What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 503 added, 390 removed, 62 unchanged (94% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion is intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation,

than can be obtained from reading the Unaudited Condensed Consolidated Financial Statements alone.

The discussion should be read

in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I.

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is

intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation, Inc.

obtained from reading the Unaudited Condensed Consolidated Financial Statements alone.

The discussion should be read in conjunction with

the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I.

Financial Statements.”

FORWARD-LOOKING

quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section

27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our

current expectations and beliefs.

All statements other than statements of historical fact are “forward-looking statements”

for purposes of federal and state securities laws.

In some cases, you can identify these statements by forward-looking words such as

“believe,” “expect,” “project,” “anticipate,” “estimate,” “intend,”

“plan,” “targets,” “likely,” “will,” “would,” “could,” “may,”

“might,” the negative of these words and other similar words.

forward-looking statements included in this Quarterly Report are made only as of the date thereof.

It is routine for our internal projections

and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change

prior to the end of the next quarter or year.

In addition, any statements that refer to projections of our future financial performance,

our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and

other characterizations of future events or circumstances are forward-looking statements.

caution and advise readers that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are

difficult to predict, including those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report

on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022.

Therefore, actual results may differ materially and

adversely from those expressed in any forward-looking statements and investors are cautioned not to place undue reliance on any such

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,

future events or otherwise, except as required by law.

of Our Business

FORWARD-LOOKING STATEMENTS

This quarterly report on Form

10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act

of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs.

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state

securities laws.

In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,”

“project,” “anticipate,” “estimate,” “intend,” “plan,” “targets,”

“likely,” “will,” “would,” “could,” “may,” “might,” the negative

of these words and other similar words.

All forward-looking statements

included in this Quarterly Report are made only as of the date thereof.

It is routine for our internal projections and expectations to

change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end

of the next quarter or year.

In addition, any statements that refer to projections of our future financial performance, our anticipated

growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations

of future events or circumstances are forward-looking statements.

We caution and advise readers

that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including

those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the

Securities and Exchange Commission on March 1, 2022.

Therefore, actual results may differ materially and adversely from those expressed

in any forward-looking statements and investors are cautioned not to place undue reliance on any such statements.

We undertake no obligation

to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except

as required by law.

Overview of Our Business

Our mission is to improve

the lives of our consumers by delivering innovative better sleep solutions.

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, frames, sheets, and other products.

products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development

of our own manufacturing processes.

Our proprietary gel technology, Hyper-Elastic Polymer, underpins many of our comfort products and

provides a range of benefits that differentiate our offerings from other competitors’ products.

We market and sell our products

directly to consumers through our e-commerce and Purple retail showroom channels and through our retail brick-and-mortar wholesale partner

business consists of Purple Inc.

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, frames, sheets, and other products.

Our products are the result

of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing

Our proprietary gel technology, Hyper-Elastic Polymer, underpins many of our comfort products and provides a range of benefits

that differentiate our offerings from other competitors’ products.

We market and sell our products directly to consumers through

our e-commerce and Purple retail showroom channels and through our retail brick-and-mortar wholesale partner channel.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

was incorporated in Delaware on May 19, 2015

as a special purpose acquisition company under the name of GPAC.

was incorporated in Delaware on May 19, 2015 as a special purpose acquisition

company under the name of GPAC.

On February 2, 2018, Purple Inc.

consummated a transaction structured

similar to a reverse recapitalization pursuant to which Purple Inc.

acquired an equity interest in Purple LLC and became its sole managing

As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational

and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member.

At March 31, 2022, Purple Inc.

had a 99% economic interest in Purple LLC while other Class B Unit holders had the remaining 1%.

Developments in Our Business

consummated a transaction structured similar to a reverse recapitalization

pursuant to which Purple Inc.

acquired an equity interest in Purple LLC and became its sole managing member.

As the sole managing member

of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making

and control of the day-to-day business affairs of Purple LLC without the approval of any other member.

At June 30, 2022, Purple Inc.

a 99.5% economic interest in Purple LLC while other Class B Unit holders had the remaining 0.5%

Executive Summary – Results of Operations

Net revenues decreased 21.1% to $144.1 million

and 22.1% to $287.3 million for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods

in the prior year.

These decreases were primarily due to softening demand for home related products, inflationary pressures on consumer

discretionary spending, management’s decision to reduce advertising spending, and the prior year pull forward of demand driven by

the effects of COVID and economic stimulus experienced in the first half of 2021.

Gross profit decreased 40.2% to $48.8 million and 40.6% to $100.4 million

for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods in the prior year.

These decreases

reflected the impact of lower sales and channel mix combined with unfavorable cost absorption and elevated levels of materials, labor

and overhead costs, partially offset by benefits realized from our workforce restructuring.

Operating expenses decreased 27.7% to $60.9 million

and 15.5% to $130.9 million for the three and six months ended June 30, 2022, respectively, when compared to the corresponding periods

in the prior year.

These decreases primarily reflected the impact of management’s decisions to reduce advertising spend, execute

two workforce reductions and implement other cost saving measures.

Net loss was $8.3 million

and $21.8 million for the three and six months ended June 30, 2022, respectively, compared to net income of $2.6 million and $23.4 million

for the three and six months ended June 30, 2021, respectively.

Recent Developments in Our Business

Equity Financing

In March 2022, the Company

completed a secondary offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares

of the over-allotment option that the underwriters exercised in full.

The underwriter purchased the Class A common stock from the Company

at a price of $5.65 per share, except that any shares sold by the underwriter to Coliseum Capital Partners, L.P.

and Blackwell Partners

LLC – Series A, up to an aggregate of 29.81% of the shares of Class A common stock pursuant to the offering, were purchased from

the Company by the underwriter at a price of $6.10 per share.

The aggregate gross proceeds received by the Company from the secondary

offering, including the exercise of the over-allotment, was $93.1 million.

After deducting offering expenses of $0.2 million, aggregate

net proceeds totaled $92.9 million.

September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million

revolving line of credit.

In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented

the full amount available under the line.

