Item 1. Business
Item
1. Business
Introduction
Purple’s
mission is to help “every body” sleep, feel and live better through innovative comfort solutions.
We are 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, bases, sheets and more. Our products are the result of decades of innovation and investment
in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology,
Hyper-Elastic Polymer ® , known as the Purple Grid ® , underpins many of our comfort products and provides a
range of benefits that differentiate our offerings from other competitors’ products. Specially engineered for enhanced pressure
relief and unwavering support, Purple’s patented grid technology has been used and tested rigorously within medical and consumer
applications for over 30 years. Originally designed for use in hospital beds and wheelchairs, we adapted this unique pressure-relieving
material for our mattresses and other cushion products.
We market and sell our products through
direct-to-consumer e-commerce and Purple retail showrooms (collectively “DTC”) and retail brick-and-mortar wholesale partners.
The
foundation of our business is core competencies in design, development and manufacturing. Decades of accumulated knowledge enable us
to create all aspects of our innovative products, including fundamental comfort technologies and machines and processes necessary to
bring them to market. We have integrated our operations to include research and development, marketing and manufacturing, resulting in
an ability to rapidly test, learn, adapt and scale our product offerings. In order to solve complex manufacturing challenges such as
large-format injection molding of our Purple Grid, we designed and produced our own manufacturing equipment including our proprietary
and patented Mattress Max™ machinery. These were and still are fully customized machines unique to Purple that 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.
In addition to developing transformative,
differentiated products and technologies, we have built a brand that has high customer engagement and avid brand advocates. We have an
experienced marketing team, providing efficient customer acquisition and brand demand development. Our marketing strategy enables us to
market our full product suite to customers, generate frequent interactions online and drive traffic to all channels offering our products.
Evidencing the strength of our brand, our close rate among consumers who are considering a purchase was at an all-time high in the fourth
quarter of 2021.
As a native DTC brand, our knowledge
of and engagement with consumers across digital and brick and mortar retail channels is advantageous and increasing. 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. We believe our distinctly differentiated products, marketing strategies, manufacturing capabilities,
unique branding and proprietary technologies position us to continue to drive our growth in comfort products. By fourth quarter 2021,
we believe we increased our share in the overall mattress category nearly a full percentage point from the previous high in the fourth
quarter of 2020 and first quarter of 2021. In 2021, our DTC sales, which includes online and Purple retail showrooms, accounted for 65.3%
of our net revenues and wholesale accounted for 34.7% of net revenues, while sales of sleep products accounted for 91.5% of our net revenues
and other products accounted for 8.5%.
In 2021, Purple opened and scaled
a new facility in McDonough, Georgia to create growth-supporting capacity and a manufacturing footprint that serves our customers in the
eastern U.S. We also grew our DTC efforts by adding 19 Purple retail showrooms in 2021 and two thus far in 2022, making a total of 30
Company showroom locations in cities across the United States. We anticipate opening additional Purple retail showrooms throughout 2022
and to eventually have more than 200 showrooms.
1
Industry
and Competition
Our
portfolio of products is driven by our commitment to innovating real comfort solutions that meaningfully help “every body”
sleep, feel and live better. 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 customer’s comfort first.
Sleep
Products
The
sleep products category encompasses a variety of products including mattresses, pillows, bases, foundations, sheets, mattress protectors,
blankets and duvets. Meaningful innovation in sleep products has remained stagnant and limited over the last 150 years. Coil spring mattresses
and memory foam, two of the primary materials underpinning mattress technology today, were invented in the 1860’s and 1990’s.
Latex, water and air mattresses followed, emerging in the latter part of the 20 th century. Since these early inventions, the
mattress industry has remained complacent with little meaningful innovation, until the introduction of the Purple Grid. Our Purple Grid,
made from our proprietary Hyper-Elastic Polymer, represents a meaningful innovation in pressure relief, temperature neutrality, responsiveness,
durability and limited motion transfer. The Purple Grid solves problems that regular mattresses create and has proven that material innovations
can have a positive impact on sleep.
