What changed in this filing

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Item 1A. Risk Factors

2022-08-09 compared with 2022-05-10 · 206 added, 3 removed, 29 unchanged (88% of the section changed)

RISK FACTORS to be updated

as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K

filed with the SEC on March 1, 2022.The disclosure of risks identified below does not imply that the risk has not already materialized.

as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed

with the SEC on March 1, 2022.The disclosure of risks identified below does not imply that the risk has not already materialized.

Changes in economic

conditions, including inflationary trends in the price of our input costs, such as raw materials and labor, and impacts on our consumers,

could adversely affect our business and financial results.

bedding industry is subject to volatility in the price of petroleum-based and steel products, which affects the cost of certain raw materials.

The price and availability of these raw materials are subject to market conditions affecting supply and demand.

Given the significance

of the cost of these materials to our products, volatility in the prices of the underlying commodities can significantly affect profitability.

have experienced and may continue to experience, volatility and increases in the price of certain of these raw materials as a result of

a global market and supply chain disruptions, continuing impacts of the COVID-19 pandemic, and the broader inflationary environment.

In addition, persistent inflation has and may continue to erode consumer

discretionary spending.

Reductions in consumer discretionary spending have and we anticipate will continue to adversely affect demand

for our products.

We may not be able

to successfully anticipate consumer trends and demand and our failure to do so may lead to loss of consumer acceptance of the products

we sell, resulting in reduced net sales.

success depends in part on our ability to anticipate and respond to changing trends and consumer demands in a timely manner.

consumers’ tastes and trends and the resulting change in our product mix, as well as failure to offer our consumers multiple avenues

for purchasing our products, could adversely affect our business and operating results.

For example, as retail stores began to reopen

following the elimination or easing of restrictions in connection with the COVID-19 pandemic, consumers began to shift away from online

retail purchases towards brick-and-mortar shopping.

Our gross margins for sales through wholesale customers are lower than those in our

DTC channel and, as a result, this shift in customer preference has and we anticipate will continue to adversely impact our gross margins.

general macroeconomic conditions, including persistent inflation, has and may continue to adversely affect consumer demand for our products,

which are generally priced at a premium.

Any reductions in consumer demand for our products has and may continue to adversely affect our

sales and financial position.

If we fail to identify and respond to emerging trends, consumer acceptance

of the products we manufacture and sell and our image with current or potential customers may be harmed, which could reduce our net sales.

If we misjudge market trends, we may significantly overstock inventory and be forced to take significant inventory markdowns, which would

have a negative impact on our gross profit and cash flow.

Conversely, shortages of inventory or time to fulfillment of our products that

prove popular could also reduce our sales.

The previous growth of our business placed

significant strain on our resources and if we are unable to manage future growth, we may not have profitable operations or sufficient

capital resources.

Historically,

we have expanded our operations, including expanding our workforce, increasing our product offerings and scaling our infrastructure to

support expansion of our manufacturing capacity, our wholesale channel expansion and the opening of Purple retail showrooms.

growth includes increasing our manufacturing efficiencies, developing and introducing new products and developing new and broader distribution

channels, including wholesale and Purple retail showrooms, and extending our global reach to other countries.

This expansion increases

the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance,

financial resources, and internal financial control and reporting functions.

continued success depends, in part, upon our ability to manage and expand our operations and facilities and production capacity.

in our operations has placed, and may continue to place, significant demands on our management and operational and financial infrastructure.

If we do not manage growth effectively, the quality of our products and fulfillment capabilities may suffer which could adversely affect

our operating results.

Our revenue growth may not be sustainable, and our percentage growth rates may decrease.

If we are unable to satisfy

our liquidity and capital resource requirements, we may have to scale back, postpone or discontinue our growth strategies, which could

result in slower growth, no growth, or shrinking, 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 our employees.

In addition, we may be forced to restructure our obligations to creditors

or pursue work-out options.

growth depends in part on our ability to manage the opening and operating of new production facilities and Purple retail showrooms, which

will require our entering into leases and other obligations.

To be successful, we will need to continue developing retail expertise and

we will need to hire new employees in states that may have employment laws that could increase our expenses.

In general, operating new

facilities and opening Purple retail showrooms in new locations exposes us to laws in other states, including California, that may not

be as employer-friendly as those in which we currently operate, and may expose us to new liabilities.

If we are not able to successfully

manage the process of expanding operations geographically, opening Purple retail showrooms and maintaining operations in an expanding

number of facilities and Purple retail showrooms, we may have to close Purple retail showrooms or operations facilities and incur sunk

costs and continuing obligations that could put a strain upon our resources, damage our brand and reputation and limit our growth.

manage growth effectively, we would need to continue to implement operational, financial and management controls and reporting systems

and procedures and improve the systems and procedures that are currently in place.

There is no assurance that we will be able to fulfill

our staffing requirements for our business, successfully train and assimilate new employees, or expand our management base and enhance

our operating and financial systems.

Failure to achieve any of these goals will prevent us from managing our growth in an effective manner

and could have a material adverse effect on our business, financial condition or results of operations.

In addition, a softening of demand,

whether caused by changes in customer preferences or a weakening of the U.S.

or global economies, may result and has resulted in decreased

revenue or growth.

For example, we are experiencing weaker demand in part as a result of current inflationary trends.

Further, we may

not be able to accurately forecast our growth rate.

We base our expense levels and investment plans on sales estimates.

A significant

portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than

have identified the need for improved processes and procedures to avoid delays in the timely delivery of our mattress products and to

improve the customer’s experience.

Also, we have experienced rapid growth in our employee base, and the need to implement processes

and procedures for improving employee training and retention.

Competition for employees where our production facilities are located also

has increased the costs for employee retention.

We have implemented improved processes and procedures in an environment of continuous

change, but our use of resources may not be as effective as intended or we may need to apply more resources than expected to continue

to make changes to improve our employee retention and effectiveness and the quality of our products and services over time.

unable to make continuous improvement, achieve greater efficiencies in our operating expenses and improve our products and services, our

business could be adversely affected.

Our expansion into new products, market

segments and geographic regions subjects us to additional business, legal, financial, and competitive risks.

majority of our sales are made directly to consumers through our DTC channels.

We have been expanding our business into the wholesale

distribution channel through relationships with our wholesale partners but there can be no assurance that we will continue to experience

success with our wholesale partners or that anticipated new locations will be successful.

may be unsuccessful in generating additional sales through wholesale channels.

We may extend credit terms in connection with such relationships

and such relationships may expose us to the risk of unpaid or late paid invoices.

In addition, we may provide fixtures to such partners

that may be difficult to recover or re-use.

Our wholesale customers may not purchase our products in the volume we expect.

Profitability,

if any, from sales to wholesale customers and new product offerings may be lower than from our DTC model and current products,

and we may not be successful enough in these newer activities to recoup our investments in them.

If any of these issues were to arise,

they could damage our reputation, limit our growth, and negatively affect our operating results.

may be unsuccessful in opening any Purple retail showrooms beyond those already opened in cities across the U.S.

Operating Purple retail

showrooms includes additional risks.

For example, we will incur expenses and accept obligations related to additional leases, insurance,

distribution and delivery challenges, increased employee management, and new marketing challenges.

If we are not successful in our efforts

to profitably operate these new stores, our reputation and brand could be damaged, growth could be limited, and our business may be harmed.

addition, offerings of new products through our e-commerce, wholesale distribution channel and Purple retail showrooms may present

new and difficult challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures

or other quality issues.

Expansion of sales channels may require the development of additional, differentiated products to avoid price

and distribution conflicts between and within sales channels.

Wholesale expansion increases our risk as our wholesale partners will require

delaying payments to us on net terms ranging from a few days to 60 or more days, or they may delay paying us beyond the agreed-upon net

terms or fail to pay.

Our Company showroom expansion increases our risk for inventory shrinkage from destruction, theft, obsolescence

and other factors that render such inventory unusable or unsellable.

products may come with unknown warranty and return risks.

New product offerings or expansion into new market channels or geographic regions

may subject us to new or additional regulation, which would impose potentially significant compliance and distribution costs.

Our future growth and profitability depend

upon the strength of our Purple brand and the effectiveness and efficiency of our marketing programs and our ability to attract and retain

are highly dependent on the effectiveness of our marketing messages and the efficiency of our advertising expenditures in generating consumer

awareness and sales of our products.

We continue to evolve our marketing strategies, adjusting our messages, the amount we spend on advertising

and where we spend it.

We may not always be successful in developing effective messages and new marketing channels, as consumer preferences

and competition change, and in achieving efficiency in our advertising expenditures.

depend heavily on internet-based advertising to market our products through internet-based media and e-commerce platforms.

If we are unable

to continue utilizing such platforms, if those media and platforms diminish in efficacy, importance or size, if consumer usage of the

platform decreases, or if we are unable to direct our advertising to our target consumer groups, our advertising efforts may be ineffective,

and our business could be adversely affected.

The costs of advertising through these platforms have increased significantly, which has

resulted in decreased efficiency in the use of our advertising expenditures, and we expect these costs may continue to increase in the

have relationships with traditional and digital media partners, online services, search engines, affiliate marketing websites, directories

and other website and e-commerce businesses to provide content, advertising and other links that direct customers to our website.

We rely on these relationships as significant sources of traffic to our website and to generate new customers.

If we are unable to develop

or maintain these relationships or develop and maintain new relationships for newly developed and necessary marketing services on acceptable

terms, our ability to attract new customers and our financial condition would suffer.

In addition, current or future relationships or

agreements may fail to produce the sales that we anticipate.

The cost of advertising for web-based platforms, such as Facebook,

are increasing.

Increasing advertising costs erode the efficiency of our advertising efforts.

If we are unable to effectively manage our

advertising costs or if our advertising efforts fail to produce the sales that we anticipate, our business could be adversely affected.

October 20, 2020, the United States Department of Justice brought an antitrust lawsuit against Google claiming that Google improperly

uses its monopoly over Internet search to impede competition and harm consumers.

Our cost of advertising on Google may remain high if

Google’s monopoly over internet searches is not prevented and competitive search engines are not allowed to compete.

Alternatively,

if Google is required because of this lawsuit to split up the company or sell assets, there is no assurance this will decrease advertising

costs and it may lead to increased costs due to an increased number of service providers who obtain oligopoly power to control advertising

costs or inefficiencies from a reduction in scale.

Although this lawsuit may lower our advertising costs, there is risk that it may not

and would lead to increased costs which would reduce our profitability and harm our business.

are increasingly using digital tools as a part of their shopping experience.

As a result, our future growth and profitability will depend

in part on (i) the effectiveness and efficiency of our online experience for disparate worldwide audiences, including advertising

and search optimization programs in generating consumer awareness and sales of our products, (ii) our ability to prevent confusion

among consumers that can result from search engines that allow competitors to use or bid on our trademarks to direct consumers to competitors’

websites, (iii) our ability to prevent internet publication or television broadcast of false or misleading information regarding

our products or our competitors’ products, (iv) the nature and tone of consumer sentiment published on various social media

sites, and (v) the stability of our website.

In recent years, a number of direct to consumer, internet-based retailers,

like us, have emerged and have driven up the cost of basic search terms, which has and may continue to increase the cost of our internet-based

marketing programs.

More recently, the large traditional mattress manufacturers have been increasing their efforts to increase their direct

to consumer sales which also is increasing the cost of our internet-based marketing programs and cost of customer conversion.

the past, we have been the target of publications by purported consumer reviewers who claim to have identified health and safety concerns

with our products.

While we believe such claims to be baseless, refuting such claims requires us to expend significant resources to educate

current and potential customers on the safety of our products.

Even if we are able to broadly disseminate factual information to refute

such claims and reinforce the safety of our products, such claims and attendant adverse publicity could persist and damage our reputation

and brand value and result in lower sales.

number of third-party review websites is increasing and customers have many platforms on which they can review our products, and such

reviews are becoming increasingly influential with consumers.

Negative reviews from such sources may receive widespread attention from

consumers, which could damage our reputation and brand value and result in lower sales.

If we are unable to effectively manage relationships

with such reviewers to promote accurate reviews of our products, reviewers may decline to review our products or may post reviews with

misleading information, which could damage our reputation and make it more difficult for us to improve our brand value.

our marketing messages are ineffective or our advertising expenditures, geographic price-points, and other marketing programs, including

digital programs, are inefficient in creating awareness and consideration of our products and brand name and in driving consumer traffic

to our website, our sales, profitability, cash flows and financial condition may be adversely impacted.

In addition, if we are not effective

in preventing the publication of confusing, false or misleading information regarding our brand or our products, or if there arises significant

negative consumer sentiment on social media regarding our brand or our products, our sales, profitability, cash flows and financial condition

may be adversely impacted.

We are required to make certain prepayments

28 unchanged sentences

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 1A. Risk Factors