The initial borrowing rate of 3.50% for both the term loan and revolving line of credit was

based on LIBOR plus 3.00%.

completed an underwritten public offering of 16.1 million shares of Class A common stock, which included the additional 2.1

million shares of the over-allotment option that the underwriters exercised in full.

The aggregate net proceeds received by the Company

from the offering, after deducting offering expenses of $0.3 million, totaled $92.9 million.

Debt Financing

On September 3, 2020, Purple

LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit.

November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the full amount available

under the line.

On March 31, 2022, the Company used a portion of the net proceeds from its underwritten public offering, described above,

to repay in full the $55.0 million of principal outstanding on the revolving line of credit.

The Company’s operating

9 unchanged sentences

$25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease

incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into

2023 until certain conditions are met.

In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was

changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5%

plus 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met.

If it is not met, then the interest rate goes

to SOFR with a floor of 0.5% plus 9.00%.

Once the consolidated leverage ratio goes below 3.00 to 1.00, the interest rate will be based

on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio.

Pursuant to the first amendment

of the 2020 Credit Agreement, the Company made a $2.5 million payment on the term loan to cover the four quarterly principal payments

due in 2022 and incurred fees and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance

On March 23, 2022, the Company

entered into a second amendment to the 2020 Credit Agreement.

This amendment modified the 2020 Credit Agreement to allow CCM and its investment

affiliates to acquire 35% or more of the combined voting power of all equity interests of the Company entitled to vote for the election

of members of the Company’s board of directors without constituting an event of default.

CCM is considered a related party of the

Company in that Adam Gray, a member of the board of directors, serves as a managing partner of CCM.

Pursuant to the second amendment

of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the

condensed consolidated balance sheet.

March 31, 2022, the Company used a portion of the net proceeds from the secondary offering to repay in full the $55.0 million of principal

outstanding on the revolving line of credit.

COVID-19 pandemic has impacted many aspects of our operations, directly and indirectly, including disruption of our employees, consumer

behavior, distribution and logistics, our suppliers, and the market overall.

incurrence test for opening additional showrooms, additional negative covenants during a covenant amendment period that extends into 2023

until certain conditions are met, and the interest rate was changed from LIBOR plus 3.00% to SOFR plus 4.75%.

Pursuant to this amendment,

the Company made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022 and incurred fees

and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance sheet.

March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement.

This amendment modified the 2020 Credit

Agreement to allow CCM and its investment affiliates to acquire 35% or more of the combined voting power of all equity interests of the

Company entitled to vote for the election of members of the Company’s board of directors without constituting an event of default.

CCM is considered a related party of the Company in that Adam Gray, a member of our board of directors, serves as a managing partner of

Pursuant to this amendment, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs

in the condensed consolidated balance sheet.

Operational Developments

The COVID-19 pandemic has

impacted many aspects of our operations, directly and indirectly, including disruption of our employees, consumer behavior, distribution

and logistics, our suppliers, and the market overall.

The scope and nature of these impacts continue to evolve.

Because of the COVID-19 pandemic, we took precautionary measures recommended by the appropriate national and state health agencies to

manage our resources and mitigate the adverse impact of the pandemic, which was intended to help minimize the risk to our Company, employees,

customers, and the communities in which we operate.

Soon after the pandemic began, we also experienced an increase in demand in our e-commerce channel, and in 2020 and

2021 the Company built production capability to match actual and anticipated demand growth.

Now, on the tail-end of the pandemic, we are

experiencing a pull-back in growth that has left us with excess operational capacity in facilities, equipment, and personnel.

quarter, we began to rebalance production and fulfillment operations in our different facilities and take other actions to lower costs.

are closely monitoring the impacts of COVID-19 and general economic conditions on global supply chain, manufacturing, and logistics operations.

As inflationary pressures increase, we anticipate that our production and operating costs will similarly increase.

In addition, COVID-19

and other events, including port closures or labor shortages, have resulted in the continuation or worsening of manufacturing and shipping

costs, delays and constraints.

While most of our domestic suppliers have been able to continue operations and provide necessary materials

when needed, we have experienced some constraints from certain suppliers, with respect to both the availability and cost of materials.

In addition, as experienced in other industries, in order to remain competitive in hiring the labor necessary to maintain our production

levels, we have had to increase wages and other compensation.

These increases in materials and labor costs have resulted in higher cost

of goods sold and lower margins.

We believe that shipping, material and labor costs will continue to remain at elevated levels or increase

further in the foreseeable future.

While we invested in growing our

manufacturing capacity and expanding our showroom presence in 2021, post-pandemic demand has shifted away from e-commerce and back towards

retail brick-and-mortar.

Our showrooms are performing in-line with our targeted unit economics.

As a result, we are continuing our investment

into new showrooms.

Also, at the end of the first quarter, our products are sold through approximately 3,100 wholesale doors, having added

600 net new doors so far in 2022.

To capitalize on the current trend, and while expanding into new doors, our focus is primarily on improving

our sales in the retail locations where are products currently are being sold.

In February 2022, because of lower-than-expected

demand and elevated labor and overhead costs that adversely affected our results of operations in the fourth quarter of 2021 which continued

into the first quarter of 2022, we completed a restructuring of our workforce to improve efficiencies and realign the Company’s

cost structure to focus on quality of earnings in our current core business.

As a result of the realignment and restructuring, we reduced

employee headcount and incurred severance costs of $1.2 million in the first quarter of 2022.

In April 2022, we incurred an additional

$0.8 million in severance costs associated with a separate workforce restructuring to balance production and improve efficiencies.

In early 2022, to offset the impact

of higher raw material, labor and freight costs on our gross margins, we increased prices and initiated several other projects to improve

efficiencies and reduce costs.

In response to these impacts, we deferred new product launches in 2022.

Also in 2022, we are continuing

to invest in showroom expansion and effectively respond to consumers returning to brick and mortar buying by growing wholesale partner

doors and initiating a greater emphasis on improving the sales productivity of our existing wholesale partners.