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. Today, the U.S. mattress industry has rebalanced to be comprised of vendors that rely on retail distribution as well as
a consolidated number of direct-to-consumer retailers who have tried to expand brick and mortar distribution to capture more market share
in a category still tied to instore product trials. 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.
In general, new 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. Prior to Purple,
there has been little recent success disrupting the premium market, where the majority of category revenue and profit is realized. Competitors
in the premium market include Tempur Sealy and Sleep Number.
While
e-commerce home goods purchases have increased over the past five years, traditional brick-and-mortar retailers command a significant
part of the market for mattress products. 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. Purple has also expanded into many of these regional furniture retailers.
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?
We
believe we have a particular set of competitive strengths that differentiate and position us for continued success:
●
History
of innovation that produced new comfort technology— We are a company built on innovation and licensing, with more than
30 years of expertise in comfort innovation. Purple is founded upon decades of history developing innovative comfort solutions, including
the invention of our proprietary and patented Hyper-Elastic Polymer technology. Our breakthrough mattress represents what we believe to
be the first substantive innovation in the mattress industry since the introduction of memory foam in 1992. We believe that the unique
properties of the Purple Grid enable several improvements to existing sleep products that are not addressed by foam, spring and air mattresses.
●
Pressure
Relief— The Purple Grid is designed around the science of column buckling which enables our mattresses to be both firm
and soft. The Purple Grid offers support across the body’s larger surface areas, such as the back, while providing pressure
relief at local areas or points of pressure, such as the hips and shoulders. We believe Purple’s founders were the first to
leverage this technology in mattresses after its success in licensing its proprietary Purple Grid to medical manufacturers for use
in wheelchairs, critical care beds and to this day, hospital beds. The resulting feel is often described as buoyant and responsive.
●
Temperature
Neutral— The Hyper-Elastic Polymer material itself is temperature neutral, with the surface of the Purple Grid comprised
mostly of air, made from thousands of open-air channels. The channels allow for high airflow and dissipation of heat and vapor. This
is the opposite of foam beds, which absorb heat from the body and then radiate the heat back, constantly increasing the temperature.
The Purple Grid allows for continual sleeping without waking up hot.
●
Responsive— Unlike
memory foam, which compresses, gets hard and then takes time to recoil, the Purple Grid is instantly responsive to the body as it
moves. It will immediately flex to support your position and spring back into place as you readjust during the night.
●
Durable— Hyper-Elastic Polymer material is a highly durable gel that we believe
outlasts most foams by two to three times. The Hyper-Elastic Polymer technology also has numerous applications beyond mattress
products including seat cushions, pillows, pet beds and beyond. 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. We have hundreds of granted
or pending patents and hundreds of patent filings that cover current and future products as well as proprietary manufacturing equipment
we have designed and fabricated. In addition to intellectual property protection of key products and manufacturing capabilities, our team
has decades of experience and unique insights derived from inventing and refining proprietary comfort technologies, machines and products.
Our Mattress Max machine, designed and built by Purple, allows for large-format injection molding of gels at scale. Not commercially available
outside of Purple, this machine is essential in producing our proprietary products 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 built our brand via a highly engaging digital marketing strategy, which rapidly grew our brand awareness to levels that we believe are very close to premium mattress category leaders in only five years. Our early brand growth was fueled by viral videos that have been seen more than 4.4 billion times across Facebook and YouTube. Our brand has extended beyond awareness of individual products and we have successfully marketed our full suite of products to customers using our DTC strategy. We believe customer satisfaction with our product has continued to drive “word of mouth” recommendation that is 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. 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 retail showrooms, or our e-commerce channel, we are a leader in the sleep products market. Our flexible return policies and aggressive expansion of wholesale doors and showrooms allow for more of our targeted customers to feel and experience our products throughout the purchase process. In our wholesale channel, we sell most of our products through select national and regional retailers as well as a variety of independent retail partners throughout the United States and Canada. As a result, we believe we are driving accelerated growth in the sleep products market as compared to the traditional retail sleep product industry.
