankets and duvets.
Operations Factories, Supply Chain and Manufacturing We operate factories in Grantsville, Utah, Salt Lake City, Utah and McDonough, Georgia, which manufacture Purple products. Our factory in Grantsville has approximately 574,000 square-feet and our factory in McDonough, Georgia, which opened to service our customers on the east coast, provides another 844,000 square-feet.
Operations Factories, Supply Chain and Manufacturing We operate manufacturing factories in Grantsville, Utah, Salt Lake City, Utah and McDonough, Georgia. Our factory in Grantsville has approximately 574,000 square-feet and our factory in McDonough, which services our customers on the east coast, provides another 844,000 square-feet.
We believe our customers’ satisfaction with our product has continued to drive “word of mouth” recommendations, one of the most persuasive ways customers learn about our products. 3 ● Balanced, omni-channel distribution strategy— We have sought opportunities to expand brand awareness in brick-and-mortar retailers where our beds can be displayed.
We believe our customer satisfaction metrics are amongst the best in the industry, and that our customers’ high satisfaction with our product has continued to drive “word of mouth” recommendations, one of the most persuasive ways consumers learn about our products. 3 ● Balanced, omni-channel distribution strategy— We have sought opportunities to expand brand awareness in brick-and-mortar retailers where our beds can be displayed.
Mattresses from our competitors are typically manufactured using one or more layers of springs, standard polyurethane foam, memory foam, air chambers or latex foam. These technologies have existed for decades and are undifferentiated from competitors within their product type.
Mattresses from our competitors are typically manufactured using one or more layers of springs, standard polyurethane foam, memory foam, air chambers or latex foam and are undifferentiated from competitors within their product type.
Applications are pending for registration of additional trademarks and some of these listed trademarks for additional classes of goods both in the U.S. and internationally.
Applications are pending for registration of additional trademarks and some of these listed trademarks for additional classes of goods both in the United States and internationally.
Krausz was the EVP and Chief Marketing Officer, then President, of Nutrisystem. Prior to Nutrisystem, she held a progression of leadership roles in consumer marketing at Time Inc. and the Reader’s Digest Association, Inc. She serves on the board of the BioBuilder Educational Foundation. Past board roles include Second Nature Brands and the Association of National Advertisers. Ms.
Prior to Nutrisystem, she held a progression of leadership roles in consumer marketing at Time Inc. and the Reader’s Digest Association, Inc. She serves on the board of directors of the BioBuilder Educational Foundation. Past board of directors roles include Second Nature Brands and the Association of National Advertisers. Ms.
Our issued United States patents that are significant to our operations are expected to expire at various dates up to 2041. We have several trademarks registered with the U.S.
Our issued United States patents that are significant to our operations are expected to expire at various dates up to 2041. 9 We have several trademarks registered with the U.S. Patent and Trademark Office (USPTO).
This strategic focus and investment will support our growth plans in the wholesale channel, in Purple owned retail showrooms, on Purple.com and online marketplaces, and in particular our Luxe offerings are expected to increase average sales prices significantly.
We believe that this strategic focus and investment will support our growth plans in the wholesale channel, in Purple showrooms, on Purple.com and online marketplaces. Our Luxe (“Rejuvenate”) offerings are expected to increase average sales prices significantly.
We have invested in substantial improvements to our website, enhancing the education, shopping, and buying experiences, and we have expanded our contact center, enabling live voice, chat and messaging with our sales associates which has driven higher customer satisfaction, higher average order value, and higher conversion.
We have invested in substantial improvements to our website and analytics, enhancing the education, shopping and buying experiences, and we have expanded our contact center, enabling live voice, chat and messaging with our sales associates. These actions are intended to drive higher customer satisfaction, higher average order value and higher conversion.
Our flexible return policies and aggressive expansion of wholesale doors and our own showrooms allow for more of our targeted customers to feel and experience our products throughout the purchase process.
Our flexible return policies and aggressive expansion into wholesale locations (commonly referred to as “doors”) and our own showrooms allow for more of our targeted customers to feel and experience our products throughout the purchase process.
We believe this is a result of the developing interest in our Premium and Luxe product categories which allows retailers to place these products as alternatives to other premium products to increase sales on high-end mattresses with materially higher margins for the retailer and Purple. ● Existing product innovation— We have a rich history of product innovation and have developed core competencies in design, prototyping and manufacturing.
This allows retailers to market these products as alternatives to other premium products to increase sales on high-end mattresses with materially higher margins for the retailer and Purple. 4 ● Existing product innovation— We have a rich history of product innovation and have developed core competencies in design, prototyping and manufacturing.
Consumer Product Safety Commission and other jurisdictions where we sell these products. As a retailer of sleep and cushioning products, we are also subject to laws and regulations applicable to retailers generally, including those regulations governing the marketing and sale of our products and the operation of our e-commerce activities.
As a retailer of sleep and cushioning products, we are also subject to laws and regulations applicable to retailers generally, including those regulations governing the marketing and sale of our products and the operation of our e-commerce activities.
For example, in the United States, we are subject to regulations promulgated by the U.S. Environmental Protection Agency, the Occupational Safety and Health Administration and other federal agencies that restrict the generation, emission, treatment, storage and disposal of materials, substances and waste.
These laws and regulations vary among the states and countries in which we do and intend to do business. For example, in the United States, we are subject to regulations promulgated by the Environmental Protection Agency, the Occupational Safety and Health Administration and other federal agencies that restrict the generation, emission, treatment, storage and disposal of materials, substances and waste.
In order to facilitate further innovation and development, we have recently leased a facility that will serve as our new innovation center and will replace the older and remote facility we previously had in Alpine, Utah. This new facility is located in Draper, Utah, close to our headquarters and comprises approximately 61,000 square feet.
In order to facilitate further innovation and development, we opened a facility in August 2023 that serves as our new innovation center and replaces the older and remote facility we previously had in Alpine, Utah. This new facility is located in Draper, Utah, close to our headquarters and comprises approximately 61,000 square feet.
We now sell mattresses through Ashley Furniture, Big Sandy, City Furniture, Furniture Row, HOM Furniture, Macy’s, Mathis Brothers, Mattress Firm, Raymour & Flanigan, Rooms To Go, Sleep County Canada and Steinhafels, among others. We typically have four to five mattress models on the floor.
We now sell mattresses through Ashley Furniture, Big Sandy, City Furniture, Denver Mattress, HOM Furniture, Living Spaces, Mathis Brothers, Mattress Firm, Mattress Warehouse, Raymour & Flanigan and Rooms To Go, among others. We typically have four to five mattress models on the floor.
Our Purple, No Pressure and Hyper-Elastic Polymer trademarks are also registered and have applications pending for various classes of goods in numerous foreign jurisdictions, some of which include Australia, Canada, China, Europe, United Kingdom, Japan and Korea.
Our Purple, No Pressure and Hyper-Elastic Polymer trademarks are also registered and have applications pending for various classes of goods in numerous foreign jurisdictions, some of which include Australia, Canada, China, Europe, United Kingdom, Japan and Korea. We also have several common law trademarks. Many of the common law marks have registrations pending with the USPTO and other international jurisdictions.
Kerby was with L Brands’ LaSensa from February 2017 to March 2018. Prior to that, Mr. Kerby was the Vice President, Head of Stores/Store Operations for L Brands’ Victoria’s Secret International from June 2015 to September 2016. From October 2008 to June 2015, Mr. Kerby grew from Director to Associate Vice President, Head of Stores for Bath and Body Works.
Kerby was with L Brands’ LaSensa, a Canadian retailer of women’s lingerie and apparel, from February 2017 to March 2018. Prior to that, Mr. Kerby was the vice president, head of stores/store operations for L Brands’ Victoria’s Secret International from June 2015 to September 2016. From October 2008 to June 2015, Mr.
In addition, the acquisition will allow us to immediately expand into the luxury mattress segment. Purple has recently announced three collections to be available in the second quarter of 2023: Essentials (including the New Day, The Purple Mattress, and The Purple Plus), Premium (including Restore, RestorePlus, and RestorePremier) and Luxe (including Rejuvenate, RejuvenatePlus and RejuvenatePremier).
In addition, the acquisition allowed us to immediately expand into the luxury mattress segment. As a result, Purple launched three collections in the second quarter of 2023: Essentials (including the New Day, The Purple Mattress, and The Purple Plus), Premium (including Restore, RestorePlus, and RestorePremier) and Luxe (including Rejuvenate, RejuvenatePlus and RejuvenatePremier).
This part of the retail market is also highly fragmented and competitive. The leading brick-and-mortar specialty mattress retailers in the United States and Canada are, respectively, Mattress Firm and Sleep Country Canada, both of which Purple has significant partnerships with. These national retailers compete with both regional and local retailers as well as furniture and department stores.
This part of the retail market is also highly fragmented and competitive. The leading brick-and-mortar specialty mattress retailer in the United States is Mattress Firm and the leading furniture store is Ashley Furniture These national retailers compete with both regional and local retailers as well as furniture and department stores.
Many of the common law marks have registrations pending with the USPTO and other international jurisdictions. Solely for convenience, we may refer to our trademarks in this Annual Report without the ™ or ® symbol, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks.
Solely for convenience, we may refer to our trademarks in this Annual Report without the ™ or ® symbol, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks.
Made from stretchy and breathable bamboo-based Viscose, our SoftStretch sheets are designed to maximize the functionality of our mattresses and pillows. We developed our own technology to enable customers to experience the full performance potential of our mattress (or any other mattress). We also sell more traditional cotton-based Complete Comfort sheets designed to have cushion enhancing two-way stretch.
We developed our own technology to enable customers to experience the full performance potential of our mattress (or any other mattress). We also sell traditional cotton-based Complete Comfort sheets designed to have cushion enhancing two-way stretch.
We hold various domestic and foreign patents, patent applications, trademarks and trademark applications regarding certain elements of the design, manufacturing and function of our products. We also maintain protections over proprietary trade secrets.
Intellectual Property We rely on patent and trademark protection laws to protect our intellectual property and maintain our competitive position in the marketplace. We hold various domestic and foreign patents, patent applications, trademarks and trademark applications regarding certain elements of the design, manufacturing and function of our products. We also maintain protections over proprietary trade secrets.
These fully customized machines are unique to Purple and, we believe, can handle both our size and scale requirements. We believe our combination of patents and intellectual property, proprietary and patented manufacturing equipment, production processes and decades of acquired knowledge create an advantage over our competitors who rely on commoditized materials, such as foam and outsourced manufacturing.
We believe our combination of patents and intellectual property, proprietary and patented manufacturing equipment, production processes and decades of acquired knowledge create an advantage over our competitors who rely on commoditized materials, such as foam and outsourced manufacturing.
It is our policy and practice to comply with all applicable domestic and foreign laws and regulations. We have made and will continue to make capital and other expenditures necessary to comply with these laws and regulations. These expenditures have been immaterial to our financial results.
We have made and will continue to make capital and other expenditures necessary to help us comply with these laws and regulations. These expenditures have been immaterial to our financial results.
We anticipate opening 11 additional Purple owned retail showrooms throughout 2023 and in the future. 1 Industry and Competition Our portfolio of products is driven by our commitment to innovating real comfort solutions that meaningfully help people sleep, feel and live better.
While we are slowing the opening of new showrooms in the short term, we anticipate continued expansion of our showrooms in the future. 1 Industry and Competition Our portfolio of products is driven by our commitment to innovating real comfort solutions that meaningfully help people sleep, feel and live better.
Our Purple Platform Bed Frame is designed specifically for all current Purple bed sizes and offers a high quality, simpler alternative to our more premium offerings. Constructed from lightweight steel, the Purple Platform Bed provides optimal support and prevents the mattress from sagging.
Our Purple Platform Bed Frame is designed specifically for all current Purple bed sizes and offers a high quality, simpler alternative to our more premium offerings.
We have not suffered a material adverse effect from non-compliance with federal, state, local or foreign legislation, but there can be no assurance that material costs or liabilities will not be incurred in connection with such legislation in the future. 7 Research and Development In May 2022, we appointed our first ever Chief Innovation Officer.
We have not suffered a material adverse effect from non-compliance with federal, state, local or foreign legislation, but there can be no assurance that material costs or liabilities will not be incurred in connection with such legislation in the future. Research and Development Our research and development teams are focused primarily on developing new comfort technologies and products.
Our mattress protector is stretchy and breathable. Our protector is also stain-resistant and machine-washable, making it easy to clean. ● Bases —Our bases have been designed to pair with our mattresses and meet the needs of our customers.
Our mattress protector is stretchy and breathable. Our protector is also stain-resistant and machine-washable, making it easy to clean. ● Bases — Our recently added new line of smart adjustable bases have been designed to pair with our new mattresses for the ideal Purple sleep experience.
We are also subject to laws such as the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act. Our mattress products are also subject to fire-retardant standards developed by the State of California, U.S.
We are also subject to laws such as the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act, and related state and local statutes and regulations.
With our website and customer contact center, we help customers easily engage in relevant content, research our solutions, transact online or via our customer contact center, or find the nearest retailer. We believe our online experience expands our brand and connections with consumers, enabling deeper awareness, engagement and brand loyalty.