After several years of

hyper growth and increased investments to support current and future expansion, we are now building the framework for strong operational

maturity and accountability as we focus on right-sizing our operations, improving our execution, and refining our strategies to drive

profitable growth in the current market environment.

support our plans for future growth, we are focusing on the following opportunities:

Because of the COVID-19

pandemic, we took precautionary measures recommended by the appropriate national and state health agencies to manage our resources and

mitigate the adverse impact of the pandemic, which was intended to help minimize the risk to our Company, employees, customers, and the

communities in which we operate.

Soon after the pandemic began, we also experienced an increase in demand in our e-commerce channel, and

in 2020 and 2021 the Company increased its production capacity to match actual and anticipated demand growth.

In 2022, after two years

of the pandemic, we are experiencing a pull-back in growth that left us with excess operational capacity in facilities, equipment, and

Beginning in the first quarter of 2022 and continuing into the second quarter, we have rebalanced production and fulfillment

operations in our different facilities, reduced employee headcount and taken other actions to lower costs.

We are closely monitoring

the impacts of COVID-19 and general economic conditions on global supply chain, manufacturing, and logistics operations.

As inflationary

pressures increase, we anticipate that our production and operating costs will similarly increase.

In addition, COVID-19 and other events,

including port closures or labor shortages, have resulted in the continuation or worsening of manufacturing and shipping costs, delays

and constraints.

While most of our domestic suppliers have been able to continue operations and provide necessary materials when needed,

we have experienced some constraints from certain suppliers, with respect to both the availability and cost of materials.

as experienced in other industries, in order to remain competitive in hiring and retaining the labor necessary to maintain our production

levels, we have increased wages and other compensation.

These increases in materials, labor and freight costs have resulted in higher

cost of goods sold and lower margins.

We believe that materials, labor and freight costs will continue to remain at elevated levels or

increase further in the foreseeable future.

In the fourth quarter of 2021

and continuing into 2022, our gross margins and results of operations have been, and we expect will continue to be adversely affected

by elevated levels of materials, labor and freight costs and lower-than-expected demand levels.

In early 2022, to offset the impact of

higher costs on our gross margins, we increased prices and initiated several other projects to improve efficiencies and reduce costs.

Also, we have continued to invest in showroom expansion and growing wholesale partner door count and productivity in response to a return

to more normalized consumption patterns where consumer demand has shifted away from e-commerce and back to brick and mortar buying.

We ended the second quarter with 40 showrooms after opening 6 net new

locations during the quarter and we plan to add 14 more showrooms over the remainder of the year.

In addition, at

the end of the second quarter, our products are being sold through approximately 3,200 wholesale doors, having added approximately 700

net new doors during the first six months of 2022.

Improving the sales productivity of our wholesale doors remains a primary

focus and a critical component of our strategy to combat shifting demand patterns.

After several years of hyper growth and increased investments

to support current and future expansion, we are now building the framework for strong operational maturity and accountability after focusing

on right-sizing our operations, improving our execution, and refining our strategies to drive profitable growth in the current market

We have also intentionally reduced our advertising spending in 2022 to improve marketing efficiency and stabilize profitability

in a challenging macroeconomic environment.

Outlook for Growth

To support our plans for future growth, we are

focusing on the following opportunities:

Develop and execute on strategies to meaningfully expand our wholesale presence.

1 unchanged sentence

Refine and enhance marketing strategies to reach a broader audience, increase customer engagement and reduce dependency on price promotions as a means of driving sales.

Strengthen research and development disciplines and go-to-market processes in order to expand our current categories and position our business to eventually expand to adjacent categories.

Strengthen research and development disciplines and go-to-market processes to further develop our current product categories and position our business to eventually expand to adjacent categories.

Manage production labor and capacity utilization to promote efficient use of our manufacturing facilities as we grow into our production footprint.

Manage input costs,

operating efficiencies, and pricing to offset gross margin erosion and exit the year with gross margins close to 40%.

is no guarantee that we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions

that are difficult to predict, including the risks described under “Risk Factors” and elsewhere herein.

Therefore, actual

results may differ materially and adversely from those described above.

In addition, we may, in the future, adapt these focuses in response

to changes in the market or our business.

Results for the Three Months Ended March 31, 2022 and 2021

following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our

condensed consolidated statements of operations:

Three Months Ended March 31,

Manage input costs, operating efficiencies, and pricing to offset gross margin erosion and exit the year with gross margins close to 40%.

There is no guarantee that

we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions that are difficult

to predict, including the risks described under “Risk Factors” and elsewhere herein.

Therefore, actual results may differ

materially and adversely from those described above.

In addition, we may, in the future, adapt these focuses in response to changes in

the market or our business.

Operating Results for the Three Months Ended June 30, 2022 and 2021

The following table sets forth

for the periods indicated, our results of operations and the percentage of total revenue represented in our condensed consolidated statements

of operations:

Three Months Ended June 30,

Revenues, net

9 unchanged sentences

Other income (expense), net

Tax receivable agreement benefit

Change in fair value – warrant liabilities

Total other income, net

Tax receivable agreement expense

Total other income (expense), net

Net income (loss) before income taxes

Income tax benefit

Net income (loss)

Net loss attributable to noncontrolling interest

Net income (loss) attributable to Purple Innovation, Inc.

Revenues, Net

Net revenues decreased $38.5

million, or 21.1%, to $144.1 million for the three months ended June 30, 2022 compared to $182.6 million for the three months ended June

The decline in net revenues reflected a $32.3 million decrease in mattress sales, a $2.7 million decrease in other sleep product

sales and a $3.5 million decrease in other product sales.

The decrease in net revenues for all three product types was primarily due to

softening demand for home related products, inflationary pressures on consumer discretionary spending, management’s decision to

reduce advertising spend, and the prior year pull forward of demand driven by the effects of COVID and economic stimulus in the first

half of 2021.

The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $34.6 million, or

29.8% and wholesale net revenues decreasing $3.9 million, or 5.9%.

In addition to the factors discussed above, the decrease in DTC net

revenues was impacted by a return to more normalized consumption patterns after two years of COVID-driven demand coupled with customers

shifting back to brick and mortar buying.