●
Vertical
integration enables nimble design, development and execution —We design and develop our products in-house and we have
extensive research and development capabilities led by a team of engineers, industrial designers and marketing specialists. The ability
to develop and test products in this manner enables us to not only prototype and deploy new ideas, but also design and develop corresponding
manufacturing equipment and processes. In addition, we continuously refine our production methods to improve product quality and
enhance efficiency. The resulting real-time feedback cycle is a key differentiator compared to other competitors that outsource many
of these functions and lack an integrated approach.
Growth
Strategies
●
Amplifying Purple Brand Power— We are building a differentiated brand and 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. This strategic focus and capability investment will support our growth plans in the wholesale channel, in Purple retail showrooms, and on Purple.com. We’ll also 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 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. Continued successful execution on Purple.com supports
planned e-commerce growth, and growth in all channels given the importance of the site during the customer decision journey. In addition, we currently operate 30 Company showrooms in cities across the U.S. where consumers can experience
our brand, learn about and engage with our technology, and purchase our products. We anticipate continual expansion of our showrooms as
we optimize the format.
●
Expanded
wholesale retail relationships— Expanding retail distribution of our products via new and existing arrangements represents
an opportunity to tap into the large brick-and-mortar category of the sleep products market. We continue to have discussions with new
retail partners to expand our wholesale footprint, as well as with existing retail partners to increase sales.
●
Existing
product innovation— We have a rich history of product innovation and have developed core competencies in design, prototyping
and manufacturing. This 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 a pipeline of future products we are developing. We are constantly exploring new technologies
and ways to expand the benefits of our technologies through new product offerings. This includes innovations in mattresses beyond
the Purple Grid, an expanded assortment based on the Harmony Pillow TM that includes new patent-pending technology, other
assortment expansion and new products in sleep, comfort and additional categories. In 2020, we added a children’s line of products,
enabling us to sell to this underserved demographic and providing an additional opportunity to enter the home.
●
International
expansion— We believe there is a substantial opportunity for international expansion, and we expect to find new opportunities
as we expand into foreign markets. We entered the Canada market in Q4 2020 via the wholesale retailer Sleep Country Canada and we
plan to expand in other foreign markets in the future. 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. We are
exploring opportunities for international expansion in areas such as marketing, manufacturing, and distribution, as well as increasing
franchise and wholesale partners.
4
Our
Products
Our
current product portfolio is as follows:
●
Mattresses —Our
mattresses utilize the unique benefits of the Purple Grid 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 Purple
Grid is manufactured with non-toxic, food-grade ingredients that are third-party tested and free from carcinogenic chemicals. The
patented No Pressure ® Purple Grid technology is used in all Purple mattresses. The buckling columns in the Purple Grid instantly
adapt to your body to cradle your hips and shoulders while supporting your spine’s natural alignment for uniquely buoyant,
supportive comfort. We back up the quality and durability of our mattress with a 100-night comfort guarantee and a ten-year warranty.
We currently sell five distinct models of mattresses, ranging from our original Purple foam-core, to our hybrid with premium pocket
coil cores, and premier mattresses which include three or four inches of Purple Grid.