We sell directly to consumers through our website, our customer contact center and online marketplaces. With our website and customer contact center, we help customers easily engage in relevant content, research our solutions, transact online or via our customer contact center, or find the nearest retailer.
One in manufacturing and design, and the other an advanced aerospace scientist, the brothers embarked on a partnership in the early 1990s to put together a team to develop cushioning solutions for wheelchairs and medical beds.
Our History Purple was created by two brothers that set out to revolutionize the comfort space. One of the brothers had expertise in manufacturing and design, and the other brother was an advanced aerospace scientist. Together, the brothers embarked on a partnership in the early 1990s to put together a team to develop cushioning solutions for wheelchairs and medical beds.
Hutchings has more than twenty years of experience in strategic business leadership in innovation, new product introduction and quality assurance. Prior to joining the Company, Mr. Hutchings served as Chief Product Officer at Skullcandy Inc. since December 2018 and as Vice President of Product from June 2015 to December 2018. Prior to that from July 2010 to June 2015, Mr.
Hutchings has served as the Chief Innovation Officer of the Company since May 2022. Mr. Hutchings has more than 20 years of experience in strategic business leadership in innovation, new product introduction and quality assurance. Prior to joining the Company, Mr.
Roddy served as the Chief People Officer for VASA Fitness since 2018. Prior to that he was the Chief Human Resources Officer for SeaWorld Parks and Entertainment from 2016 to 2018. From 2012 to 2016, Mr. Roddy was the Senior Vice President of Human Resources for Luxottica Group.
Prior to joining the Company, Mr. Roddy served as the chief people officer for VASA Fitness, a fitness club operator, from 2018 to October 2021. Prior to that he was the chief human resources officer for SeaWorld Parks and Entertainment, a theme park and entertainment company, from 2016 to 2018. From 2012 to 2016, Mr.
Item 1. Business Introduction Our mission is to help people feel and live better through innovative comfort solutions. We began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and are now omni-channel. We offer a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets and more.
Item 1. Business Introduction Our mission is to help people feel and live better through innovative comfort solutions. We began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and have since expanded into brick & mortar stores as a true omni-channel brand.
We believe our distinctly differentiated products, including newly broadened spectrum of mattresses across price points, comfort preferences, benefit segments, marketing strategies, manufacturing capabilities, unique branding and proprietary technologies position us to continue to drive our growth.
We believe our differentiated products (including differences across price, comfort, benefit, marketing strategies, manufacturing capabilities, branding and technology) position us to continue to drive our growth.
We plan to continue expanding our showroom footprint across the United States. Wholesale Channel We sell our assortment of products through brick-and-mortar and online wholesale partners.
We operate 60 Purple showrooms across the United States where consumers can experience our brand, learn and engage with our technology and purchase our products. Over time, we plan to continue expanding our showroom footprint across the United States. Wholesale Channel We sell our assortment of products through brick-and-mortar and online wholesale partners.
Our research and development teams are focused primarily on developing new comfort technologies and products. We have recently announced our three mattress collections including our new line of luxury mattresses. We have an extensive history of innovation that is core to our culture and key to our continued success. Our inventions have culminated over years of persistent research and development.
In May 2022, we appointed our first ever chief innovation officer. In 2023, we launched our three new premium mattress collections including our new line of luxury mattresses. We have an extensive history of innovation that is core to our culture and key to our continued success. Our inventions have culminated over years of persistent research and development.
This is a very different approach from most bed-in-a-box players who seek traditional consumer packaged goods distribution, e.g., boxes on shelves. Our goal is to support the customer wherever and however they want to learn, try, and buy. Whether in wholesale, Purple owned retail showrooms, or our e-commerce channel, we are a leader in the sleep products market.
Our goal is to support the customer wherever and however they want to learn, try, and buy. Whether in wholesale, Purple showrooms or our e-commerce channel, we are a leader in the sleep products market.
Since these early inventions, the sleep product industry has remained complacent with little meaningful innovation, until the introduction of our proprietary Hyper-Elastic Polymer material, which represents a meaningful innovation in pressure relief, temperature neutrality, responsiveness, durability and limited motion transfer.
The sleep product industry has generally remained complacent until the introduction of our proprietary Hyper-Elastic Polymer material, which we believe represents a meaningful innovation in pressure relief, temperature neutrality, responsiveness, durability and limited motion transfer. We believe that our proprietary technology solves problems that regular mattresses create and has proven that material innovations can have a positive impact on sleep.
Environmental and Governmental Regulation We are subject to numerous federal, state, local and foreign consumer protection and other laws and regulations applicable to the sleep product industry. These laws and regulations vary among the states and countries in which we do and intend to do business.
These suppliers may be interchanged in order to maintain quality, cost and delivery expectations. 8 Environmental and Governmental Regulation We are subject to numerous federal, state, local and foreign consumer protection and other laws and regulations applicable to the sleep product industry.
Kerby served as Vice President, Head of Stores of Sephora since May 2019, responsible for leading 86 stores throughout Canada. From March 2018 to January 2019, he served as the Senior Regional Director of American Eagle where he led American Eagle/Aerie stores in the Midwest U.S. and Canada with 225 stores. Prior to joining American Eagle, Mr.
From March 2018 to January 2019, he served as the senior regional director of American Eagle, a specialty retailer of clothing, accessories and personal care products, where he led American Eagle/Aerie stores in the Midwest United States and Canada with 225 stores. Prior to joining American Eagle, Mr.
McGarvey has the following degrees, each from the University of Utah, a Bachelor of Arts and Honors, Bachelor in political science with a Certificate in public administration, a Juris Doctor and an Executive Masters of Business Administration. 11 Eric S. Haynor has served as the Chief Operating Officer of the Company since June 2022. Prior to joining the company, Mr.
McDermott received a Bachelor of Arts degree in English and a Juris Doctor degree from Rutgers University along with a certificate in Accelerated Management from Yale School of Management. 12 Eric S. Haynor has served as the Chief Operating Officer of the Company since June 2022. Prior to joining the company, Mr.
Haynor spent most of his career with Ecolab in a variety of end-to-end supply chain roles. From August 2019 until he joined the Company in June 2022 he served as Sr. Vice President, Industrial Supply Chain providing strategic direction for eight Industrial business units.
From August 2019 until he joined the Company in June 2022 he served as senior vice president, industrial supply chain at Ecolab providing strategic direction for eight industrial business units. Prior to that, he held the role of vice president, global equipment operations and strategy from June 2015 to August 2019 at Ecolab. From August 2009 to June 2015, Mr.
This facility manufactures our proprietary Hyper-Elastic Polymer for assembly in our luxury mattresses. We continually improve our manufacturing processes and create efficiencies in production through new equipment and process designs and resources. We believe these factories will provide ample room to accommodate our future growth and expansion plans for the near term.
This facility manufactures our proprietary Hyper-Elastic Polymer for assembly in our luxury mattresses. We continually strive to improve our manufacturing processes and create efficiencies in production through new equipment and process designs and resources. We also manage our production labor and capacity utilization to promote efficient use of our manufacturing facilities.
We believe that our differentiated products, multi-channel distribution strategy, manufacturing capabilities, vertical integration and marketing expertise will enable us to successfully enter new markets. 4 Our Products Our current product portfolio is as follows: ● Mattresses —Our mattresses utilize the unique benefits of our Hyper-Elastic Polymer technology creating a one-of-a-kind sleep solution that is breathable to help regulate body temperature and soft enough to cradle pressure points while also providing support through localized buckling columns.
Our Products Our current product portfolio is as follows: ● Mattresses —Our mattresses utilize the unique benefits of our patented GelFlex Grid technology creating a one-of-a-kind sleep solution that regulates body temperature, keeping you sleeping cooler and soft enough to cradle pressure points while also providing support through localized buckling columns.
Our Purple Ascent Adjustable Base complements our mattresses by adding electrically powered functions, such as adjustable head and foot positions, zero-gravity preset for a near weightless feel, a “sitting” preset, under-bed lighting and a remote with cradle that provides additional USB ports for device charging. Our Purple Bed Frame is easy to ship and assemble, with no tools required.
The Purple Premium and Purple Premium Plus smart bases have a wide range of functions, such as adjustable head and foot positions, zero-gravity preset for a near weightless feel, a “sitting” preset, under-bed lighting, adjustable legs and a wireless remote with in-app control. Our Purple Bed Frame is easy to ship and assemble, with no tools required.
Mr. Kerby holds a BS from Washington State University’s School of Communications. Keira M. Krausz has served as Chief Marketing Officer since November 2022. Prior to joining the Company, Ms. Krausz was Chief Marketing Officer of HealthPlanOne, a digital health distribution platform from August 2020 to October 2022. From February 2013 to February 2020, Ms.
Kerby grew from director to associate vice president, head of stores for Bath and Body Works. Mr. Kerby holds a Bachelor of Science degree from Washington State University’s School of Communications. Keira M. Krausz has served as Chief Marketing Officer since November 2022. Prior to joining the Company, Ms.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMaterial risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to: Risk Factor Summary Risks Relating to Our Operations ● Significant fluctuations in our operating results and growth rate, and our short operating history in an evolving industry; ● Coliseum Capital Management, LLC’s unsolicited proposal to acquire the remaining outstanding shares of our Class A common stock and Class B common stock not owned by them and its attempt to take control of, or effect changes to, the Company through a proxy contest for control of the Board; ● Ability to obtain additional capital on acceptable terms or at all; ● Unsuccessful anticipation of consumer trends and demand, and competition in a highly competitive industry, and substantial and increasingly intense competition worldwide in e-commerce; ● Lack of availability or increase cost of raw materials, labor, components, and shipping services; ● Changes in economic conditions such as inflationary trends and significant strain of managing the growth of our business; ● Our relationship with Silicon Valley Bank, with which we have cash accounts, credit card processing, and amounts available under the 2020 Credit Agreement; ● Disruption of operations in manufacturing facilities, including pandemics or natural disasters, and risks associated with use of heavy machinery and equipment; ● Inability to identify, complete or successfully integrate acquisitions, and any acquisitions that we do make may not achieve the anticipated financial benefits; ● Changes in accounting standards and assumptions, estimates and judgments by management related to complex accounting matters; ● Our ability to continue to improve and expand our product line and our expansion into new products, market segments and geographic regions; ● The strength of our Purple brand, the effectiveness of our marketing, and our ability to attract and retain customers and our ability to achieve and maintain production capacity to meet customer demands; ● Our significant related-party transactions that may give rise to conflicts of interest; ● Ability to make, integrate, and maintain commercial agreements, strategic alliances, and other business relationships; 13 ● Any reduction in the availability of credit to consumers, maintaining desirable amounts of material and product inventory, and ability to provide timely delivery to our customers; ● Dependence on a few key employees; ● Failure to maintain internal controls and the potential impact of making material misstatements on financial results and reporting; and ● Need to implement additional finance and accounting systems, and failure of or disruptions to our information technology systems; ● The ongoing COVID-19 pandemic including its effect on our supply chain, workforce, and operations, and the COVID-19 pandemic effect on customer demand.