The decrease in wholesale net revenues reflected reduced purchases by our existing wholesale

partners, offset in part by the impact of adding approximately 700 net new wholesale partner doors during the first six months of 2022.

Cost of Revenues

Cost of revenues decreased $5.6 million, or 5.6%, to $95.3 million

for the three months ended June 30, 2022 compared to $100.9 million for the three months ended June 30, 2021.

This decrease was primarily

due to the corresponding decrease in sales volume, offset in part by increases in materials, freight and overhead costs.

Our gross profit

percentage, which decreased to 33.9% of net revenues in the second quarter of 2022 from 44.7% in the second quarter of 2021, was adversely

impacted by lower sales with an increased proportion of wholesale channel revenue which carries a lower average selling price than sales

from our DTC channel and unfavorable cost absorption from lower than planned production volumes in prior months.

Additionally, our gross

profit percentage reflects the impact of elevated levels of materials, labor and overhead costs, partially offset by benefits realized

from our workforce restructuring.

Marketing and Sales

Marketing and sales expense

decreased $19.5 million, or 32.5%, to $40.4 million for the three months ended June 30, 2022 compared to $59.8 million for the three months

ended June 30, 2021.

This decrease reflected a $24.1 million decline in advertising spending and a $2.7 million decrease in other marketing

costs due in part to workforce reductions.

The intentional reduction in advertising spending was due to management’s efforts to

improve marketing efficiency and stabilize profitability in a challenging macroeconomic environment.

These decreases were offset in part

by a $2.0 million increase in wholesale-related marketing and sales costs as we continue to focus on improving the sales productivity

of our wholesale doors and a $5.3 million increase in marketing and sales costs associated with our continued showroom expansion.

and sales expense as a percentage of net revenues was 28.0% in the second quarter of 2022 compared to 32.8% in the second quarter of 2021.

This decrease was primarily due to the reduction we made in advertising spending.

General and Administrative

General and administrative expense decreased $3.7 million, or 16.4%,

to $18.8 million for the three months ended June 30, 2022 compared to $22.5 million for the three months ended June 30, 2021.

This decrease

was primarily due to a $5.3 million decrease in legal and professional fees, offset in part by a $1.4 million increase in payroll

costs related to planned increases in general and administrative personnel over the past twelve months and a $0.2 million increase

in other expenses.

The decrease in legal and professional fees was primarily due to $7.9 million of underwriting commissions and other

related costs we paid in the prior year second quarter for shares sold by Coliseum Capital Partners.

This decrease was partially offset

by a one-time $3.1 million separation fee incurred by the Company during the second quarter of 2022 for not continuing with the services

of a professional services provider.

Research and Development

Research and development costs

decreased $0.2 million, or 9.1%, to $1.7 million for the three months ended June 30, 2022 from $1.9 million for the three months ended

June 30, 2021.

This decrease was primarily due to lower professional services costs as product development priorities were being refocused.

This decrease was offset in part by an increase in payroll costs related to planned increases in our research and development workforce

including the addition of a chief innovation officer.

Operating Income (Loss)

Operating loss increased $9.5

million to $12.1 million for the three months ended June 30, 2022 compared to $2.5 million for the three months ended June 30, 2021.

increase was primarily due to the decrease in gross profit, offset in part by lower operating expenses.

Interest Expense

Interest expense totaled $0.7

million for the three months ended June 30, 2022 compared to $0.6 million for the three months ended June 30, 2021.

The $0.1 million increase

was primarily due to the term loan interest rate increasing from 3.50% during the second quarter of 2021 to 6.07% during the second quarter

In February 2022, the Company entered into the first amendment to the 2020 Credit Agreement which, among other things, changed

the reference interest rate from LIBOR to SOFR and increased the applicable margins.

The impact of this increase was offset in part by

$0.2 million of interest capitalized during the second quarter of 2022.

There was no interest capitalized during the three months ended

June 30, 2021.

Change in Fair Value – Warrant Liabilities

The 1.9 million sponsor warrants

outstanding at both June 30, 2022 and 2021 had fair values of $0.1 million and $14.5 million, respectively.

The decrease in fair value

was primarily due to the Company’s Class A stock price, one of the primary assumptions used to re-measure the warrant liability,

declining from $26.41 at June 30, 2021 to $3.06 at June 30, 2022.

During the three months ended June 30, 2022 and 2021, we recognized

gains of $0.3 million and $4.9 million, respectively, in our condensed consolidated statements of operations related to decreases in the

fair value of the warrants outstanding at the end of the respective periods.

Income Tax (Expense) Benefit

We had an income tax benefit

of $4.2 million for the three months ended June 30, 2022 compared to an income tax benefit of $1.2 million for the three months ended

June 30, 2021.

The income tax benefit in the second quarter of 2022 was primarily the result of the Company having a net loss before income

taxes of $12.6 million.

Noncontrolling Interest

The Company calculates net

income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

attributed to noncontrolling interests was $0.1 million in the second quarter of 2022 while net loss attributed to noncontrolling interests

was negligible for the three months ended June 30, 2021.

Operating Results for the Six Months Ended

June 30, 2022 and 2021

The following table sets forth

for the periods indicated, our results of operations and the percentage of total revenue represented in our statements of operations:

Six Months Ended June 30,

Revenues, net

Cost of revenues

Operating expenses:

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating income (loss)

Other income (expense):

Interest expense

Other expense, net

Change in fair value – warrant liabilities

Tax receivable agreement expense

Total other income, net

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

1 unchanged sentence

Net income (loss) attributable to Purple Innovation, Inc.

Net revenues decreased $43.3 million, or 23.2%, to $143.2 million for

the three months ended March 31, 2022 compared to $186.4 million for the three months ended March 31, 2021.

The decline in net revenues

reflected a $37.6 million decrease in mattress sales, a $5.3 million decrease in other sleep product sales and a $0.4 million decrease

in other product sales.

The decrease in mattress sales was primarily due to higher net revenues in the prior year created by the pull

forward of demand driven by the effects of COVID and economic stimulus in the first quarter of 2021, coupled with the pullback in discretionary

consumer spending in early 2022.