●
Pillows— We currently sell five types of pillows: The Purple Harmony Pillow™,
the Purple Pillow™, the Purple Twin Cloud Pillow™, the Purple Cloud Pillow™ and the Kids Pillow. The Purple Harmony
Pillow is a hybrid, hypoallergenic pillow featuring the world’s first and only tapered 360º Purple Grid Hex surrounding a soft,
responsive Talalay latex core for optimal head and neck support. It has a cool-to-the-touch, moisture-wicking Breeze Mesh cover to enhance
the benefits of the Purple Grid Hex. It’s the ultimate balance of soft, cool, and responsive no pressure support. The Purple Pillow
utilizes the Purple Grid in a head-specific triangular grid-shape to protect against breaking down or losing shape. The Purple Twin Cloud
Pillow is a hypoallergenic down-alternative that features our patented cover construction which includes two chambers filled with gel
fibers that double up for better sleep. The Purple Cloud Pillow is filled with hypoallergenic, ultra-fine gel fibers that won’t
clump, trap heat, or flatten over time. The result is plush cushioning that molds to support the head and neck. The Kids Pillow is
smaller and softer than our original Purple pillow and adjusted to fit smaller sleepers. We believe our pillows are unique, with no other
products in the market like them in appearance, design, functionality or comfort. We also back up the quality and durability of our pillows
with a 100-night comfort guarantee and a one-year warranty.
●
Sheets— We sell two types of sheets and pillowcases. Made from stretchy and breathable bamboo-based Viscose, our SoftStretch
sheets are designed to maximize the functionality of the Purple Grid in 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. Our sheet sets include pillowcases that also maximize the
unique functionality of our pillows.
●
Mattress
Protector —Like our sheets, our mattress protector is designed to optimize the functionality of the Purple Grid in our
mattress. Our mattress protector is stretchy and breathable. Our protector is also stain-resistant and machine-washable, making it
easy to clean.
●
Bases —The Purple ® Ascent™
Adjustable Base, Purple ® Foundation, and the Purple Platform Bed have been designed to meet the needs of our customers.
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 ® Foundation is
easy to ship and assemble, with no tools required. The bases’ supports are made of high-density polyethylene, so they don’t
creak or make noise like wood supports. Plus, the joints of the Purple Foundation are reinforced with nylon buffers to help prevent
squeaking. Our Purple Platform Bed 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.
●
Seat
Cushions —The evolution of our portfolio of seat cushions has resulted from decades of in-house manufacturing experience
including development of proprietary machines and trade secrets, extending the benefits of our Hyper-Elastic Polymer and Purple Grid
technologies. Purple currently sells six 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 comfort industry. With our proprietary Hyper-Elastic Polymer material used in the Purple Grid,
we have introduced the first major innovation to the mattress category in decades. 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.
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,
Purple Grid structure, 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. This proprietary material is also durable and will not develop
body impressions (compression set) from use over time. It is elastic and can stretch up to 15 times its original size and return without
losing its shape. It sleeps and sits temperature-neutral and has good ventilation to inhibit moisture build-up.
Our
Purple Grid structure made with Hyper-Elastic Polymer material is both soft and supportive. While the columns in this structure provide
support where it is needed, they also buckle where it is needed to reduce pressure by allowing shoulders and hips to sink into the cushion
with reduced force pushing back on those areas of the body unlike other cushion technologies. 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 Mattress Max machines are the only machines able to mold our Hyper-Elastic Polymer material into
large-format king-sized mattresses at scale. We have modified other molding machines to manufacture additional products containing Hyper-Elastic
Polymer material, such as pillows and seat cushions. The process of molding our Hyper-Elastic Polymer material using our Mattress
Max machinery is proprietary, patent-protected and complex, requiring specific knowledge and expertise to successfully execute manufacturing.
We have vertically integrated with our own machine shop with mechanics and engineers at each of our factories to maintain our machines
and other equipment. 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. Our marketing
efforts are focused on building awareness of the Purple brand and illustrating the unique way our products deliver better sleep and comfort.
We leverage data-driven marketing across all communication channels to engage, acquire, and retain customers. 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.
Our
Sales Channels
Historically, the majority of our sales have been through our e-commerce
platform; however, we are growing our Purple retail showrooms, and expanding our wholesale channel distribution.