Biggest changeRisk Factor Summary Material risks that may affect our business, results of operation and financial condition include, but are not necessarily limited to, those relating to: ● Our level of indebtedness and related covenants could limit our operational and financial flexibility; ● We may be required to make certain prepayments on our term loan; ● We may need additional funds to execute our business plan, maintain our liquidity and fund operations; ● We have in the past experienced and may in the future experience significant fluctuations in our results of operations; ● Coliseum is our controlling stockholder and lender, and exercises substantial control over us: ● We engage in significant related-party transactions that may give rise to conflicts of interest, result in losses to the Company or otherwise adversely affect our operations and the value of our business; ● We may not successfully anticipate consumer trends and demand; ● We operate in the highly competitive sleep products industry; ● Substantial and increasingly intense competition worldwide in e-commerce may harm our business; ● Lack of availability and quality of raw materials, labor, components, and shipping services, or increases in the cost of such inputs, could result in our inability to provide goods or could increase our costs; ● We are subject to risk if our information technology systems fail to perform adequately; ● Changes in economic conditions such as raw materials and labor, and impacts on our consumers, could adversely affect our business, results of operations and financial condition; ● If we are unable to maintain sufficient production capacity to meet customer demands, we may not have profitable operations or sufficient liquidity or capital resources; ● Disruption in our manufacturing facilities has and could increase our costs or lead to delays in shipping; ● We use heavy machinery and equipment, which exposes us to potentially significant financial losses and reputational harm; ● Our future growth and profitability may depend in part on our ability to continue to improve and expand our product line and to successfully execute new product introductions; ● Our expansion into new products, market segments and geographic regions subjects us to additional business, legal, financial, and competitive risks; ● Our future growth and results of operations depend upon the strength of our Purple brand and the effectiveness and efficiency of our marketing programs and our ability to attract and retain customers; 14 ● Our business could suffer if we are unsuccessful in making, integrating and maintaining commercial agreements, strategic alliances and other business relationships; ● A reduction in credit availability under our consumer credit programs or the availability of more favorable terms with competitors could adversely affect our results of operations and financial condition; ● Over or under supply of raw material inventory and finished products could leave us vulnerable to shortages or shrinkage that may harm our ability to profitably satisfy consumer demand; ● Any disruption in our delivery capabilities could adversely affect our results of operations; ● If we lose members of the executive team, we may not be able to run our business effectively; ● Regulatory requirements may require costly expenditures and expose us to liability; ● Climate change and legal or regulatory responses could adversely affect our business; ● Regulatory requirements relating to the manufacture and disposal of mattresses may increase our product costs and increase the risk of disruption to our business; ● We could be subject to additional sales tax or other indirect tax liabilities; ● We could be subject to additional income tax liabilities; ● Litigation and the related potential adverse publicity could adversely affect our business; ● Failure to protect our proprietary rights could adversely affect our competitive position and reduce the value of our products and brands, and litigation to protect our intellectual property rights may be costly; ● We may be subject to claims that we or our licensors have infringed the proprietary rights of others; ● Purple LLC has licensed certain intellectual property to a third party for the purpose of enabling it to meet contractual obligations to its licensees under contracts previously entered into, and some licensees are competitors of Purple LLC; ● If we cannot keep pace with rapid technological developments to provide new and innovative programs, products and services, the use of our products and our results of operations could be adversely affected; ● Our business and our reputation could be adversely affected if we fail to protect sensitive data, or to comply with evolving regulations relating to our obligation to protect data; ● The market price of our Common Stock is volatile; ● Anti-takeover provisions and provisions of Delaware law contain anti-takeover provisions; ● Significant payment obligations under our Tax Receivable Agreement are accelerated upon a change of control of our Company, thereby discouraging a potential acquisition of our Company and adversely affecting any potential control premium payable for shares of our Common Stock. ● Provisions in our Second Amended and Restated Certificate of Incorporation may limit our stockholders’ ability to obtain a favorable judicial forum; ● Future sales of our Common Stock in the public market may depress our share price; 15 ● Our stockholders may experience substantial dilution or may have their interests impaired if we issue additional shares of our capital stock, including as a result of the exercise of the Warrants; ● Our only significant asset is our ownership of Purple LLC and such ownership may not be sufficient to enable us to satisfy our financial obligation; ● We do not anticipate paying any cash dividends in the foreseeable future; ● We may issue debt and equity securities or securities convertible into equity securities; ● NASDAQ may delist our securities from its exchange; ● We have identified a material weakness in our internal control over financial reporting which has not been remediated as of December 31, 2023; ● Obligations under the Tax Receivable Agreement could materially adversely affect our cash flows in the future once we become profitable and begin paying income taxes; ● Under certain circumstances, payments under the Tax Receivable Agreement may be accelerated or significantly exceed the actual benefits we realize; ● Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results, and ● Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Fluctuations in our results of operations could cause our performance to fall below the expectations of analysts and investors, and adversely affect the price of our common stock. Because our business is changing and evolving rapidly, our historical results of operations may not be necessarily indicative of our future results of operations.
Fluctuations in our results of operations could cause our performance to fall below the expectations of analysts and investors, and adversely affect the price of our Common Stock. Because our business is changing and evolving rapidly, our historical results of operations may not necessarily be indicative of our future results of operations.
Also, in the past we have experienced rapid growth in our employee base, and the need to implement processes and procedures for improving employee training and retention. Competition for employees where our production facilities are located also has increased the costs for employee retention.
Also, in the past we have experienced rapid growth in our employee base, and the need to implement processes and procedures for improving employee training and retention. Competition for employees where our production facilities are located has also increased the costs for employee retention.
Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities or other securities convertible into or exchangeable for equity securities, regardless of whether there is any relationship between such sales and the performance of our business.
Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities or other securities convertible into or exchangeable for equity securities, regardless of whether there is any relationship between such sales and the performance of our business.
The application of indirect taxes (such as sales and use tax, value-added tax (“VAT”), goods and services tax, business tax and gross receipt tax) to e-commerce businesses and to our users is a complex and evolving issue and we may be unable to timely or accurately determine our obligations with respect to such indirect taxes, if any, in various jurisdictions.
The application of indirect taxes (such as sales and use tax, value-added tax (“VAT”), goods and services tax, business tax and gross receipt tax) to applicable e-commerce businesses and to our users is a complex and evolving issue and we may be unable to timely or accurately determine our obligations with respect to such indirect taxes, if any, in various jurisdictions.
A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. 21 We have identified the need for improved processes and procedures to avoid delays in the timely delivery of our mattress products and to improve the customer’s experience.
A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. We have identified the need for improved processes and procedures to avoid delays in the timely delivery of our mattress products and to improve the customer’s experience.
While the current license back to EdiZONE, as amended following the Business Combination, is much narrower than the license that existed at the time of the Business Combination, EdiZONE’s third-party licenses may lead to conflicts between us and EdiZONE. If conflicts do arise and are not properly addressed, disputes may occur which may be detrimental to the Company.
While the current license back to EdiZONE, as amended following the Business Combination, is much narrower than the license that existed at the time of the Business Combination, EdiZONE’s third-party licenses may lead to conflicts between us and EdiZONE. If conflicts do arise and are not properly addressed, disputes may occur which may be detrimental to us.
Our Second Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Additionally, our Second Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our success will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards. Our business and our reputation could be adversely affected by the failure to protect sensitive employee, customer and consumer data, or to comply with evolving regulations relating to our obligation to protect such data.
Our success will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards. 37 Our business and our reputation could be adversely affected by the failure to protect sensitive employee, customer and consumer data, or to comply with evolving regulations relating to our obligation to protect such data.
Competitive and marketing pressures may prevent us from passing along price increases to our customers, and the inability to meet our customers’ demands could cause us to lose sales. Some components, such as foam and spring units, are widely used in our industry.
Competitive and marketing pressures may prevent us from passing along price increases to our customers, and the inability to meet our customers’ demands could cause us to lose sales. 23 Some components, such as foam and spring units, are widely used in our industry.
Our ability to comply with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall business strategy. The breach of any of these covenants or restrictions could result in a default, which could result in the acceleration of our outstanding debt.
Our ability to comply with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall business strategy. The breach of any of these covenants or restrictions could result in a default, which could potentially result in the acceleration of our outstanding debt.
In addition, if the stock market for companies in our industry or related industries, or the stock market generally, experiences a loss of investor confidence, the trading price of our Class A common stock could decline for reasons unrelated to our business, financial condition or results of operations.
In addition, if the stock market for companies in our industry or related industries, or the stock market generally, experiences a loss of investor confidence, the trading price of our Common Stock could decline for reasons unrelated to our business, financial condition or results of operations.
Failure to achieve any of these goals will prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations.
Failure to achieve any of these goals will likely prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations.
We rely on intellectual property laws and trade secret protection to protect our proprietary rights. We also rely on contractual provisions such as confidentiality agreements, non-competition agreements and license agreements with our vendors, contractors, employees, customers, and others to protect our proprietary rights.
We rely on intellectual property laws and trade secret protection to protect our proprietary rights. We also rely on contractual provisions such as confidentiality agreements, non-competition agreements and license agreements with our vendors, contractors, employees, customers, competitors and others to protect our proprietary rights.
Our Second Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by law, our directors shall not be personally liable for monetary damages for breach of fiduciary duties.
Our Second Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, our directors shall not be personally liable for monetary damages for breach of fiduciary duties.
Our quarterly and annual results of operations have fluctuated in the past and we expect our future results of operations to fluctuate due to a variety of factors, many of which are beyond our control.
Our quarterly and annual results of operations have fluctuated in the past and we expect our future results of operations will fluctuate due to a variety of factors, many of which are beyond our control.
Our business is expanding into additional Purple owned retail showrooms which, like our online e-commerce retail store, may compete more directly with our wholesale partners for customers.
Our business is expanding into additional Purple showrooms which, like our online e-commerce retail store, may compete more directly with our wholesale partners for customers.
Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations.
If we are not able to successfully manage the process of expanding operations geographically, opening new Purple owned retail showrooms and maintaining operations in an expanding number of facilities and Purple owned retail showrooms, we may have to close facilities and incur sunk costs and continuing obligations that could put a strain upon our resources, damage our brand and reputation and limit our growth.
If we are not able to successfully manage the process of expanding operations geographically, opening new Purple showrooms and maintaining operations in an expanding number of facilities and Purple showrooms, we may have to close facilities and incur sunk costs and continuing obligations that could put a strain upon our resources, damage our brand and reputation and limit our growth.
We have relationships with traditional and digital media partners, online services, search engines, affiliate marketing websites, directories and other website and e-commerce businesses to provide content, advertising and other links that direct customers to our website. We rely on these relationships as significant sources of traffic to our website and to generate new customers.
We have relationships with traditional and digital media partners, online services, search engines, affiliate marketing websites, social media influencers, directories and other website and e-commerce businesses to provide content, advertising and other links that direct customers to our website. We rely on these relationships as significant sources of traffic to our website and to generate new customers.
Further, general macroeconomic conditions, including persistent inflation, has and may continue to adversely affect consumer demand for our products, which are generally priced at a premium. Any reductions in consumer demand for our products has and may continue to adversely affect our sales and financial position. For example, consumers have recently begun shifting spending to services and experiences.
Further, general macroeconomic conditions, including persistent inflation, have and may continue to adversely affect consumer demand for our products, which are generally priced at a premium. Reductions in consumer demand for our products has adversely affected and may continue to affect our sales and financial position. For example, consumers have recently begun shifting spending to services and experiences.
Other direct to consumer retailers and e-commerce competitors may offer or continue to offer faster shipping, free shipping, delivery on Sunday, same-day delivery, favorable return policies or other transaction-related services which improve the user experience on their sites and which could be impractical or inefficient for us to match.
Other direct to consumer retailers and e-commerce competitors may offer or continue to offer faster shipping, flexible shipping, delivery on Sunday, same-day delivery, favorable return policies or other transaction-related services which improve the user experience on their sites, and which could be impractical or inefficient for us to match.
Further, the occurrence of such incidents may result in litigation, including personal injury or workers’ compensation claims, as well as securities litigation resulting from any related impact on the market price of our Class A common stock, which could also adversely affect our financial condition and reputation.
Further, the occurrence of such incidents may result in litigation, including personal injury or workers’ compensation claims, as well as securities litigation resulting from any related impact on the market price of our Common Stock, which could also adversely affect our financial condition and reputation.
A number of U.S. states have attempted to increase corporate tax revenues by taking an expansive view of corporate presence to attempt to impose corporate income taxes and other direct business taxes on companies that have no physical presence in their state, and taxing authorities in other jurisdictions may take similar actions.
A number of states have attempted to increase corporate tax revenues by taking an expansive view of corporate presence to attempt to impose corporate income taxes and other direct business taxes on companies that have no physical presence in their state, and taxing authorities in other jurisdictions may take similar actions.
We also need to ensure that our distribution infrastructure and supply chain keep pace with our anticipated growth and increased product output. The cost of these enhanced processes could be significant and any failure to maintain, grow or improve them could adversely affect our operating results.
We also need to ensure that our distribution infrastructure and supply chain keep pace with our anticipated growth and increased product output. The cost of these enhanced processes could be significant and any failure to maintain, grow or improve them could adversely affect our results of operations.
The occurrence of such incidents has resulted in and could in the future result in investigations by or the imposition of fines from regulatory authorities or require us to implement corrective actions to address the causes of such incidents, which could require the expenditure of significant resources and may adversely affect our financial condition and operations.
The occurrence of such incidents has resulted and could in the future result in investigations by or the imposition of fines from regulatory authorities or require us to implement corrective actions to address the causes of such incidents, which could require the expenditure of significant resources and could adversely affect our financial condition and results of operations.
We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise which may have a material adverse effect on our financial condition.
In addition, we may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise which may have a material adverse effect on our financial condition.
Item 1A. Risk Factors The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline. Any defined terms used in the Risk Factor Summary are defined in the full Risk Factors.
Item 1A. Risk Factors The risk factors summarized and detailed below could materially harm our business, results of operation and/or financial condition, impair our future prospects and/or cause the price of our Common Stock to decline. Any defined terms used in the Risk Factor Summary are defined in the full Risk Factors.
If we are unable to effectively compete with other manufacturers and retailers of mattresses, pillows, cushions, and our other products our sales, profitability, cash flows and financial condition may be adversely impacted. Substantial and increasingly intense competition worldwide in e-commerce may harm our business.
If we are unable to effectively compete with other manufacturers and retailers of mattresses, pillows, cushions, and our other products our sales, profitability, cash flows and financial condition may be adversely affected. Substantial and increasingly intense competition worldwide in e-commerce may harm our business.
Provisions of Delaware law, our Second Amended and Restated Certificate of Incorporation, and our Second Amended and Restated Bylaws and our Rights Agreement could hamper a third party’s acquisition of us, or discourage a third party from attempting to acquire control of us. You may not have the opportunity to participate in these transactions.
Provisions of Delaware law, our Second Amended and Restated Certificate of Incorporation, and our Third Amended and Restated Bylaws could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control of us. You may not have the opportunity to participate in these transactions.