The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing

$39.4 million, or 31.5% and wholesale net revenues decreasing $3.9 million, or 6.3%.

Within DTC, e-commerce net revenues decreased $46.3

million, or 38.6%, and were partially offset by Purple retail showroom net revenues growing $7.0 million, or 138.2%.

The larger-than-expected

decrease in e-commerce net revenues was primarily due to a return to more normalized consumption patterns after two years of COVID-driven

demand coupled with customers shifting back to brick and mortar buying.

Wholesale net revenues comprised 40.3% of net revenues in the

first quarter of 2022 compared to 33.0% in the first quarter of 2021.

The higher proportion of wholesale net revenues was primarily due

to the impact of lower-than-expected e-commerce sales.

The growth in our showroom business from 2.7% of net revenues in the first quarter

of 2021 to 8.4% in the first quarter of 2022 resulted primarily from the opening of 25 new showrooms over the past 12 months combined

with the impact of a lower-than-expected decrease in e-commerce sales.

Revenues, Net

Net revenues decreased $81.7

million, or 22.1%, to $287.3 million for the six months ended June 30, 2022 compared to $369.0 million for the six months ended June 30,

The decline in net revenues reflected a $69.8 million decrease in mattress sales, an $8.0 million decrease in other sleep product

sales and a $3.9 million decrease in other product sales.

The decrease in net revenues for all three product types was primarily due to

softening demand for home related products, inflationary pressures on consumer discretionary spending, management’s decision to

reduce advertising spend, and the prior year pull forward of demand driven by the effects of COVID and economic stimulus in the first

half of 2021.

The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $74.0 million, or

30.7% and wholesale net revenues decreasing $7.8 million, or 6.1%.

In addition to the factors discussed above, the decrease in DTC net

revenues was impacted by a return to more normalized consumption patterns after two years of COVID-driven demand coupled with customers

shifting back to brick and mortar buying.

The decrease in wholesale net revenues reflected reduced purchases by our existing wholesale

partners during the first six months of 2022, offset in part by the impact of adding approximately 700 net new wholesale partner doors

during the same time frame.

Cost of Revenues

Cost of revenues decreased $13.0 million, or 6.5%, to $186.9 million

for the three months ended March 31, 2022 compared to $98.9 million for the three months ended March 31, 2021.

This decrease, which was

primarily due to the corresponding decrease in sales volume, reflected a $17.4 million decrease in direct material and other costs offset

in part by a $10.1 million increase in labor and overhead costs.

Our gross profit percentage, which decreased to 36.1% of net revenues

in the first quarter of 2022 from 46.9% in the first quarter of 2021, was adversely impacted by the elevated level of our labor and overhead

costs coupled with a larger than expected reduction in higher margin e-commerce sales.

We expect gross margins to improve in the near

term based on the full effect of first quarter price increases, the impact of recent reductions in our production workforce and the continued

implementation of manufacturing and supply chain efficiencies.

Marketing and sales expense decreased $4.4 million, or 8.1%, to $50.0

million for the three months ended March 31, 2022 compared to $54.4 million for the three months ended March 31, 2021.

This decrease reflected

a $15.6 million decline in advertising spending as management focused on improving marketing efficiency.

This decrease was offset in part

by a $5.0 million increase in wholesale marketing and sales costs related to enhancements in our wholesale marketing operations, a $4.8

million increase in showroom-related marketing associated with our continued showroom expansion, and a $1.4 million increase in other

marketing costs.

Marketing and sales expense as a percentage of net revenues was 34.9% in the first quarter of 2022 compared to 29.2%

in the first quarter of 2021.

This increase was primarily due to a larger-than-expected decrease in net revenues.

and Administrative

for the six months ended June 30, 2022 compared to $199.9 million for the six months ended June 30, 2021.

This decrease was primarily

due to the corresponding decrease in sales volume, offset in part by an increase in materials, freight overhead costs.

Our gross profit

percentage, which decreased to 35.0% of net revenues during the first six months of 2022 from 45.9% for the first six months of 2021,

was adversely impacted by lower sales with an increased proportion of wholesale channel revenue which carries a lower average selling

price than sales from our DTC channel and unfavorable cost absorption from lower than planned production volumes in prior months.

Additionally,

our gross profit percentage reflects the impact of elevated levels of materials, labor and overhead costs, partially offset by benefits

realized from our workforce restructuring.

Marketing and Sales

Marketing and sales expense

decreased $23.9 million, or 20.9%, to $90.3 million for the six months ended June 30, 2022 compared to $114.2 million for the six months

ended June 30, 2021.

This decrease reflected a $39.7 million decline in advertising spending and a $1.3 million decrease in other marketing

costs due in part to workforce reductions.

The intentional reduction in advertising spending was due to management’s efforts to

improve marketing efficiency and stabilize profitability in a challenging macroeconomic environment.

These decreases were offset in part

by a $7.0 million increase in wholesale-related marketing and sales costs as we continue to focus on improving the sales productivity

of our wholesale doors and a $10.1 million increase in marketing and sales costs associated with our continued showroom expansion.

and sales expense as a percentage of net revenues was 31.4% during the first six months of 2022 compared to 31.0% for the first six months

General and Administrative

expense increased $3.4 million, or 23.1%, to $17.9 million for the three months ended March 31, 2022 compared to $14.5 million for the

three months ended March 31, 2021.

This increase was primarily due to a $2.1 million increase in payroll costs related to workforce

additions since the end of the prior year first quarter, a $0.7 million increase in legal and professional fees associated primarily

with executive search costs, and a $0.5 million increase in other expenses.

and Development

and development costs increased $0.4 million, or 24.4%, to $2.1 million for the three months ended March 31, 2022 from $1.7 million for

the three months ended March 31, 2021.

This increase was primarily due to an increase in payroll costs related to planned increases in

our research and development workforce.

Income (Loss)

income (loss) decreased $35.3 million to an operating loss of $18.4 million for the three months ended March 31, 2022 compared to operating

income of $16.9 million for the three months ended March 31, 2021.