Direct-to-Consumer
Channel
E-commerce is a primary distribution
channel and a critical hub for consumer engagement and education. We have benefitted from the rapid growth of the direct-to-consumer mattress
industry in addition to our differentiated product offering and unique marketing campaigns. Consumer willingness to buy sleep products
online continues to grow as consumer confidence in online shopping continues to increase. We sell directly to consumers through our website
and our growing customer contact center. We help customers easily engage in relevant content, research our solutions, transact online
and find support. We believe our online experience expands our brand and connections with consumers, enabling deeper awareness, engagement
and brand loyalty. We believe our 100-night trial along with free shipping and free returns provides confidence to consumers in buying
a mattress.
6
We operate 30 Purple retail showrooms in cities across the United States
where consumers can experience our brand, learn and engage with our technology and purchase our products. We plan to continue expanding
our showroom footprint across the United States.
Wholesale
Channel
We sell our assortment of
products through brick-and-mortar wholesale partners. We began selling mattresses and other sleep products through our largest wholesale
partner, Mattress Firm, in November 2017 and have continued to expand the number of wholesale partners where our mattresses and other
sleep products are sold. 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
three to four mattress models on the floor. 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 expanding
brick-and-mortar wholesale partners to give our customers the opportunity to feel the difference of the Purple Grid for themselves.
Operations
Factories,
Supply Chain and Manufacturing
We
operate factories in Alpine, Utah, Grantsville, Utah and McDonough, Georgia, which manufacture and distribute Purple products. Our
two factories in Utah have a total of 667,000 square-feet, including approximately 574,000 square-feet at our Grantsville factory and
another 93,000 square-feet at our Alpine factory. Our factory in McDonough, Georgia opened in March 2021 and provides 844,000 square-feet
to service our customers on the east coast. At these factories we manufacture our proprietary Hyper-Elastic Polymer and Purple Grid cushioning
used in our mattress, pillow and seat cushion products. We also assemble, package and ship our products from these facilities. 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.
We
outsource and resell other products, including adjustable bases, platform bases, sheets, mattress protectors, blankets and duvets. These
products are either designed in-house or in partnership and are unique to Purple.
We
have relationships with multiple suppliers for our outsourced products and components. These suppliers may be interchanged in order to
maintain quality, cost and delivery expectations.
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. 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. 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. 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. We are also subject to import and export laws and regulations to the extent our products
and their component parts cross international boundaries. Many of these laws and regulations are consumer-focused and pertain to safety,
truth-in-advertising, promotional offers, privacy, “do not call/mail” requirements, warranty disclosure, delivery timing requirements
and similar requirements.
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 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
Our
research and development teams are focused on developing new comfort technologies, manufacturing machines, and improving production processes,
as well as developing products. 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. 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.
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. Our intellectual property portfolio is integral
to our continued success in this industry, with respect to our Hyper-Elastic Polymer and Purple Grid material as well as our Mattress
Max machines.
We own or have the exclusive
right to use hundreds of granted or pending patents and hundreds of patent filings on inventions and designs pertaining to our machines,
processes, mattresses, pillows, seat cushions, packaging techniques and other related existing and future products. 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. Patent and Trademark Office (USPTO), including EquaPressure ® , WonderGel ® and
EquaGel ® (for cushions), and Purple ® , No Pressure ® , Hyper-Elastic Polymer ® ,
Somnigel ® , and Gel Matrix ® (for plasticized elastomeric gel and certain types of products including
mattresses, seat cushions, bed linen, mattress foundation and others). Additional registered trademarks include Purple Grid ® ,
The Purple Mattress ® , Purple Hybrid ® , and Purple Hybrid Premier ® . 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.
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. Certain
international trademark applications previously resided with EdiZONE, LLC, which is an entity owned by our founders and were licensed
to Purple LLC, and we have taken the necessary steps to have those trademarks assigned to Purple LLC upon registration.