This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended, (the “Securities Act”) or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended, (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any other claim for which the federal courts have exclusive jurisdiction.
In addition, we rely on estimates and forecasts of our expenses and revenues to provide guidance and inform our business strategies, and some of our past estimates and forecasts have not been accurate. The evolving nature of our business makes forecasting operating results difficult.
In addition, we rely on estimates and forecasts of our expenses and revenues to provide guidance and inform our business strategies, and some of our past estimates and forecasts have not been accurate. The evolving nature of our business makes forecasting results of operations difficult.
We have expanded our operations during significant periods of our limited operating history, including expanding our workforce, increasing our product offerings, scaling our infrastructure to support expansion of our manufacturing capacity, expanding wholesale channels and opening of Purple owned retail showrooms.
We have expanded operations during significant periods of our limited operating history, including expanding our workforce, increasing product offerings, scaling infrastructure to support expansion of our manufacturing capacity, expanding wholesale channels, and opening of Purple showrooms.
Even in the absence of an early termination of the Tax Receivable Agreement, change of control of the Company or a payment that is more than 90 days late under the Tax Receivable Agreement, there may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual income or franchise tax savings that we realize in respect of the tax attributes subject to the Tax Receivable Agreement or if distributions to us by Purple LLC are not sufficient to permit us to make payments under the Tax Receivable Agreement after we have paid taxes and other expenses.
Even in the absence of an early termination of the Tax Receivable Agreement, change of control of our Company or a payment that is more than 90 days late under the Tax Receivable Agreement, there may be a material adverse effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual income or franchise tax savings that we realize from the tax attributes subject to the Tax Receivable Agreement or if distributions to us by Purple LLC are not sufficient to permit us to make payments under the Tax Receivable Agreement after we have paid taxes and other expenses.
Factors that may cause our results of operations to fluctuate include, but are not limited to, the following: ● changes in demand for our products, whether caused by changes in customer confidence or preferences, infringing products, disruption to our sales channels, inflation, or a weakening of the U.S. or global economies; ● disruptions or delays in or increased costs for our production and shipping of our products; ● failures in our manufacturing equipment; ● supply chain constraints, including the availability of raw materials in a timely manner; ● costs of employee recruiting and retention; ● changes in the pricing or availability of advertising; ● changes in our capital expenditures; ● costs related to acquisitions of businesses or technologies and development of new products; ● the introduction of new technologies or products by our competitors; ● general political, economic and business conditions worldwide, including political or social unrest; ● disruption of our physical facilities or those of our wholesale partners due to social unrest or other issues; ● the impact of natural disasters on our manufacturing facilities and supply chain; ● changes to our executive leadership or our Board; ● actions of activist investors that divert our attention and resources; ● the loss of key strategic relationships with partners; and ● the cost of recapitalization.
Factors that may cause our results of operations to fluctuate include, but are not limited to, the following: ● changes in demand for our products, whether caused by changes in customer confidence or preferences, infringing products, disruption to our sales channels, inflation, or a weakening of the United States or global economies; ● disruptions or delays in or increased costs for our production and shipping of our products, whether caused by pandemics or otherwise; ● failures in our manufacturing equipment; ● supply chain constraints, including the availability of raw materials in a timely manner; 18 ● costs of employee recruiting and retention; ● changes in the pricing or availability of advertising; ● changes in our capital expenditures; ● costs related to acquisitions of businesses or technologies and development of new products; ● the introduction of new technologies or products by our competitors; ● general political, economic and business conditions worldwide, including political or social unrest; ● disruption of our physical facilities or those of our wholesale partners due to social unrest or other issues; ● the impact of natural disasters on our manufacturing facilities and supply chain; ● changes to our executive leadership or our Board; ● actions of activist investors that divert our attention and resources; ● the loss of key strategic relationships with partners; and ● the cost of recapitalization.
If we fail to meet or exceed the operating results expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future performance that are unrealistic or that we do not meet, the market price of our common stock could decline.
If we fail to meet or exceed the expectations of analysts and investors or if analysts and investors have estimates and forecasts of our future performance that are unrealistic or that we do not meet, the market price of our Common Stock could decline.
Because two of our currently operating manufacturing plants are located within the same geographic region, regional economic downturns, natural disasters, closures due to COVID-19, the unavailability of utilities as a result of climate events or otherwise, or other issues could potentially disrupt a significant portion of our manufacturing and other operating activities, which could adversely affect our business.
Because two of our currently operating manufacturing plants are located within the same geographic region, regional economic downturns, natural disasters, closures due to pandemics, the unavailability of utilities as a result of climate events or otherwise, or other issues could potentially disrupt a significant portion of our manufacturing and other operating activities, which could adversely affect our business.
Although we do not believe any of our products infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or pursued against us or those from whom we have licenses or that any such assertions or prosecutions will not have a material adverse effect on our business.
Although we do not believe any of our products infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or pursued against us or those from whom we have licenses or that any such assertions or prosecutions will not have an adverse effect on our business.
Our gross profit margins for sales through wholesale customers are lower than those in our DTC channel and, as a result, this shift in customer preference has and may continue to adversely impact our gross profit margins.
Our gross profit margins for sales through wholesale customers are lower than those in our DTC channel and, as a result, this shift in customer preference has and may continue to adversely affect our gross profit margins.
That risk may be addressed by redesign of the configuration of the Hyper-Elastic Polymer material in that geographic region by either using existing technologies already assigned by EdiZONE to Purple LLC or developing new technologies.
That risk may be addressed by redesigning the configuration of the Hyper-Elastic Polymer material in that geographic region by either using existing technologies already assigned by EdiZONE to Purple LLC or developing new technologies.
If we misjudge market trends, we may significantly overstock inventory and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow. Conversely, shortages of inventory or time to fulfillment of our products that prove popular could also reduce our sales.
If we misjudge market trends, we may significantly overstock inventory and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow. Conversely, shortages of inventory or increases in time for fulfillment of our products that prove popular could also reduce our sales.
Shortages in such components, due to any reason including increase in demand, weather events, supply chain difficulties within the supplier or otherwise, could adversely affect our production capacity and financial results. If we were unable to obtain raw materials and components from suppliers, we would have to find replacement suppliers.
Shortages in such components, due to any reason including increase in demand, weather events, supply chain difficulties within the supplier or otherwise, could adversely affect our production capacity and results of operations. If we were unable to obtain raw materials and components from suppliers, we would have to find replacement suppliers.
There is no assurance that we will be able to fulfill our staffing requirements for our business, successfully train and assimilate new employees, maintain our management base and enhance our operating and financial systems.
There is no assurance that we will be able to fulfill our staffing requirements for our business, successfully train and assimilate new employees, maintain our management team and enhance our operating and financial systems.
Many of our competitors source their products from countries such as China and Vietnam, where the costs may be lower than our costs. Companies providing for the distribution of mattresses online or through retail stores, such as Mattress Firm, Amazon and Walmart, also have begun to offer competing products in their respective channels.
Many of our competitors source their products from countries such as China and Vietnam, where the costs may be lower than our costs. Companies providing for the distribution of mattresses online or through retail stores, such as Mattress Firm, Amazon and Walmart, also offer competing products in their respective channels.
Even when such controls are implemented, management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors or loss.
Even when such controls are implemented, management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors or losses.
In addition, if one or more of the analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. Any disruption of our operations, and related impacts on our operating results, could also adversely affect the market price of our Class A common stock, which could result in securities litigation.
In addition, if one or more of the analysts who cover us adversely change their recommendation regarding our stock, the market price of our Common Stock could decline. Any disruption of our operations, and related impacts on our results of operations, could also adversely affect the market price of our Common Stock, which could result in securities litigation.
Consumer Product Safety Commission (“CPSC”) and other jurisdictions have adopted rules relating to fire retardancy standards for the mattress industry. Some states and the U.S. Congress continue to consider fire retardancy regulations that may be different from or more stringent than the current standard.
The United States Consumer Product Safety Commission (“CPSC”) and other jurisdictions have adopted rules relating to fire retardancy standards for the mattress industry. Some states and the United States Congress continue to consider fire retardancy regulations that may be different from or more stringent than the current standard.
The market price of our Class A common stock has fluctuated and may fluctuate significantly in response to numerous factors, some of which are beyond our control and may not be related to our operating performance, including but not limited to: ● announcements of new offerings, products, services or technologies, commercial relationships, acquisitions, or other events by us or our competitors; ● price and volume fluctuations in the overall stock market from time to time; ● significant volatility in the market price and trading volume of companies in our industry; ● fluctuations in the trading volume of our shares or the size of our public float; ● actual or anticipated changes or fluctuations in our results of operations; ● whether our results of operations meet the expectations of securities analysts or investors; ● actual or anticipated changes in the expectations of investors or securities analysts; ● litigation involving us, our industry, or both; ● regulatory developments in the United States, foreign countries, or both; ● general or industry economic conditions and trends; ● terrorist attacks, political upheaval, natural disasters, public health crises, or other major catastrophic events; ● sales of large blocks of our common stock; ● departures of key employees; ● an adverse impact on us from any of the other risks cited herein; or ● unsolicited takeover bids and proposals.
The market price of our Common Stock has fluctuated and may fluctuate significantly in response to numerous factors, some of which are beyond our control and may not be related to our results of operations, including but not limited to: ● announcements of new offerings, products, services or technologies, commercial relationships, acquisitions, or other events by us or our competitors; ● price and volume fluctuations in the overall stock market; ● significant volatility in the market price and trading volume of companies in our industry; ● fluctuations in the trading volume of our shares or the size of our public float; ● actual or anticipated changes or fluctuations in our results of operations; ● whether our results of operations meet the expectations of securities analysts or investors; ● actual or anticipated changes in the expectations of investors or securities analysts; ● litigation involving us, our industry, or both; ● regulatory developments in the United States, foreign countries, or both; ● general or industry economic conditions and trends; ● terrorist attacks, political upheaval, natural disasters, public health crises, or other major catastrophic events; ● sales of large blocks of our Common Stock, including SEC filings related to such potential sales; ● departures of key employees; ● an adverse impact on us from any of the other risks cited herein; or ● unsolicited takeover bids and proposals.
As we continue to increase our innovations and create new products and technologies, and as we enter new product spaces, we may be limited by the intellectual property rights of others.
As we continue to increase our innovations and create new products and technologies, and as we enter new product categories, we may be limited by the intellectual property rights of others.
We respect the intellectual property rights of others; however, our ability to innovate and increase our product footprint may be limited by the intellectual property rights of those other parties. We have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of third parties.
We attempt to respect the intellectual property rights of others; however, our ability to innovate and increase our product footprint may be limited by the intellectual property rights of other parties. 36 We have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of third parties.
In addition, once safety improvements were implemented and manufacturing resumed, we experienced unanticipated mechanical and maintenance issues while ramping up to normal production, which resulted in shipment delays and adversely affected our financial results and relationships with customers.
In addition, once safety improvements were implemented and manufacturing resumed, we experienced unanticipated mechanical and maintenance issues while ramping up to normal production, which resulted in shipment delays and adversely affected our results of operations and relationships with customers.
Any adverse outcome of any such audit or review could harm our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
Any adverse outcome of any such audit or review could harm our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may could adversely affect our results of operations in the period or periods for which such determination is made.
Many U.S. states are also altering their apportionment formulas to increase the amount of taxable income or loss attributable to their state from certain out-of-state businesses. Further, we are required to pay sales and other taxes and fees to states where our products are warehoused before shipping or where Purple owned retail showrooms are located presently or in the future.
Many states are also altering their apportionment formulas to increase the amount of taxable income or loss attributable to their state from certain out-of-state businesses. Further, we are required to pay sales and other taxes and fees to states where our products are warehoused before shipping or where Purple showrooms are located presently or in the future.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers or employees.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers or employees.
We intend to retain future earnings, if any, for use in the business or for other corporate purposes and do not anticipate that cash dividends with respect to our Class A common stock will be paid in the foreseeable future.
We do not anticipate paying any cash dividends in the foreseeable future. We intend to retain future earnings, if any, for use in the business or for other corporate purposes and do not anticipate that cash dividends with respect to our Common Stock will be paid in the foreseeable future.
To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
To the extent that any such claims may be based upon federal law claims the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
In the event of our liquidation, our lenders and holders of our debt would receive distributions of our available assets before distributions to holders of our Class A common stock, and holders of securities senior to the Class A common stock would receive distributions of our available assets before distributions to the holders of our Class A common stock.
In the event of our liquidation, our lenders and holders of our debt would receive distributions of our available assets before distributions to holders of our Common Stock, and holders of securities senior to the Common Stock would receive distributions of our available assets before distributions to the holders of our Common Stock.
As a result, our future growth and profitability will depend in part on (i) the effectiveness and efficiency of our online experience for disparate worldwide audiences, including advertising and search optimization programs in generating consumer awareness and sales of our products, (ii) our ability to prevent confusion among consumers that can result from search engines that allow competitors to use or bid on our trademarks to direct consumers to competitors’ websites, (iii) our ability to prevent internet publication or television broadcast of false or misleading information regarding our products or our competitors’ products, (iv) the nature and tone of consumer sentiment published on various social media sites, and (v) the stability of our website.
As a result, our future growth and results of operations will depend in part on (i) the effectiveness and efficiency of our online experience for North American audiences, including advertising and search optimization programs in generating consumer awareness and sales of our products, (ii) our ability to prevent confusion among consumers that can result from search engines that allow competitors to use or bid on our trademarks to direct consumers to competitors’ websites, (iii) our ability to prevent internet publication or television broadcast of false or misleading information regarding our products or our competitors’ products, (iv) the nature and tone of consumer sentiment published on various social media sites, and (v) the stability of our website.
During the year ended December 31, 2022, a significant percentage of our sales were financed through third-party consumer finance companies. The amount of credit available to consumers may be adversely impacted by macroeconomic factors that affect the financial position of consumers as suppliers of credit adjust their lending criteria.
During the year ended December 31, 2023, a significant percentage of our sales were financed through third-party consumer finance companies. The amount of credit available to consumers may be adversely affected by macroeconomic factors that affect the financial position of consumers as suppliers of credit adjust their lending criteria.
If we are unable to construct new machines and implement them into our production process in a timely manner, if our existing machines are unable to function at the desired capacity, or if we are unable to develop replacements for the existing machines if such replacements should become necessary, our production capacity may be constrained and our ability to respond to customer demand may be adversely impacted.
If we are unable to construct new machines and integrate them into our production process in a timely manner, if our existing machines are unable to function at the desired capacity or if we are unable to develop replacements for our existing machines if such replacements should become necessary, our production capacity may be constrained and our ability to respond to customer demand may be adversely affected.
We may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their contractual obligations to us, which could adversely affect our operating results.
We may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their contractual obligations to us, which could adversely affect our results of operations.
Some of our systems are not fully redundant and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage, information hijacking or ransom, and intentional acts of vandalism. Any of these or other systems related problems could, in turn, adversely affect our sales and profitability.
Some of our systems are not fully redundant and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage, information hijacking or ransom, and intentional acts of vandalism. Any of these or other systems-related problems could, in turn, adversely affect our results of operations.
A number of our significant competitors offer products that compete directly with our products, and such direct competition is increasing. Any such competition by established manufacturers and retailers or new entrants into the market could have a material adverse effect on our business, financial condition and operating results.
A number of our significant competitors offer products that compete directly with our products, and such direct competition is increasing. Any such competition by established manufacturers and retailers or new entrants into the market could have an adverse effect on our business, financial condition and results of operations.
In addition, a softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result and has resulted in decreased revenue or growth. For example, we are experiencing weaker demand than in the past in part as a result of current inflationary trends.
In addition, a softening of demand, whether caused by changes in customer preferences or a weakening of the United States or global economies, may result and has resulted in decreased revenue or growth. For example, we are experiencing weaker demand than in the past in part as a result of current inflationary trends.
In addition, shipping and freight delays have occurred and may again occur due to port closures, port congestion, and shipping container and ship shortages.
In addition, shipping and freight delays have occurred and may again occur due to port closures, port congestion, shipping lane disruptions, and shipping container and ship shortages.
Our Second Amended and Restated Certificate of Incorporation also allows us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. Additionally, we sign indemnification agreements with our directors and officers that provide them with similar indemnification rights.
Our Second Amended and Restated Certificate of Incorporation and our third Amended and Restated Bylaws also requires us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. Additionally, we sign indemnification agreements with our directors and officers that provide them with similar indemnification rights.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions, estimates and judgments by our management, including but not limited to estimates that affect our revenue recognition, accounts receivable and allowance for doubtful accounts, valuation of inventories, cost of revenues, sales returns, warranty liabilities, the recognition and measurement of loss contingencies, warrant liabilities, estimates of current and deferred income taxes, deferred income tax valuation allowances and amounts associated with our Tax Receivable Agreement with our founders dated February 22, 2018 (the “Tax Receivable Agreement”).
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions, estimates and judgments by our management, including but not limited to estimates that affect our revenue recognition, accounts receivable and allowance for doubtful accounts, valuation of inventories, cost of revenues, sales returns, warranty liabilities, the recognition and measurement of loss contingencies, warrant liabilities, estimates of current and deferred income taxes, deferred income tax valuation allowances and amounts associated with our Tax Receivable Agreement.
Changes in consumers’ tastes and trends and the resulting change in our product mix, as well as failure to offer our consumers multiple avenues for purchasing our products, could adversely affect our business and operating results.
Changes in consumers’ tastes and trends and the resulting change in our product mix, as well as failure to offer our consumers multiple avenues for purchasing our products, could adversely affect our business and results of operations.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our core business, and adversely affect our business. 40 Anti-takeover provisions in our Second Amended and Restated Certificate of Incorporation, our Second Amended and restated Bylaws as well as provisions of Delaware law and our Rights Agreement, contain anti-takeover provisions, any of which could delay or discourage a merger, tender offer, or assumption of control of the Company not approved by our Board of Directors that some stockholders may consider favorable.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our core business, and adversely affect our Common Stock. 39 Anti-takeover provisions in our Second Amended and Restated Certificate of Incorporation, our Third Amended and Restated Bylaws as well as provisions of Delaware law, contain anti-takeover provisions, any of which could delay or discourage a merger, tender offer, or assumption of control of our Company not approved by our Board of Directors that some stockholders may consider favorable.
Our success is highly dependent on our ability to provide timely delivery on a cost-effective basis to our customers, and any disruption in our delivery capabilities or our related planning and control processes may adversely affect our operating results. An important part of our success is our ability to deliver our products to our customers in a timely manner.
Our success is highly dependent on our ability to provide timely delivery on a cost-effective basis to our customers, and any disruption in our delivery capabilities or our related planning and control processes could adversely affect our results of operations. An important part of our success is our ability to deliver our products to our customers in a timely manner.
It also provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim for or based on a breach of duty or obligation owed by any current or former director, officer or employee of ours to us or to our stockholders, including any claim alleging the aiding and abetting of such a breach; any action asserting a claim against us or any current or former director, officer or employee of ours arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; or any action asserting a claim related to or involving us that is governed by the internal affairs doctrine.
It also provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any (i) derivative action or proceeding brought on our behalf; (ii) any action asserting a claim for or based on a breach of duty or obligation owed by any current or former director, officer or employee of ours to us or to our stockholders, including any claim alleging the aiding and abetting of such a breach; (iii) any action asserting a claim against us or any current or former director, officer or employee of ours arising pursuant to any provision of the Delaware General Corporation Law or our Second Amended and Restated Certificate of Incorporation or our Third Amended and Restated Bylaws; or (iv) any action asserting a claim related to or involving us that is governed by the internal affairs doctrine.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Furthermore, the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
We may not be able to successfully anticipate consumer trends and demand and our failure to do so may lead to loss of consumer acceptance of the products we sell, resulting in reduced net sales. Our success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner.
We may not be able to successfully anticipate consumer trends and demand and our failure to do so may lead to a loss of consumer acceptance of the products we sell. Our success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner.
Our products and our marketing and advertising programs are subject to regulation in the U.S. by various federal, state and local regulatory authorities, including the Federal Trade Commission and the CBP. In addition, our operations are subject to federal, state and local consumer protection regulations and other laws relating specifically to the sleep product industry.
Our products and our marketing and advertising programs are subject to regulation in the United States by various federal, state and local regulatory authorities, including the Federal Trade Commission and the CBP. In addition, our operations are subject to federal, state and local consumer protection regulations and other laws relating specifically to the sleep product industry.
We own various U.S. and foreign patents and patent applications related to certain elements of the design and function of our products including mattresses, pillows, cushions and related products, as well as related to proprietary formulas and related technology for certain materials used in the manufacturing of our products.
We own various United States and foreign patents and patent applications related to certain elements of the design and function of our products including mattresses, pillows, cushions and related products, as well as related to proprietary formulas and related technology for certain materials used in the manufacturing of our products.
In general, operating new facilities and opening Purple owned retail showrooms in new locations exposes us to laws in other states that may not be as employer-friendly as those in which we currently operate, and may expose us to new expenses and liabilities.
In general, operating new facilities and opening Purple showrooms in new locations exposes us to laws in other states that may not be as employer friendly as those in which we currently operate, and may expose us to new compliance risks, expenses and liabilities.
Our Purple owned retail showroom expansion increases our risk for inventory shrinkage from destruction, theft, obsolescence and other factors that render such inventory unusable or unsellable. New products may come with unknown warranty and return risks.
Our Purple showroom expansion increases our risk of inventory shrinkage from destruction, theft, obsolescence and other factors that render such inventory unusable or unsellable. New products may come with unknown warranty and return risks.
Breaches involving any such information could be more likely to the extent we have any material weakness in internal control over financial reporting related to information technology general controls in the areas of user access and segregation of duties related to certain IT systems that support the Company’s financial reporting processes.
Breaches involving any personal information could be more likely to the extent we have any material weakness in internal control over financial reporting related to information technology general controls in the areas of user access and segregation of duties related to certain information technology systems that support our financial reporting processes.
In addition, cyber-attacks, such as ransomware attacks, if successful, could interfere with our ability to access and use systems and records that are necessary to operate our business. Such attacks could materially adversely affect our reputation, relationships with customers, and operations and could require us to expend significant resources to resolve such issues.
In addition, cyberattacks, such as ransomware attacks, if successful, could interfere with our ability to access and use systems and records that are necessary to operate our business. Such attacks could adversely affect our reputation, relationships with customers, and results of operations and could require us to expend significant resources to resolve such issues.
Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The trading price of our Class A common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.
Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the results of operations of those companies. The trading price of our Common Stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThese factories have a total of 1.5 million square-feet (35 acres under roof), including approximately 574,000 square-feet at our Grantsville, Utah facility, 844,000 square feet at our McDonough, Georgia facility and 67,000 square feet at our Salt Lake City, Utah facility.
Biggest changeItem 2. Properties We lease three manufacturing facilities in Grantsville, Utah, Salt Lake City, Utah and McDonough, Georgia. These factories total 1.5 million square feet (35 acres under roof), including approximately 574,000 square-feet at our Grantsville facility, 844,000 square feet at our McDonough facility and 67,000 square feet at our Salt Lake City facility.
We believe our Georgia location, our first manufacturing plant outside of Utah, serves our customers on the east coast more efficiently. Our facility in Salt Lake City was acquired in the Intellibed acquisition in August 2022. We also lease a building in Alpine, Utah that has previously served as a production facility.
We believe our McDonough location, our first manufacturing plant outside of Utah, serves our customers on the east coast more efficiently than from our Utah locations. Our facility in Salt Lake City was acquired in the Intellibed acquisition in August 2022. We also lease a building with approximately 61,000 square feet in Draper, Utah that serves as our innovation center.
We have 55 Purple owned retail showrooms under lease with ten located in California, six in Texas, five in Utah and 34 located in 21 other states throughout the United States.
In addition, we lease approximately 30,000 square-feet of office space in Lehi, Utah for our corporate headquarters. As of December 31, 2023, we had 60 Purple showrooms under lease with 10 located in California, five in Texas, five in Utah and 37 located in 23 other states throughout the United States.
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Item 2. Properties We lease three manufacturing facilities in Grantsville, Utah, Salt Lake City, Utah and McDonough, Georgia, which manufacture Purple products.
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The lease for this facility terminates in September 2023 and the production capabilities have been transferred to our other manufacturing facilities in Grantsville and McDonough. The Alpine location currently serves as our temporary center for innovation.
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We also lease approximately 58,000 square-feet of office space in Lehi, Utah for our corporate headquarters and approximately 61,000 square-feet of space in Draper, Utah which we plan will become our permanent innovation center.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Information regarding legal proceedings can be found in Note 14, “Commitments and Contingencies,” and Note 22, “Subsequent Events,” of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, “Financial Statements and Supplementary Data,” and is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 48 PART II
Biggest changeItem 3. Legal Proceedings Information regarding legal proceedings can be found in Note 13, “Commitments and Contingencies,” of the Notes to our Consolidated Financial Statements, included in Part II, Item 8 of this Report, “Financial Statements and Supplementary Data,” and is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 47 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing. 02/02/18 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Purple Innovation, Inc. $ 100.00 $ 59.49 $ 87.98 $ 332.73 $ 134.04 $ 48.38 S&P 500 Home Furnishings Index 100.00 52.53 66.51 63.88 72.53 40.70 The Nasdaq Stock Market (U.S.) Index 100.00 91.64 123.91 177.99 216.06 144.55 Recent Sales of Unregistered Securities Coliseum Private Placement Pursuant to that certain Subscription Agreement dated February 1, 2018 between the Company and certain investment funds and vehicles affiliated with or managed by Coliseum, Coliseum holds certain contractual preemptive rights relating to the sale of shares of our Class A common stock, including the shares of Class A common stock sold in the February 2023 public offering described above.
Biggest changeThe graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing with the SEC, except to the extent that the Company specifically incorporates it by reference into such filing. 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Purple Innovation, Inc. $ 100.00 $ 147.88 $ 559.25 $ 225.30 $ 81.32 $ 17.49 S&P 500 Home Furnishings Index 100.00 126.60 121.59 138.07 77.47 78.44 The NASDAQ Stock Market (U.S.) Index 100.00 135.23 194.24 238.78 157.74 226.24 48 Recent Sales of Unregistered Securities None.
The comparisons reflected in the graph are not intended to forecast the future performance of our stock and may not be indicative of our future performance.
The comparisons reflected in the graph are not intended to forecast the future performance of our Common Stock and may not be indicative of our future performance.
The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements, general financial condition, our compliance with restrictive covenants in the 2020 Credit Agreement and other future indebtedness that we may incur, opportunities to invest in future growth initiatives, and the discretion of our Board at such time.
The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements, general financial condition, our compliance with restrictive covenants in the Amended and Restated Credit Agreement and other future indebtedness that we may incur, opportunities to invest in future growth initiatives, and the discretion of our Board of Directors at such time.
Comparative Stock Performance The following graph illustrates the cumulative total return over the last five years from February 2, 2018 through December 31, 2022, for (i) our Class A common stock, (ii) the Standard and Poor’s (S&P) 500 Home Furnishings Index, and (iii) the Nasdaq Stock Market (U.S.) Index.
Comparative Stock Performance The following graph illustrates the cumulative total return over the last five years from December 31, 2018 through December 31, 2023, for (i) our Common Stock, (ii) the Standard and Poor’s (S&P) 500 Home Furnishings Index, and (iii) the NASDAQ Stock Market (U.S.) Index.
The graph assumes $100 was invested on February 2, 2018 in each of our Class A common stock, the S&P 500 Home Furnishings Index, and the Nasdaq Stock Market (U.S.) Index, and that any dividends were reinvested.
The graph assumes $100 was invested on January 1, 2019 in each of our Common Stock, the S&P 500 Home Furnishings Index, and the NASDAQ Stock Market (U.S.) Index, and that any dividends were reinvested.
Our Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future.
Our Board of Directors is not currently contemplating and does not anticipate declaring any cash dividends on our Common Stock in the foreseeable future.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Our Class A common stock is listed on the Nasdaq Global Market under the symbol “PRPL”.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Our Common Stock is listed on NASDAQ under the symbol “PRPL”. As of March 12, 2024, there were approximately 116 holders of record of shares of our Common Stock and 10 holders of record of shares of our Class B Stock.
This number does not include stockholders for which shares are held in “nominee” or “street” name. We have not paid any cash dividends on our common stock to date.
We have not paid any cash dividends on our Common Stock to date.
As of March 20, 2023, there were approximately 95 holders of record of shares of our Class A common stock and 14 holders of record of shares of our Class B common stock. Our Class B common stock is not listed or quoted on any exchange and is not transferrable by the holders, subject to certain limited exceptions.
Our Class B Stock is not listed or quoted on any exchange and is not transferrable by the holders, subject to certain limited exceptions, including the exchange of Class B Stock for shares of Common Stock pursuant to the exchange agreement, dated February 2, 2018, between the Company, Purple LL, InnoHold and Class B Unit holders who became a party thereto The number of holders of record of our Common Stock does not include stockholders for which shares are held in “nominee” or “street” name.
Removed
Coliseum currently holds approximately 44.7% of our outstanding voting power.
Added
Issuer Purchases of Equity Securities None. Item 6. [Reserved]
Removed
On February 8, 2023, we agreed with Coliseum that, contingent upon the underwriters in the February 2023 public offering exercising their option to purchase additional shares of our Class A common stock, we may sell to Coliseum up to its pro rata share of the Class A common stock sold pursuant to such option in a concurrent private placement at the public offering price of $4.50 per share (the “Coliseum Private Placement”).
Removed
This would result in an aggregate of up to approximately 1,610,317 shares of our Class A common stock purchased by Coliseum in the Coliseum Private Placement, which amount would be in addition to the shares sold in the February 2023 public offering and pursuant to the underwriters’ option to purchase additional shares.
Removed
We estimate that the net proceeds from the Coliseum Private Placement, if Coliseum purchases its pro rata share in full, will be approximately $7.2 million. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 49

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

71 edited+111 added−129 removed26 unchanged
Biggest changeOperating Results for the Year Ended December 31, 2022 compared to the year ended December 31, 2021 The following table sets forth for the periods indicated, our results of operations and the percentage of total net revenues represented in our consolidated statements of operations: Year Ended December 31, 2022 % Net Revenues 2021 % Net Revenues Revenues, net $ 575,692 100.0 % $ 726,227 100.0 % Cost of revenues 365,110 63.4 431,253 59.4 Gross profit 210,582 36.6 294,974 40.6 Operating expenses: Marketing and sales 165,388 28.7 239,290 33.0 General and administrative 76,702 13.3 72,095 9.9 Research and development 8,755 1.5 6,939 1.0 Total operating expenses 250,845 43.6 318,324 43.8 Operating loss (40,263 ) (7.0 ) (23,350 ) (3.2 ) Other income (expense): Interest expense (3,536 ) (0.6 ) (1,872 ) (0.3 ) Other income (expense), net 423 0.1 (194 ) — Change in fair value – warrant liabilities 4,343 0.8 24,054 3.3 Tax receivable agreement income 161,970 28.1 4,016 0.6 Total other income, net 163,200 28.3 26,004 3.6 Net income before income taxes 122,937 21.4 2,654 0.4 Income tax benefit (expense) (212,864 ) (37.0 ) 1,217 0.2 Net income (loss) (89,927 ) (15.6 ) 3,871 0.5 Net loss attributable to noncontrolling interest (238 ) — (160 ) — Net income (loss) attributable to Purple Innovation, Inc. $ (89,689 ) (15.6 ) $ 4,031 0.6 Revenues, Net Net revenues decreased $150.5 million, or 20.7%, to $575.7 million for year ended December 31, 2022 compared to $726.2 million for the year ended December 31, 2021.
Biggest changeResults of Operations for the Year Ended December 31, 2022 compared to the year ended December 31, 2021 The following table sets forth for the periods indicated, our results of operations and the percentage of total net revenues represented by each line item in our consolidated statements of operations: Year Ended December 31, 2022 % Net Revenues 2021 % Net Revenues Revenues, net $ 573,201 100.0 % $ 724,999 100.0 % Cost of revenues 365,110 63.7 431,253 59.5 Gross profit 208,091 36.3 293,746 40.5 Operating expenses: Marketing and sales 165,388 28.9 239,290 33.0 General and administrative 76,702 13.4 72,095 9.9 Research and development 8,755 1.5 6,939 1.0 Total operating expenses 250,845 43.8 318,324 43.9 Operating loss (42,754 ) (7.5 ) (24,578 ) (3.4 ) Other (expense) income: Interest expense (3,536 ) (0.6 ) (1,872 ) (0.3 ) Other (expense) income, net 423 0.1 (194 ) — Change in fair value – warrant liabilities 4,343 0.8 24,054 3.3 Tax Receivable Agreement income 161,970 28.3 4,016 0.6 Total other income, net 163,200 28.5 26,004 3.6 Net income before income taxes 120,446 21.0 1,426 0.2 Income tax (expense) benefit (213,169 ) (37.2 ) 1,522 0.2 Net (loss) income (92,723 ) (16.2 ) 2,948 0.4 Net loss attributable to noncontrolling interest (253 ) — (166 ) — Net (loss) income attributable to Purple Innovation, Inc. $ (92,470 ) (16.1 ) $ 3,114 0.4 59 Revenues, Net Net revenues decreased $151.8 million, or 20.9%, to $573.2 million for 2022 compared to $725.0 million for 2021.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Income Taxes Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Income Taxes Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns.
As a result of the initial merger transaction and subsequent exchanges of Class B Units for Class A common stock, the long-term portion of the potential future tax receivable agreement liability totaled $162.2 million at December 31, 2021. This balance was reduced by $0.2 million for a future payment that was classified as a short-term liability during 2022.
As a result of the initial merger transaction and subsequent exchanges of Class B Units for Common Stock, the long-term portion of the potential future Tax Receivable Agreement liability totaled $162.2 million at December 31, 2021. This balance was reduced by $0.2 million for a future payment that was classified as a short-term liability during 2022.
Financing activities in 2022 included $92.9 million of net proceeds received from the underwritten stock offering, offset in part by a $55.0 million revolving line of credit payment, a $15.0 million prepayment made on the term loan, a $5.8 million payment on the Tax Receivable Agreement, and $3.8 million in other debt related payments.
Financing activities in 2022 included $92.9 million of net proceeds received from an underwritten stock offering, offset in part by a $55.0 million revolving line of credit payment, a $15.0 million prepayment made on the term loan, a $5.8 million payment on the Tax Receivable Agreement, and $3.8 million in other debt-related payments.
The discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in “Part II Item 8. Financial Statements.” Overview of Our Business Our mission is to help people feel and live better through innovative comfort solutions.
This discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in “Part II Item 8. Financial Statements.” Overview of Our Business Our mission is to help people feel and live better through innovative comfort solutions.
For similar reasons that led to the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.
For reasons similar to those that led to the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.
The increase in payroll and benefit costs mainly reflected the impact of job reclassifications for certain employees in the first half of 2022. The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions and other costs we paid in the prior year second quarter for shares sold by Coliseum.
The increase in payroll and benefit costs mainly reflected the impact of job reclassifications for certain employees in the first half of 2022. The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions and other costs we paid in the prior year for shares sold by Coliseum.
Within the DTC channel, e-commerce net revenue declined $174.4 million, or 39.5%, and Purple owned retail showroom net revenue increased $30.7 million, or 94.7%. The decrease in e-commerce net revenues reflected the impact of the reasons stated above coupled with customers shifting away from e-commerce buying.
Within the DTC channel, e-commerce net revenue declined $174.4 million, or 39.5%, and Purple showroom net revenue increased $30.7 million, or 94.7%. The decrease in e-commerce net revenues reflected the impact of the reasons stated above coupled with customers shifting away from e-commerce buying.
Recent Accounting Pronouncements For a description of recently adopted and issued accounting standards, including the respective dates of adoption and expected effects on our results of operations and financial condition, refer to Note 2 to our financial statements included in this Annual Report on Form 10-K.
Recent Accounting Pronouncements For a description of accounting standards recently issued or adopted, including the respective dates of adoption and expected effects on our results of operations and financial condition, refer to Note 2 of our consolidated financial statements included in this Annual Report on Form 10-K.
Our gross profit percentage, which decreased to 36.6% of net revenues in 2022 from 40.6% in 2021, was adversely impacted by elevated levels of materials, labor and freight costs and lower demand levels and the shift to a higher proportion of wholesale channel revenue, which carries a lower average selling price than sales from our e-commerce and retail showroom channels, partially offset by savings realized from cost reduction initiatives.
Our gross profit percentage, which decreased to 36.3% of net revenues in 2022 from 40.5% in 2021, was adversely impacted by elevated levels of materials, labor and freight costs and lower demand levels and the shift to a higher proportion of wholesale channel revenue, which carries a lower average selling price than sales from our e-commerce and retail showroom channels, partially offset by savings realized from cost reduction initiatives.
This decrease in fair value was primarily due to the five-year term of the sponsor warrants ending on February 2, 2023 coupled with our Class A common stock price declining 63.9% to $4.79 at the end of 2022.
This decrease in fair value was primarily due to the five-year term of the sponsor warrants ending on February 2, 2023 coupled with our Common Stock price declining 63.9% to $4.79 at the end of 2022.
Tax Receivable Agreement In connection with the Business Combination, we entered into an agreement with InnoHold LLC (InnoHold), which provides for the payments to InnoHold of 80% of the net cash savings, if any, in U.S. federal, state and local income tax that we realize (or are deemed to realize in certain circumstances) in periods after the closing of the Business Combination as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, payments it makes under the agreement.
Tax Receivable Agreement In connection with the Business Combination, we entered into an agreement with InnoHold LLC (“InnoHold”), which provides for the payments to InnoHold of 80% of the net cash savings, if any, in United States federal, state and local income tax that we realize (or are deemed to realize in certain circumstances) in periods after the closing of the Business Combination as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, payments it makes under the agreement.
The increase in Purple owned retail showroom net revenue was mainly driven by showrooms increasing from 28 at the end of 2021 to 55 at the end of 2022. The decrease in wholesale net revenues primarily reflected reduced purchases by our existing wholesale partners during 2022 due primarily to declining wholesale door productivity.
The increase in Purple showroom net revenue was mainly driven by the number of our showrooms increasing from 28 at the end of 2021 to 55 at the end of 2022. The decrease in wholesale net revenues primarily reflected reduced purchases by our existing wholesale partners during 2022 due primarily to declining wholesale door productivity.
We are currently unable to determine the future amount of these payments due to the unpredictable nature of several factors, including the timing of future exchanges, the market price of shares of Class A common stock at the time of the exchanges, the extent to which such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes that give rise to the payments under the tax receivable agreement.
We are currently unable to determine the total future amount of these payments due to the unpredictable nature of several factors, including the timing of future exchanges, the market price of shares of Common Stock at the time of the exchanges, the extent to which such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes that give rise to the payments under the agreement.
In addition, net revenues in the prior year were positively impacted by demand in the first half of 2021 that was driven by the effects of COVID and economic stimulus. The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $143.7 million, or 30.3% and wholesale net revenues decreasing $6.8 million, or 2.7%.
In addition, net revenues in 2021 were positively impacted by demand in the first half of 2021 that was driven by the effects of COVID and economic stimulus. The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $143.7 million, or 30.3% and wholesale net revenues decreasing $8.1 million, or 3.2%.
Interest paid on the term loan increased $1.0 million as the average interest rate paid increased from 3.50% in 2021 to 6.31% in 2022, due mainly to the change in terms from our credit agreement amendment in February of 2022.
Interest paid on our borrowings increased $1.0 million as the average interest rate paid increased from 3.50% in 2021 to 6.31% in 2022, due mainly to the change in terms from our credit agreement amendment in February of 2022.
We undertake no obligation to revise or update any forward-looking statements for any reason. The following discussion is intended to provide a more comprehensive review of the operating results and financial condition of Purple than can be obtained from reading the consolidated financial statements alone.
We undertake no obligation to revise or update any forward-looking statements for any reason. The following discussion is intended to provide a more comprehensive review of our results of operations and financial condition than can be obtained from reading our consolidated financial statements alone.
Based on this and other available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and a full valuation allowance for our net deferred tax assets was appropriate.
Based on available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and that a full valuation allowance for deferred tax assets was appropriate.
Marketing and Sales Marketing and sales expense decreased $73.9 million, or 30.9%, to $165.4 million for the year ended December 31, 2022 compared to $239.3 million for the year ended December 31, 2021. This decrease was driven by a $95.5 million, or 58.9%, decline in advertising spending and a $15.0 million decrease in other marketing costs.
Marketing and Sales Marketing and sales expense decreased $73.9 million, or 30.9%, to $165.4 million for 2022 compared to $239.3 million for 2021. This decrease was driven by a $95.5 million, or 58.9%, decline in advertising spending and a $15.0 million decrease in other marketing costs.
We incurred $2.5 million in debt issuance costs upon entering into the 2020 Credit Agreement and incurred an additional $1.2 million in debt issuance costs for two of the amendments entered into in 2022. 59 Other Income (Expense), Net Other income totaled $0.4 million for the year ended December 31, 2022 compared to other expense of $0.2 million for the year ended December 31, 2021.
We incurred $2.5 million in debt issuance costs upon entering into the 2020 Credit Agreement and incurred an additional $1.2 million in debt issuance costs for two of the amendments entered into in 2022. Other (Expense) Income, Net Other income totaled $0.4 million for 2022 compared to other expense of $0.2 million for 2021.
Liquidity and Capital Resources Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our credit facility and proceeds received from offerings of our equity capital.
Liquidity and Capital Resources Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated Credit Agreement and proceeds received from offerings of our equity capital.
Marketing and sales expense as a percentage of net revenues was 28.7% in 2022 compared to 33.0% in 2021. General and Administrative General and administrative expense increased $4.6 million, or 6.4%, to $76.7 million for the year ended December 31, 2022 compared to $72.1 million for the year ended December 31, 2021.
Marketing and sales expense as a percentage of net revenues was 28.7% in 2022 compared to 33.0% in 2021. General and Administrative General and administrative expense increased $4.6 million, or 6.4%, to $76.7 million for 2022 compared to $72.1 million for 2021.
We began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and are now omni-channel. We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, duvets, duvet covers and other products.
We are an omni-channel company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, duvets, duvet covers and other products.
On February 2, 2018, we consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which Purple Inc. acquired an equity interest in Purple LLC and became its sole managing member.
On February 2, 2018, we consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which Purple Inc. acquired an equity interest in Purple LLC as holder of all Class A units and became its sole managing member.
For purposes of evaluating our deferred tax assets, we entered a cumulative 3-year loss position during Q4 of 2022 due primarily to the impact of positive 2020 operating results rolling out of the cumulative 3-year period analysis.
For purposes of evaluating our deferred tax assets, we entered a cumulative three-year loss position during the fourth quarter of 2022 due primarily to the impact of positive 2020 results of operations rolling out of the cumulative three-year period analysis.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act and the Exchange Act.
During the years ended December 31, 2022 and 2021, we recognized gains of $4.3 million and $24.1 million, respectively, in our consolidated statements of operations related to decreases in the fair value of the sponsor warrants exercised during the respective periods or that were outstanding at the end of the respective periods.
During 2022 and 2021, we recognized gains of $4.3 million and $24.1 million, respectively, related to decreases in the fair value of the sponsor warrants exercised during the respective periods or that were outstanding at the end of the respective periods.
Principal uses of funds consist of payments of principal and interest on our debt facilities, capital expenditures and working capital needs as well as other contractual obligations described below. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations.
Principal uses of funds consist of interest payments on our Loan , capital expenditures, working capital needs, and operating lease payment obligations. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations.
For purposes of evaluating our deferred tax assets and liabilities, we entered a cumulative 3-year loss position in Q4 2022 due primarily to the impact of positive 2020 operating results rolling out of the cumulative 3-year period analysis.
For purposes of evaluating our 2022 deferred tax assets and liabilities, we entered a cumulative three-year loss position in the fourth quarter of 2022 due primarily to the impact of 2020’s positive results of operations rolling out of the cumulative three-year period analysis.
Based on available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and that a full valuation allowance for deferred tax assets was appropriate. In 2022, tax expense included $213.5 million related to the increase in our valuation allowance against deferred tax assets.
Based on this and other available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and a full valuation allowance for our net deferred tax assets was appropriate. Due to the increase in our valuation allowance, we recognized deferred tax expense of $213.9 million for 2022.
Our efficiency and cost saving initiatives, including greater balancing of production and fulfillment operations between the facilities, were initiated during the first half of fiscal 2022 and did not become fully impactful until the second half of the year. We anticipate that we will continue to realize the benefits of our efficiency and cost saving initiatives in 2023.
Our efficiency and cost saving initiatives, including greater balancing of production and fulfillment operations between the facilities, were initiated during the first half of fiscal 2022 and did not become fully impactful until the second half of the year.
Based on this and other available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and a full valuation allowance for our net deferred tax assets was appropriate at December 31, 2022.
Based on this and other available evidence, we concluded it was more likely than not that our deferred tax assets would not be realized and a full valuation allowance for our net deferred tax assets was appropriate at December 31, 2022. Due to the increase in the valuation allowance, we recognized deferred tax expense of $213.9 million for 2022.
We do not believe there is a reasonable likelihood that there will be any material changes in the accounting methodology, future estimates or assumptions used to measure the estimated liability for sales returns and exchanges or credit losses.
Our allowance for credit losses was not material at both December 31, 2023 and 2022. We do not believe there is a reasonable likelihood that there will be any material changes in our accounting methodology, future estimates or assumptions used to measure our estimated liability for sales returns and exchanges, our allowance for credit losses or variable consideration.
We market and sell our products through direct-to-consumer e-commerce and Purple owned retail showrooms (collectively “DTC”), online marketplaces, and retail wholesale partners. Organization The Company consists of Purple Inc. and its consolidated subsidiary, Purple LLC. Purple Inc. was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of GPAC.
We market and sell our products via our DTC channels, online marketplaces and retail wholesale partners. Organization Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. Purple Inc. was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of GPAC.
Revenue Recognition Our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount and timing of future sales returns and uncollectible accounts. Our estimates of the amount and timing of sales returns and uncollectible accounts are based primarily on historical transaction experience.
Revenue Recognition Our revenue recognition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount and timing of future sales returns, uncollectible accounts and variable consideration.
For similar reasons that led to the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owned pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable. As result, we reduced the Tax Receivable Agreement liability to zero at December 31, 2022.
For reasons similar to those that led to the recording of a full valuation allowance on our deferred tax assets in the fourth quarter of 2022, we evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.
Critical Accounting Estimates In connection with the preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, sales, expenses and the related disclosures.
In addition, we may, in the future, adapt these focuses in response to changes in the market or our business. 53 Critical Accounting Policies and Estimates In connection with the preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”), we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, sales, expenses and the related disclosures.
The decline in net revenues reflected a $124.9 million decrease in mattress sales, a $14.8 million decrease in other sleep product sales and a $10.8 million decrease in other product sales.
The decline in net revenues reflected a $126.1 million decrease in mattress sales, a $16.9 million decrease in other sleep product sales and a $8.7 million decrease in other product sales.
After several years of hyper growth and increased investments to support current and future expansion, we are now building the framework for improved operational maturity and accountability after focusing on right-sizing our operations, improving our execution, and refining our strategies that will drive share gains in the premium mattress category and position us for accelerated growth.
After right-sizing our operations, improving our execution, and refining our strategies to drive share gains in the premium mattress category, we are now building the framework for improved operational maturity and accountability to position us for accelerated growth.
Noncontrolling Interest We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.2 million in both 2022 and 2021.
This was offset in part by a current tax benefit of $0.7 million recorded in 2022. Noncontrolling Interest We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.3 million and $0.2 million in 2022 and 2021, respectively.
This increase primarily resulted from a decrease in gross profit that was driven by lower sales and a reduced gross profit margin, offset in part by a decrease in operating expenses related primarily to lower advertising spend.
This increase primarily resulted from a decrease in gross profit that was driven by lower sales and a reduced gross profit margin, offset in part by a decrease in operating expenses related primarily to lower advertising spend. Interest Expense Interest expense totaled $3.5 million for 2022 compared to $1.9 million for 2021.
We had previously recognized deferred tax benefits of $3.6 million and $45.8 million in our consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively, based on our previous conclusion that it was more likely than not that some of our deferred tax assets would be realized and that a full valuation allowance for our deferred tax assets was not appropriate.
We had previously recognized a deferred tax benefit of $3.9 million for 2021, based on our previous conclusion that it was more likely than not that some of our deferred tax assets would be realized and that a full valuation allowance for our deferred tax assets was not appropriate.
Our unrestricted cash and working capital positions were $40.0 million and $62.0 million, respectively, as of December 31, 2022 compared to $91.6 million and $87.5 million, respectively, as of December 31, 2021. Cash used for capital expenditures decreased from $57.1 million in 2021 to $38.2 million in 2022.
Our unrestricted cash and working capital positions were $26.9 million and $30.8 million, respectively, as of December 31, 2023 compared to $40.0 million and $61.6 million, respectively, as of December 31, 2022. Cash used for capital expenditures decreased from $38.2 million in 2022 to $15.2 million in 2023.
In 2023, we believe our capital expenditures will be approximately $35.0 million. 60 In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses and continue satisfying the conditions of our 2020 Credit Agreement, as amended, based on our ability to scale back operations, reduce marketing spend, use available liquidity under our revolving line of credit, and postpone or discontinue our growth strategies.
In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue our growth strategies.
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized.
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
This decrease was partially offset by a one-time separation fee for not continuing with the services of a professional services provider, expenses incurred by the Special Committee and Intellibed transaction costs.
This decrease was partially offset by a one-time separation fee for not continuing with the services of a professional services provider, expenses incurred by the Special Committee and Intellibed transaction costs. 60 Research and Development Research and development costs increased $1.8 million, or 26.2%, to $8.8 million for 2022 from $6.9 million for 2021.
Cash Flows for the year ended December 31, 2022 compared to the year ended December 31, 2021 The following summarizes our cash flows for the years ended December 31, 2022 and 2021 as reported in our consolidated statements of cash flows (in thousands): Years Ended December 31, 2022 2021 Net cash provided by (used in) operating activities $ (28,773 ) $ (30,903 ) Net cash used in investing activities (34,501 ) (57,059 ) Net cash provided by financing activities 13,412 56,623 Net increase (decrease) in cash (49,862 ) (31,339 ) Cash, beginning of the period 91,616 122,955 Cash, end of the period $ 41,754 $ 91,616 62 Cash used in operating activities was $28.8 million and $30.9 million for the years ended December 31, 2022 and 2021, respectively.
Cash Flows for the year ended December 31, 2023 compared to the year ended December 31, 2022 The following summarizes our cash flows for the years ended December 31, 2023 and 2022 as reported in our consolidated statements of cash flows (in thousands): Years Ended December 31, 2023 2022 Net cash used in operating activities $ (54,662 ) $ (28,773 ) Net cash used in investing activities (16,061 ) (34,501 ) Net cash provided by financing activities 55,826 13,412 Net decrease in cash (14,897 ) (49,862 ) Cash, beginning of the period 41,754 91,616 Cash, end of the period $ 26,857 $ 41,754 Cash used in operating activities increased $25.9 million to $54.7 million in 2023 as compared to 2022.
Shelf Registration Statement and Subsequent Underwritten Offering On December 27, 2022, we filed a registration statement on Form S-3 with the SEC using the “shelf” registration process and on January 30, 2023, it became effective.
Shelf Registration Statement and Equity Financing On January 30, 2023, the Form S-3 shelf registration statement we filed with the SEC in December 2022 became effective.
Our effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest and changes in our valuation allowance. Also, changes in existing federal and state tax laws and corporate income tax rates could affect future tax results and the realization of deferred tax assets over time.
Also, changes in existing federal and state tax laws and corporate income tax rates could affect future tax results and the realization of deferred tax assets over time.
This increase primarily reflected higher payroll and benefit costs as our renewed focus on product innovation resulted in the growth of our research and development team, which included the addition of our chief innovation officer.
This increase primarily reflected higher payroll and benefit costs as our renewed focus on product innovation resulted in the growth of our research and development team, which included the addition of our chief innovation officer. Operating (Loss) Income Operating loss increased $18.2 million, or 174.0% to $42.8 million for 2022 compared to $24.6 million for 2021.
Zier intends to remain on the Company’s Board until her term ends following the Company’s 2023 annual meeting of stockholders. 55 Outlook for Growth We believe that our four strategic initiatives; accelerating innovation, brand elevation, developing our three distribution channels and operational excellence, will be fundamental to our future success.
Outlook for Growth We believe that our four strategic initiatives; accelerating innovation, brand elevation, developing our three distribution channels and operational excellence, will be fundamental to our future success.
As a result, we recognized tax receivable agreement income of $162.0 million in our consolidated statement of operations for the year ended December 31, 2022. Income tax expense was $212.9 million in 2022 compared to an income tax benefit of $1.2 million in 2021.
As result, we reduced the Tax Receivable Agreement liability to zero at December 31, 2022 and we recognized Tax Receivable Agreement income of $162.0 million for 2022. 61 Income Tax (Expense) Benefit Income tax expense was $213.2 million for 2022 compared to an income tax benefit of $1.5 million for 2021.
At December 31, 2022, Purple Inc. had a 99.5% economic interest in Purple LLC while other Class B unit holders had the remaining 0.5%. On August 31, 2022, we acquired all the issued and outstanding stock of Intellibed, which is now a wholly owned subsidiary of Purple LLC.
At December 31, 2023, Purple Inc. had a 99.8% economic interest in Purple LLC while other Class B unit holders had the remaining 0.2%. On August 31, 2022, we acquired all the issued and outstanding stock of Intellibed to consolidate ownership of our licensed intellectual property while enhancing our innovation and manufacturing capabilities and financial profile.
Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.
In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. 54 Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled.
Based on our current projections, we believe our cash on hand, amounts available under our revolving line of credit, and expected cash to be generated from our DTC and wholesale channels will be sufficient to meet our working capital requirements, comply with debt covenants and cover anticipated capital expenditures for the next 12 months and beyond.
Additional details about our Amended and Restated Credit Agreement is described above under “ Recent Developments in our Business – Debt Financing ” Based on our current projections, we believe our cash on hand, amounts available under our Amended and Restated Credit Agreement, and expected cash to be generated from our operations will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12 months.
The amount of the increase in asset basis, the related estimated cash tax savings and the attendant tax receivable agreement liability to be recorded will depend on the price of our Class A common stock at the time of the relevant redemption or exchange. 57 As a result of the initial merger transaction and subsequent exchanges of Class B Units for Class A common stock, the long-term portion of the potential future tax receivable agreement liability was $162.2 million as of December 31, 2021.
The amount of the increase in asset basis, the related estimated cash tax savings and the attendant Tax Receivable Agreement liability to be recorded will depend on the price of our Common Stock at the time of the relevant redemption or exchange. 55 There was no Tax Receivable Agreement liability outstanding at both December 31, 2023 and 2022.
As result, we reduced the Tax Receivable Agreement liability to zero at December 31, 2022 and we recognized tax receivable agreement income of $162.0 million in our consolidated statement of operations for the year ended December 31, 2022.
As result, we reduced this liability to zero at December 31, 2022 and recognized Tax Receivable Agreement income of $162.0 million in 2022. There was no Tax Receivable Agreement liability recorded during 2023. Income Tax Expense Income tax expense was de minimis for 2023 compared to $213.2 million for 2022.
The complaint alleges that the Company and the named directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfere with Coliseum’s nomination of a competing slate of director candidates ahead of the Company’s 2023 annual meeting of stockholders.
Coliseum Cooperation Agreement On February 21, 2023, Coliseum on behalf of its funds and managed accounts, filed a lawsuit against us and several members of our Board of Directors alleging that we and the named directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfered with Coliseum’s nomination of a competing slate of director candidates ahead of our 2023 Annual Meeting.
Other Contractual Obligations In addition to the material contractual obligations discussed above, other material contractual obligations primarily include operating lease payments obligations. See Note 8 of the consolidated financial statements for additional information.
Our ability to raise additional debt financing would require the consent of the Lenders. 62 Other Contractual Obligations Other material contractual obligations primarily include operating lease payment obligations. See Note 8 of our consolidated financial statements for additional information on leases.
In such event, this could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may not be able to timely satisfy customer orders, and we may not be able to retain all of our employees.
Such actions could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees. In addition, we may be forced to restructure our obligations to creditors, pursue work-out options or other protective measures.
We regularly assess and adjust the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs. We classify as non-current those estimated warranty costs expected to be paid out in greater than one year.
Estimates for warranty costs are based primarily on historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. We regularly assess and adjust the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs.
We have not made any material changes in the warranty liability assessment methodology used and we do not believe there is a reasonable likelihood that a material change in the estimates or assumptions we use to calculate our warranty liability will occur.
As of December 31, 2023, the current and non-current portions of our warranty liabilities were $9.8 million and $25.8 million, respectively, compared to $5.8 million and $18.7 million, respectively, at December 31, 2022. We do not believe there is a reasonable likelihood that a material change in the estimates or assumptions we use to calculate our warranty liability will occur.
This balance was reduced in 2022 by $0.3 million for a payment to be made in 2023 that we classified as a short-term liability. We evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable.
For reasons similar to those that led to the recording of a full valuation allowance on our deferred tax assets, we evaluated the probability of amounts being owed pursuant to the Tax Receivable Agreement and determined the likelihood of a future liability was not probable. Income tax expense was de minimis in 2023 compared to $213.2 million in 2022.
As result, we reduced the Tax Receivable Agreement liability to zero at December 31, 2022 and we recognized tax receivable agreement income of $162.0 million in our consolidated statement of operations for the year ended December 31, 2022.
Other income in 2022 primarily related to reducing our Tax Receivable Agreement liability to zero by the end of that year and recognizing Tax Receivable Agreement income of $162.0 million in 2022.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. 56 Warranty Liabilities We provide a limited warranty on most of the products we sell.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Impairment We review our long-lived assets and definite-lived intangible assets for impairment as of December 31 and whenever events or changes in indicate the carrying amount may not be recoverable.
Showroom expansion and improving the sales productivity of our wholesale doors remain a primary focus and are critical components of our strategy to respond to shifting demand patterns.
Over the course of the third and fourth quarters, we transitioned all of our wholesale partners to our new line of mattress products. Improving the sales productivity of both our wholesale partners and existing showrooms remains a primary focus and critical component of our strategy to respond to shifting demand patterns.
As the softening of demand for home related products continues, with consumers shifting spending towards services and experiences, and consumer spending habits shift from e-commerce to brick and mortar, we have been investing in showroom expansion where we continue to develop our capabilities. We also are growing our placements with wholesale partners and focusing on improving wholesale door productivity.
Also, as consumer spending habits have moved away from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 60 as of December 31, 2023. In addition, we have focused on growing our placements with wholesale partners and improving wholesale door productivity.
The net loss attributable to us was $89.7 million in 2022 as compared to net income attributable to us of $4.0 million in 2021. The net loss reflected an operating loss of $40.3 million, other income of $163.2 million and income tax expense of $212.9 million.
Net loss attributable to Purple Innovation, Inc. was $120.8 million for the year ended December 31, 2023 compared to $92.5 million for the year ended December 31, 2022. The net loss in 2023 reflected an operating loss of $113.7 million and other expense of $7.5 million.
As of December 31, 2022, we were in compliance with all of the financial covenants related to the 2020 Credit Agreement, as amended. The interest rate on the term loan was 8.98% at December 31, 2022. On February 17, 2023, we entered into a fifth amendment to the 2020 Credit Agreement.
In February 2023, we entered into a fifth amendment to the since terminated 2020 Credit Agreement and repaid in full the $24.7 million outstanding balance of the related term loan plus accrued interest.
As of December 31, 2022, the current and non-current portions of our warranty liabilities were $5.0 million and $15.6 million, respectively, compared to $3.9 million and $11.1 million, respectively, at December 31, 2021.
As of December 31, 2023 and 2022, the cumulative balance of unrecognized tax benefits were $0.9 million and 0.6 million, respectively.
In addition to the continued macroeconomic effects described above, we anticipate that net revenue in the first quarter of 2023 will be impacted by our introduction of new product models, as our retail partners sell through our legacy mattress models ahead of taking delivery of new models in the second quarter. 58 Cost of Revenues Cost of revenues decreased $66.1 million, or 15.3%, to $365.1 million for the year ended December 31, 2022 compared to $431.3 million for the year ended December 31, 2021 due primarily to the decrease in sales volume.
Cost of Revenues Cost of revenues decreased $66.1 million, or 15.3%, to $365.1 million for 2022 compared to $431.3 million for 2021 due primarily to the decrease in sales volume.
Removed
For further discussion see Recent Developments in Our Business — Acquisition below. 50 Executive Summary – Results of Operations Net revenues decreased 20.7% to $575.7 million for the year ended December 31, 2022 compared to $726.2 million for the year ended December 31, 2021 and decreased 11.2% compared to $648.5 million for the year ended December 31, 2020.
Added
For further discussion see Note 4 — Acquisition. 49 Recent Developments in Our Business Operational Developments – Launch of New Premium and Luxe Product Lineups Beginning in 2022 and continuing into 2023, we expanded our focus on product development and increased our innovation capabilities. As a result, in May 2023, we launched our new Premium and Luxe product lineups.
Removed
These decreases were primarily due to post-Covid changing demand for home related products as consumer spending shifted towards services and experiences, the negative effect of inflationary pressures on consumer discretionary spending and our intentional reduction in advertising spend.
Added
This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging. While the response to our new products and enhanced brand positioning has been extremely positive, in 2023, we have continued to experience softening demand for home-related products that can be attributed to the overall market conditions.
Removed
Gross profit decreased 28.6% to $210.6 million in 2022 compared to $295.0 million in the prior year due primarily to the decrease in sales volume. The gross profit percentage in 2022 was 36.6% as compared to 40.6% in 2021.
Added
We are also diligently working to improve e-commerce conversion by testing how to best optimize increased traffic on our website. We experienced several years of hyper growth during the pandemic and increased investments to support current and future expansion.
Removed
Our gross profit percentage was adversely impacted by elevated levels of materials, labor and freight costs, lower demand levels and a shift in revenue to our wholesale channel, which carries a lower average selling price than sales from our DTC channel.
Added
With the introduction of our new product lineups, we initiated a new marketing campaign and enhanced brand positioning and increased media investment at the top of the acquisition funnel.
Removed
In addition, our efficiency and cost reduction initiatives, including greater balancing of production and fulfillment operations between facilities, were initiated in the first half of fiscal 2022 and did not become fully impactful until the second half of the year. Operating expenses decreased 21.2% to $250.8 million in 2022 compared to $318.3 million in the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. As of December 31, 2022, we had $24.7 million of variable rate debt outstanding under our term loan and no outstanding balance on our revolving line of credit.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our results of operations are subject to risk from interest rate fluctuations on our outstanding borrowings. Interest rate risk is highly sensitive due to many factors, including United States monetary and tax policies, United States and international economic factors and other factors beyond our control.
We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.
We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future. 64
Based on this debt level, an increase of 100 basis points in the effective interest rate on our outstanding debt at December 31, 2022 would have resulted in an increase in interest expense of approximately $0.3 million over the next 12 months, if we had not paid off the debt.
Based on these debt levels, an increase of 100 basis points in the effective interest rate on the combined outstanding debt amount would have resulted in an increase in interest expense of approximately $0.3 million over the next 12 months, assuming we had not paid off these debts in January 2024, pursuant to the Second Amendment and the Amended and Restated Credit Agreement.
Removed
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We currently do not have any amounts outstanding on our term loan or revolving line of credit. Out term debt was paid off on February 17, 2023. Our revolving line of credit bears interest at variable rates, which exposes us to market risks relating to interest rate fluctuations.
Added
The Term and ABL Loans entered into in August 2023 bore interest at variable rates which exposed us to market risks relating to changes in interest rates. As of December 31, 2023, we had $25.0 million of variable rate debt outstanding under our Term Loans and $5.0 million of variable rate debt outstanding under our ABL Loans.
Added
Based on the $61.0 million Loan entered into in January 2024, pursuant to the Second Amendment and the Amended and Restated Credit Agreement, an increase of 100 basis points in the effective interest rate on the amount outstanding would result in an increase in interest expense of approximately $0.6 million over the next 12 months.

Other PRPL 10-K year-over-year comparisons