This decrease was primarily due to the decrease in gross profit.

General and administrative expense decreased to $36.7 million for the

six months ended June 30, 2022 compared to $37.0 million for the six months ended June 30, 2021.

This decrease was primarily due to a

$4.6 million decrease in legal and professional fees, offset in part by a $3.6 million increase in payroll costs related to

planned increases in general and administrative personnel over the past twelve months and a $0.7 million increase in other expenses.

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 Capital Partners.

This decrease was partially offset by a one-time $3.1 million

separation fee incurred by the Company during the second quarter of 2022 for not continuing with the services of a professional services provider.

Research and Development

Research and development costs

increased $0.2 million, or 6.7%, to $3.9 million for the six months ended June 30, 2022 from $3.6 million for the six months ended June

This increase was primarily due to an increase in payroll costs related to planned increases in our research and development

workforce including the addition of a chief innovation officer, offset in part by a decrease in professional services costs as product

development priorities were being refocused.

Operating Income (Loss)

Operating income decreased

$44.8 million to an operating loss of $30.5 million for the six months ended June 30, 2022 compared to operating income of $14.4 million

for the six months ended June 30, 2021.

This decrease was primarily due to the decrease in gross profit, offset in part by lower operating

Interest Expense

Interest expense totaled $1.7

million for the three months ended March 31, 2022 compared to $0.6 million for the three months ended March 31, 2021.

The $0.5 million

increase was primarily due to interest expense of $0.6 million incurred on the $55.0 million revolving line of credit that was drawn down

by the Company in November 2021.

This increase was offset in part by $0.2 million of interest capitalized during the first quarter of

in Fair Value – Warrant Liabilities

There were 12.8 million sponsor warrants issued pursuant to a private

placement conducted simultaneously with the Company’s initial public offering.

We have accounted for these warrants as liabilities

and recorded them at fair value on the date of the transaction and subsequently re-measured them to fair value at each reporting date

with changes in fair value included in earnings.

The 1.9 million sponsor warrants outstanding at both March 31, 2022 and 2021 had fair

values of $0.4 million and $19.4 million, respectively.

The decrease in fair value was primarily due to the Company’s Class A stock

price, one of the primary assumptions used to re-measure the warrant liability, declining from $31.65 at March 31, 2021 to $5.85 at March

During the three months ended March 31, 2022 and 2021, we recognized gains of $3.9 million and $9.1 million, respectively, in

our condensed consolidated statements of operations related to decreases in the fair value of the warrants outstanding at the end of the

respective periods.

Tax (Expense) Benefit

had an income tax benefit of $1.8 million for the three months ended March 31, 2022 compared to income tax expense of $4.7 million for

the three months ended March 31, 2021.

The income tax benefit in the first quarter of 2022 was primarily the result of the Company having

a net loss before income taxes of $15.4 million for the three months ended March 31, 2022.

Noncontrolling

Company calculates net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership

Net loss attributed to noncontrolling interests was $0.1 million in the first quarter of 2022 compared to net income of $0.1

million in the first quarter of 2021.

and Capital Resources

million for the six months ended June 30, 2022 compared to $1.1 million for the six months ended June 30, 2021.

The $0.6 million increase

was primarily due to interest expense of $0.6 million incurred on the $55.0 million revolving line of credit that was drawn down by the

Company in November 2021 and repaid in full on March 31, 2022.

The increase was also impacted by the term loan average interest rate increasing

from 3.50% during the first six months of 2021 to 5.10% during the first six months of 2022.

In February 2022, the Company entered into

the first amendment to the 2020 Credit Agreement which, among other things, changed the reference interest rate from LIBOR to SOFR and

increased the applicable margins.

The impact of these increases was offset in part by $0.4 million of interest capitalized during the

first six months of 2022.

There was no interest capitalized during the six months ended June 30, 2021.

Change in Fair Value – Warrant Liabilities

The 1.9 million sponsor warrants

outstanding at both June 30, 2022 and 2021 had fair values of $0.1 million and $14.5 million, respectively.

The decrease in fair value

was primarily due to the Company’s Class A stock price, one of the primary assumptions used to re-measure the warrant liability,

declining from $26.41 at June 30, 2021 to $3.06 at June 30, 2022.

During the six months ended June 30, 2022 and 2021, we recognized gains

of $4.3 million and $14.0 million, respectively, in our condensed consolidated statements of operations related to decreases in the fair

value of the warrants outstanding at the end of the respective periods.

Income Tax (Expense) Benefit

We had an income tax benefit

of $6.0 million for the six months ended June 30, 2022 compared to income tax expense of $3.5 million for the six months ended June 30,

The income tax benefit in the first six months of 2022 was primarily the result of the Company having a net loss before income taxes

of $28.0 million.

Noncontrolling Interest

The Company calculates 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 for the six months ended June 30, 2022 compared to net income of $0.1 million for the six months ended June

Liquidity and Capital Resources

principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant

to our credit facilities and proceeds received from secondary offerings of our equity capital.

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.

Our cash and working capital positions were $62.7 million

and $98.9 million, respectively, as of March 31, 2022 compared to $91.6 million and $87.5 million, respectively, as of December 31, 2021.

Cash used for capital expenditures increased from $12.4 million in the first quarter of 2021 to $13.1 million in the first quarter of

Our capital expenditures in the first quarter of 2022 primarily consisted of leasehold improvements and furniture and fixtures associated

with the opening of new Purple retail showrooms during the first quarter of 2022.

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, use the liquidity we have available under our revolving line of credit and

postpone or discontinue our growth strategies.

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.

In addition, we may be forced to restructure our obligations to current creditors, pursue work-out options or seek additional funding

sources including new debt or equity capital.

Our ability to obtain additional debt or alternative capital on acceptable terms or at all

is subject to a variety of uncertainties, including instability in the credit and financial markets resulting from macroeconomic factors

and approval from the lenders under the 2020 Credit Agreement.

Adequate financing may not be available or, if offered, may only be available

on unfavorable terms.