We
also have a number of common law trademarks, including Harmony™, Purple Harmony Pillow™, Harmony Pillow™, Purple +™,
Purple Plus™, Find Comfort™, Dreams On Dreams™, Reinventing Sleep™, Reinventing Comfort™, Gelflex™,
Ascent™, Purple Ascent™, Comfort Reinvented™, Softstretch™, Purple Powerbase™, Purple Powerbase Premier™,
Purple Powerbase Plus™, Purple Glove™, Eidertech™, Mattress Max™, WonderGel Original™, WonderGel Extreme™,
DoubleGel™, DoubleGel Plus™, DoubleGel Ultra™, Roll n’ Go™, Fold N’ Go™, Purple Bed™,
Purple Top™, Purple Pillow™, Portable Purple™, Everywhere Purple™, Simply Purple™, Lite Purple™,
Royal Purple™, Double Purple™, Deep Purple™, Ultimate Purple™, Purple Back™, EquaGel Straight Comfort™,
EquaGel General™, EquaGel Protector™, and EquaGel Adjustable™.
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.
In
addition, we maintain copyrights, many registered, to past and present versions of purple.com, onpurple.com, equapressure.com, wondergel.com,
marketing content, blogs, logos, graphics, videos and other marketing and promotional materials promoting our products.
We
protect and enforce our intellectual property rights, including through litigation as necessary.
8
Human
Capital
Employees
Our
most valuable asset at Purple is our people and their learned institutional knowledge. We are mission-driven by our commitment to innovating
real comfort solutions that meaningfully help “every body” feel and live better. We are a product innovation company at our
core.
In February 2022, we completed
a restructuring of our workforce that was necessitated by a realignment of our cost structure. As a result of the realignment and restructuring,
we reduced employee headcount by approximately 15% and incurred a restructuring charge of $1.1 million in the first quarter of 2022. As
of March 1, 2022, we have approximately 1,800 employees engaged in manufacturing, research and development, general corporate functions
and in Purple retail showrooms.
During 2021, the Company’s
top priority has been to take appropriate actions to protect the health and safety of our employees as a result of the COVID-19 pandemic.
Our current employee population works primarily within our two factories in Utah, our one factory in Georgia and at our headquarters
in Lehi, Utah. However, throughout the COVID-19 pandemic, employees who were working in office settings have been working from home.
We also identified new ways to work safely and effectively in our manufacturing areas by creating additional shifts, regularly cleaning
common areas, wearing face masks and ensuring employees were practicing safe social distancing. We regularly engage labor contracting
agencies and independent contractors to accelerate our progress and to provide support across various functions within our organization.
We have no collective bargaining agreements with our employees.
Diversity
and Inclusion
Purple is committed to fostering
an environment that respects and encourages individual differences, diversity of thought, and talent. We strive to create a workplace
where employees feel that their contributions are welcomed and valued, allowing them to fully engage their talents and training in their
work, while generating personal satisfaction in their roles within the Company. We hired a Chief People Officer in 2021, who will facilitate
the ways in which Purple can operationalize its commitment to expanding diversity, nurturing the power of difference, and recruiting and
retaining diverse talent.
Philanthropy
Purple is driven to innovate
real comfort solutions that help “every body” sleep, feel and live better while we forge real relationships with our customers
and communities. We believe in the importance of contributing to the communities that we serve, and we are growing the impact of our philanthropic
activities with a purposeful focus on protecting the power of sleep for children and families. We expanded this year our support of the
Precious Dreams Foundation to help assure the comfort and sleep of children in foster care. We made product donations to shelters in the
communities in which we live and work, and we supported the sleep of refugee families resettling in the United States. We are proud to
celebrate student achievement and recognize teacher contributions and to support the local economies in communities that support our workplaces.
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Ethical
Culture
Finally,
our Code of Ethics promotes an environment of integrity by requiring honest, ethical and fair conduct with a focus on conflicts of interest,
compliance, deterrence and internal reporting. It also requires full, fair and accurate disclosure in public filings and communications.
All employees are required to complete Code of Ethics training periodically.
Overall,
we believe our culture, along with our internal tools and initiatives, enable us to effectively execute our human capital strategy. For
discussion on the risks relating to our inability to attract and retain top-performing talent, please see section titled Risk Factors.
Our
History
Purple
was created by two brothers that set out to revolutionize the comfort space. 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. They later created what we call the Purple Grid—an elastomeric polymer that can stretch up to
15x its resting size and never lose shape or function. The Purple Grid has since been used in mattresses, seat cushions and pillows.
In August of 2020, Purple announced
that co-founders Terry and Tony Pearce chose to retire from their positions as Co-Directors of Research & Development of Purple LLC
and as directors on Purple Inc.’s Board of Directors (“Board”). Today, Purple’s research and development teams
are focused on creating innovative comfort solutions for all facets of life.
Available
Information
Our website address is www.purple.com.
We make available, free of charge on our Investor Relations website, investors.purple.com, our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the U.S. Securities and Exchange Commission (“SEC”).
We
also use our Investor Relations website, investors.purple.com, as a channel of distribution of additional Purple information that may
be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and
public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
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Information
About Our Executive Officers
As
of the date of this report, our directors and executive officers are as follows:
Name
Age
Title
Robert
T. DeMartini
60
Director,
Chief Executive Officer
Bennett
L. Nussbaum
74
Interim
Chief Financial Officer and Treasurer
Casey
K. McGarvey
62
Chief
Legal Officer and Secretary
John
A. Legg
60
Chief
Operating Officer
Verdi
R. White III
43
Chief
Retail Officer
Patrice
A. Varni
60
Chief
Marketing Officer
John
J. Roddy IV
54
Chief
People Officer
Executive
Officers
Robert T. DeMartini has
served as Chief Executive Officer since January 2022. Prior to joining the Company, Mr. DeMartini,
age 60, served as president and chief executive officer of USA Cycling, Inc., the official U.S. Olympic & Paralympic Committee governing
body for all disciplines of competitive cycling in the United States, from 2019 until 2021. He previously served as president and chief
executive officer of New Balance Athletic Shoes (U.K.) Ltd., from 2018 to 2019 and as president and chief executive officer of New Balance
Athletics, Inc. from 2007 to 2018, each a business unit of New Balance, Inc. a leading manufacturer and retailer of athletic footwear,
apparel and accessories. From 1982 through 2007 Mr. 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 American Functional Fabrics of America, The American Apparel & Footwear Association, and Aloha. Mr.
DeMartini received a Bachelor of Science degree in Finance from San Diego State University. He is well qualified to serve on our Board
due to his extensive operational and management background.
Bennett L. Nussbaum has
served as our Interim Chief Financial Officer (“CFO”) since August 2021. Prior to joining
the Company, Mr. Nussbaum served as the Interim Chief Financial Officer of American Megatrends, Inc. from 2019 to 2020. During that period
he also served as Operating Partner of HGGC, LLC from 2017 to 2020. He also served as Interim CFO at 4over, Inc. from 2017 to 2018. From
2016 to 2017 he was the Chief Financial Officer of American Apparel, LLC. He currently serves on the advisory board for the W. Edwards
Deming Center for Quality, Productivity, and Competitiveness at the Columbia University Graduate School of Business, a position he has
held since 2011. Mr. Nussbaum previously served on the boards of directors of The Collected Group, LLC from 2018 to 2019, Charlotte Russe,
Inc. from 2018 to 2019, and BCBGMAXAZRIA, LLC during 2017. Mr.Nussbaum has extensive leadership and stakeholder management expertise who
has led multibillion-dollar publicly traded and private equity-owned businesses through turnarounds, transitions and accelerated growth.
Mr. Nussbaum is a graduate from the Wharton School of Business of the University of Pennsylvania with a BS in Economics and holds an MBA
from Columbia University in New York, NY.
Casey K. McGarvey has
served as the Chief Legal Officer and General Counsel of Purple LLC since its inception in 2010 as WonderGel, LLC. He also has served
as Corporate Secretary of Purple Inc. since the Business Combination. From 2008 until the Business Combination, he also has served as
General Counsel of various technology companies owned by Terry and Tony Pearce, including EdiZONE, LLC, focused on developing advanced
cushioning technology. Mr. McGarvey has a deep knowledge of the Company’s technologies and intellectual property. Prior to joining
EdiZONE and Purple LLC, Mr. McGarvey was a shareholder, partner or of counsel at several law firms during which, among other things, he
litigated and advised businesses on the protection of their patents and trademarks and other business matters. 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.
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John
A. Legg has served as the Chief Operating Officer of the Company since January 2019. Mr. Legg brings to the Company over 20 years
of experience in operations and supply chain management in the wholesale, retail and e-commerce/direct-to-consumer sectors. Prior to
joining the Company, Mr. Legg served as a partner in the consulting firm of Claris Retail Solutions Group (“Claris”) from
September 2017 until he joined the Company in January 2019. Prior to that, he served as Senior Vice President Global Operations for Global
Brands Group, providing strategic direction across all operational areas. In addition, prior to joining Global Brands Group, Mr. Legg
was the Senior Vice President of Global Logistics and Supply Chain for the Zale Corporation. From 2009 to 2010, he consulted in
Supply Chain Management for Tory Burch. From 2007 to 2008, Mr. Legg served as Senior Vice President Global Distribution and Logistics
for Warnaco, Inc. Finally, from 1999 to 2007, he worked for Liz Claiborne in the US and in Europe, serving as Vice President International
Distribution. Mr. Legg is a graduate of Northeastern University, in Boston, MA, and holds a BS in Business Administration, Transportation
and Distribution Management.
Verdi
R. White III has served as the Chief Retail Officer of the Company since March 2019. Prior to joining the Company, Mr. White served
as the General Manager of Downeast Home since 2016. From 2014 to 2016, he served as Vice President of Real Estate and Construction for
Hill Country Holdings, then the largest licensee of the Ashley Furniture Homestore concept. In that role, Mr. White oversaw all expansion
initiatives for the company including new stores, warehouses, and all construction and maintenance of existing facilities. Prior to joining
Hill County Holdings, Mr. White was the Vice President of Real Estate and Strategy at the Larry Miller Group from 2011 to 2014 where
he grew their Fanzz and Pro Stop retail business. From 2007 to 2011, he managed design and construction projects at Brookfield Properties,
formerly General Growth Properties. From 2001 to 2007, Mr. White was the co-founder of LoveSac where he conceived of, deployed, and operated
LoveSac’s direct-to-consumer store strategy as well as new product development. Mr. White holds an MBA from Brigham Young University’s
Marriott School of Management.
Patrice A. Varni has
served as Chief Marketing Officer of the Company since June 2021. Prior to joining Purple, Ms. Varni was the President and Chief Marketing
Officer of Dermstore (a subsidiary of Target Corporation), the leading online retailer of professional skincare, from 2020 to joining
Purple in 2021. Ms. Varni served as the Chief Customer Officer at Corelle Brands from 2017 to 2019 and as the Chief Customer Officer
at Arhaus an omni-channel national premium furniture retailer from 2015 to 2017. Ms. Varni gained deep category experience as Senior
Vice President of Marketing at Tempur Sealy International from 2009 to 2015. From 2001 to 2009 she served as the Vice President of Ecommerce
and relationship marketing for the Levi’s brand at Levi Strauss & Company. Earlier in her career, from 1991 through 2001,
Ms.Varni built her marketing and e-commerce capability in various roles at what is now Digitas agency, The Walt Disney Company and Kenwood
Electronics. Ms. Varni holds an MA in English and a BA in European Studies from Loyola Marymount University in Los Angeles.
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. 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 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.
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