The restrictive covenants in the 2020 Credit Agreement, as amended, may make it difficult to obtain additional capital

on terms that are favorable to us and to execute on our growth strategies, including the acquisition of other businesses or technologies.

There is no assurance we would be able to obtain the capital we could potentially require.

As a result, there can be no assurance that

we will be able to fund our future operations or growth strategies.

In addition, future equity or debt financings may require us to also

issue warrants or other equity securities that are likely to be dilutive to our existing stockholders.

Newly issued securities may include

preferences or superior voting rights or, as described above, may be combined with the issuance of warrants or other derivative securities,

which each may have additional dilutive effects.

Furthermore, we may incur substantial costs in pursuing future capital and financing,

including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.

We may also be required

to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will

adversely impact our financial condition.

If we cannot raise additional funds on favorable terms or at all, we may not be able to carry

out all or parts of our long-term growth strategy, maintain our growth and competitiveness or continue in business.

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 e-commerce, wholesale, and Purple retail store channels will be sufficient to cover our working capital requirements

and anticipated capital expenditures for the next 12 months.

to our credit facilities and proceeds received from offerings of our equity capital.

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

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.

Our cash and working capital positions were $41.2 million and $80.1 million,

respectively, as of June 30, 2022 compared to $91.6 million and $87.5 million, respectively, as of December 31, 2021.

Cash used for capital

expenditures decreased from $26.4 million in the first six months of 2021 to $26.1 million during the first six months of 2022.

expenditures in the first six months of 2022 primarily consisted of leasehold improvements and furniture and fixtures associated with

the opening of new Purple retail showrooms.

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 comply with debt covenants based on our ability to scale back operations, reduce marketing spend, use the liquidity we have

available under our revolving line of credit and postpone or discontinue our growth strategies.

Our 2020 Credit Agreement, as amended,

includes various covenants and obligations that may make it difficult to obtain additional capital on terms that are favorable to us and

to execute on our growth strategies.

In addition, in order to continue satisfying the conditions of the debt agreement we may be required

to scale back operations, reduce marketing spend, prepay debt and postpone or discontinue our growth strategies.

We may also be forced

to restructure our obligations to current creditors, pursue work-out options or seek additional funding sources including new debt or

equity capital .

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 e-commerce, wholesale, and Purple retail store 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.

Underwritten Offering

In March 2022, the Company

completed a secondary offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares

of the over-allotment option that the underwriters exercised in full.

The underwriter purchased the Class A common stock from the Company

at a price of $5.65 per share, except that any shares sold by the underwriter to Coliseum Capital Partners, L.P.

and Blackwell Partners

LLC – Series A, up to an aggregate of 29.81% of the shares of Class A common stock pursuant to the offering, were purchased from

the Company by the underwriter at a price of $6.10 per share.

The aggregate gross proceeds received by the Company from the secondary

offering, including the exercise of the over-allotment, was $93.1 million.

After deducting offering expenses of $0.2 million, aggregate

net proceeds totaled $92.9 million.

September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million

revolving line of credit.

The term loan will be repaid in accordance with a five-year amortization schedule and may be prepaid in whole

or in part at any time without premium or penalty, subject to reimbursement of certain costs.

The revolving credit facility has a term

of five years and carries the same interest provisions as the term debt.

A commitment fee is due quarterly based on the applicable margin

applied to the unused total revolving commitment.

In November 2021, the Company executed a $55.0 million draw on its revolving line of

credit, which represented the full amount available under the line.

The initial borrowing rate of 3.50% for both the term loan and revolving

line of credit was based on LIBOR plus 3.00%.

Company’s operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance

covenants required under the 2020 Credit Agreement.

On February 28, 2022, prior to the covenant compliance certification date, the Company

entered into the first amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default.

This amendment

contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be tested for the fiscal

quarters ended December 31, 2021, March 31, 2022 and June 30, 2022.

Other modifications in the amendment included revised leverage

ratio and fixed charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments

of the revolving loan if cash exceeded $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital

expenditures, the addition of a lease incurrence test for opening additional showrooms, and additional negative covenants during a covenant

amendment period that extends into 2023 until certain conditions are met.

In addition, the interest rate on any outstanding borrowings

under the 2020 Credit Agreement was changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial

rate of SOFR with a floor of 0.5% plus 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met.

not met, then the interest rate goes to SOFR with a floor of 0.5% plus 9.00%.

Once the consolidated leverage ratio goes below 3.00 to

1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage

to the first amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.8 million that were recorded as debt

issuance costs in the condensed consolidated balance sheet and made a $2.5 million payment on the term loan to cover the four quarterly

principal payments due in 2022.

The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470

completed an underwritten public offering of 16.1 million shares of Class A common stock, which included the additional 2.1

million shares of the over-allotment option that the underwriters exercised in full.

The aggregate net proceeds received by the Company

from the offering, after deducting offering expenses of $0.3 million, totaled $92.9 million.

On September 3, 2020, Purple

LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit.

term loan is being repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part at any time without

premium or penalty, subject to reimbursement of certain costs.

The revolving credit facility has a term of five years and carries the

same interest provisions as the term debt.

A commitment fee is due quarterly based on the applicable margin applied to the unused total

revolving commitment.

In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the

full amount available under the line.

On March 31, 2022, the Company used a portion of the net proceeds from the offering to repay in

full the $55.0 million of principal outstanding on the revolving line of credit.

The Company’s operating

and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under

the 2020 Credit Agreement.

On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first

amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default.

This amendment contained a covenant

waiver period such that the net leverage ratio and fixed charge coverage ratio would not be tested for the fiscal quarters ended December 31,

2021, March 31, 2022 and June 30, 2022.

Other modifications in the amendment included revised leverage ratio and fixed charge coverage

definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded

$25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease

incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into

2023 until certain conditions are met.

In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was

changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5%

plus 4.75%, for a total rate of 5.25% if the applicable liquidity threshold is met.

If the Company does not meet this threshold, the interest

rate would increase to SOFR with a floor of 0.5% plus 9.00%.

Once the Company achieves a consolidated leverage ratio that is below 3.00

to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage

The interest rate on the term loan was 6.07% as of June 30, 2022.

Pursuant to the first amendment of the 2020 Credit Agreement, the Company

incurred fees and expenses of $0.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet and made

a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022.

The Company accounted for this amendment

as a modification of existing debt in accordance with ASC 470 – Debt .

March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement.

2 unchanged sentences

Company entitled to vote for the election of members of the Company’s board of directors without constituting an event of default.

CCM is considered a related party of the Company in that Adam Gray, a member of the board of directors, serves as a managing partner

to the second amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt

issuance costs in the condensed consolidated balance sheet.

The Company accounted for this amendment as a modification of existing debt

in accordance with ASC 470 – Debt .

March 31, 2022, the Company used a portion of the net proceeds from the secondary offering to repay in full the $55.0 million of principal

outstanding on the revolving line of credit.

Receivable Agreement

are required to make certain payments to InnoHold under the tax receivable agreement, which may have a material adverse effect on our

liquidity and capital resources.

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 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 agreement.

As of March 31, 2022 and December 31, 2021, the tax receivable agreement

liability reflected in the Company’s consolidated balance sheet was $162.2 million and $168.1 million, respectively.

This decrease

was due to a $5.8 million payment that was made during the first quarter of 2022.

Contractual Obligations

addition to the material contractual obligations discussed above, other material contractual obligations primarily include operating

lease payments obligations.

CCM is considered a related party of the Company in that Adam Gray, a member of our board of directors, serves as a managing partner of

Pursuant to the second amendment

of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the

condensed consolidated balance sheet.

The Company accounted for this amendment as a modification of existing debt in accordance with ASC

Tax Receivable Agreement

We are required to make certain

payments to InnoHold under a tax receivable agreement, which may have a material adverse effect on our liquidity and capital resources.

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 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 agreement.

As of June 30, 2022 and December 31, 2021, the tax receivable agreement liability reflected in the Company’s

consolidated balance sheet was $162.2 million and $168.1 million, respectively.

This decrease was due to a $5.8 million payment that was

made during the first quarter of 2022.

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 condensed consolidated financial statements for additional information.

Flows for the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

following summarizes our cash flows for the three months ended March 31, 2022 and 2021 as reported in our condensed consolidated statements

of cash flows (in thousands):

Net cash used in operating activities

Cash Flows for the Six Months Ended June 30,

2022 Compared to the Six Months Ended June 30, 2021

The following summarizes our

cash flows for the six months ended June 30, 2022 and 2021 as reported in our condensed consolidated statements of cash flows (in

Six Months Ended

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by

financing activities

Net cash provided by financing activities

Net decrease in cash

2 unchanged sentences

Cash used in operating activities

totaled $44.3 million for the three months ended March 31, 2022 compared to $9.4 million for the three months ended March 31, 2021.

decrease in cash flows from operations primarily resulted from a $29.6 million decrease in cash provided by operating income which was

mainly driven by a decline in gross margin.

The decrease in cash provided by operations was further impacted by a $7.3 million decrease

in operating cash flows related to net changes in period-over-period fluctuations related to working capital items, offset in part by

an increase in cash associated with changes in period-over-period fluctuations in other long-term liabilities.

used in investing activities reflected capital expenditures of $13.1 million for the three months ended March 31, 2022 compared to $12.4

million for the three months ended March 31, 2021.

Capital expenditures in the first quarter of 2022 primarily consisted of investments

in leasehold improvements and furniture and fixtures related to the opening of new Purple retail showrooms during the first quarter of

of $52.8 million for the six months ended June 30, 2022 primarily resulted from a $22.0 million net loss combined with a $30.1 million

decrease in operating cash flow related to net changes of operating assets and liabilities.

These decreases related mostly to a $6.1 million

increase in accounts receivable and a $37.0 million decrease in accounts payable, offset in part by a $13.8 million decrease in inventories.

The increase in accounts receivable was primarily due to the timing of wholesale partner payments.

The decline in accounts payable was

mainly due to the balance at prior year-end being higher than normal because of payment timing coupled with the impact of larger advertising

spend in the fourth quarter of 2021.

The decrease in inventory was primarily due to management’s efforts to rebalance production

and fulfillment operations during the first half of 2022.

Cash used in investing activities

reflected capital expenditures of $26.1 million during the six months ended June 30, 2022 compared to $26.4 million for the six months

ended June 30, 2021.

Capital expenditures during the first six months of 2022 primarily consisted of investments in leasehold improvements

and furniture and fixtures related to the opening of new Purple retail showrooms.

Cash provided by financing

activities was $28.4 million during the three months ended March 31, 2022 compared to $2.6 million during the three months ended March

Financing activities in the first quarter of 2022 included $92.9 million of net proceeds received from the secondary stock offering,

activities was $28.4 million during the six months ended June 30, 2022 compared to $2.1 million during the six months ended June 30, 2021.

Financing activities during the first six months of 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 $5.8 million payment on the tax receivable agreement, and $3.8 million

in other debt related payments.

Accounting Policies

Critical Accounting Policies

discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and

2 unchanged sentences

accounting policies since the end of fiscal 2021.

Off-Balance-Sheet

of March 31, 2022, we were not involved in any unconsolidated special purpose entity transactions and did not have any off-balance-sheet

Also, there was no balance outstanding on our $55.0 million revolving credit facility as of March 31, 2022.

and Cyclicality

believe that sales of our products are typically subject to seasonality corresponding to different periods of the consumer spending cycle,

holidays and other seasonal factors.

Our sales may also vary with the performance of the broader economy consistent with the market.

website address is www.purple.com.

We make available free of charge on the Investor Relations portion of our website, investors.purple.com,

our annual report on Form 10-K/A, 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 SEC.

also use the Investor Relations portion of our website, investors.purple.com, as a channel of distribution of additional Company 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.

Available Information

Our website address is www.purple.com.

We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report 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 SEC.

We also use the Investor Relations

portion of our website, investors.purple.com, as a channel of distribution of additional Company 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis