What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 483 added, 348 removed, 217 unchanged (79% of the section changed)

3 unchanged sentences

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.

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.

Financial Statements.”

2 unchanged sentences

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.

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

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,”

33 unchanged sentences

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.

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 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%

Inc., its controlled subsidiary, Purple LLC, and its wholly owned subsidiary, Intellibed.

was incorporated in Delaware on

May 19, 2015 as a special purpose acquisition company under the name of GPAC.

On February 2, 2018, Purple

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 September 30, 2022, Purple Inc.

had a 99.5% economic interest in Purple LLC while other Class B Unit

holders had the remaining 0.5%.

On August 31, 2022, the Company

acquired all of the issued and outstanding stock of Intellibed with the surviving entity continuing as a wholly owned subsidiary of Purple

For further discussion see Recent Developments in Our Business — Acquisition below.

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.

Net revenues decreased 16.1% to $143.3 million and 20.2% to $430.6

million for the three and nine months ended September 30, 2022, respectively, when compared to the corresponding periods in the prior

These decreases were primarily due to softening demand for home related products and the negative effect of inflationary pressures

on consumer discretionary spending.

Gross profit was $59.4 million for the three months ended September

30, 2022 compared to $61.1 million for the same period in the prior year.

The gross profit percentage improved in the third quarter of

2022 to 41.5% as compared to 35.8% in the prior year third quarter.

The increase in our gross profit percentage was primarily due to efficiency

and cost reduction initiatives implemented in the first half of fiscal 2022 offset in part by a shift in revenue to our wholesale channel,

which carries a lower average selling price than sales from our e-commerce and retail showroom channels.

For the nine months ended September

30, 2022, gross profit decreased 30.6% to $159.9 million as compared to the prior year nine-month period due in part to the decrease in

sales volume.

The gross profit percentage for the first nine months of 2022 was 37.1% as compared to 42.7% for the prior year nine-month

Our gross profit percentage was adversely impacted by elevated levels of materials, labor and freight costs, lower-than-expected

demand levels and a shift in revenue to our wholesale channel.

The benefits from our efficiency and cost reduction initiatives did not

become fully impactful until the third quarter.

Operating expenses decreased 14.1% to $58.1 million and 15.1% to $189.0

million for the three and nine months ended September 30, 2022, respectively, when compared to the corresponding periods in the prior

These decreases primarily reflected the impact of reduced advertising spend, two workforce reductions and the implementation of

other cost saving measures.

Net income was $2.3 million for the three months ended September 30,

2022 as compared to net income of $2.2 million for the three months ended September 30, 2021.

For the nine months ended September

30, 2022, the Company’s net loss was $19.6 million as compared to net income of $25.6 million for the nine months ended September

Recent Developments in Our Business

On August 31, 2022, the Company

acquired Intellibed, a premium sleep and health wellness company, offering gel-based mattresses scientifically designed for maximum back

support, spinal alignment and pressure point relief.

We believe that the addition of Intellibed will increase product offerings to customers,

expand market opportunities, capitalize on synergies of the combined companies, and increase opportunities for innovation.

the acquisition allowed the Company to consolidate ownership of its intellectual property and more fully capitalize on growing demand

for products with gel technologies.

The total purchase consideration for the acquisition was $28.3 million, which primarily consisted

of 8.1 million shares of Class A common stock.

Purchase consideration also included the fair value of 0.5 million shares of Class A common

stock held in escrow pending resolution of net working capital adjustments and general representation and warranty provisions of the agreement,

the fair value of contingent consideration of 1.5 million shares of Class A common stock issuable to Intellibed securityholders depending

upon the price of the Class A common stock over the next 18 months, $1.4 million gain related to the fair value of a preexisting legal

matter that was effectively settled on the acquisition date, and $0.9 million related to the fair value of other items.

Coliseum Capital Management, LLC Proposal

On September 17, 2022, the Company received an unsolicited and non-binding

proposal from CCM to acquire the remaining outstanding common stock of the Company not already beneficially owned by CCM for $4.35 per

share in cash.

At the time of the offer, CCM beneficially owned approximately 45% of the outstanding equity of the Company.

The CCM proposal

is conditioned upon the transaction being (a) negotiated by, and subject to the approval of, a special committee of independent and disinterested

members of the Board (the “Special Committee”) and (b) subject to a non-waivable condition requiring approval by the affirmative

vote of a majority of the shares of common stock not owned by CCM or other interested parties.

The Special Committee was formed by the

Board to determine the necessary actions to evaluate the CCM proposal and determine the course of action that is in the best interests

of all of the Company’s shareholders.

The Board expressly granted the Special Committee the ability to decline the CCM proposal.

In addition, the Special Committee adopted the Rights Plan to have the time and flexibility necessary to evaluate the CCM offer.

Stockholder Rights Agreement

On September 25, 2022, with

the authorization of the Board, the Special Committee approved the adoption of a limited-duration stockholder rights agreement with an

expiration date of September 25, 2023.

The Special Committee adopted the Rights Agreement in response to CCM’s substantial increase

in ownership of the Company’s shares over the last year and the Special Committee’s desire to have the time and flexibility

necessary to evaluate CCM’s offer to acquire the outstanding common stock of the Company not already beneficially owned by CCM.

The Rights Agreement

is intended to enable the Company’s shareholders to realize the full value of their investment and to guard against any attempts

to gain control of the Company without paying all shareholders an appropriate control premium.

The Rights Agreement applies equally to

all current and future shareholders and does not deter any offer or preclude the Special Committee from considering an offer that is fair

and otherwise in the best interests of the Company’s shareholders.

Upon adopting the Rights Agreement,

300,000 shares of the Company’s authorized shares of preferred stock, par value $0.0001 per share, were designated as Preferred

In accordance with the Rights Agreement, on September 25, 2022, the Special Committee authorized and declared a dividend of one

preferred share purchase right (a “Right”) for each outstanding share of the Company’s Class A and Class B common stock

to stockholders of record at the close of business on October 6, 2022.

Upon the occurrence of certain triggering events, each Right entitles

the holder to purchase from the Company one one-thousandth of a share of the newly designated Preferred Shares at an exercise price of

The Rights will be exercisable only if a person or group acquires beneficial ownership (including certain synthetic equity

positions created by derivative securities) of 20% or more of the Company’s outstanding shares of common stock.

Any person or group

that beneficially owned more than the triggering percentage when the Board adopted the Rights Agreement may continue to own its shares

of common stock but may not acquire any additional shares without triggering the Rights Agreement.

Unless the Rights become exercisable

as discussed above, the Rights Agreement has no impact on the Company’s condensed consolidated financial statements .

Equity Financing

2 unchanged sentences

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.

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

1 unchanged sentence

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

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.

17 unchanged sentences

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.

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 our board of directors, serves as a managing partner of CCM.

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.

On May 13, 2022 and September

9, 2022, the Company entered into a third and fourth amendment, respectively, to the 2020 Credit Agreement.

These amendments modified

the permitted leases schedule to reflect a change in showroom locations and a new lease for an innovation building.

The amendments did

not meet the criteria for a modification of existing debt and the minimal expenses were recorded as a general and administrative expense

in the condensed consolidated statement of operations.

On July 14, 2022, the Company

received consent under the 2020 Credit Agreement allowing the Company’s acquisition of Intellibed to constitute a permitted acquisition

under the 2020 Credit Agreement.

The Company incurred fees and expenses of $0.3 million that were recorded as general and administrative

expense in the condensed consolidated statement of operations.

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 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 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.

Soon after the pandemic began, we 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

In 2022, after two years of the pandemic, we began experiencing a pull-back in growth that left us with excess operational capacity

in facilities, equipment, and personnel.

Beginning in the first quarter of 2022 and continuing into the third quarter, the Company rebalanced

production and fulfillment operations in its different facilities, reduced employee headcount and took other actions to lower costs.

We are closely monitoring

14 unchanged sentences

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

and continuing into 2022, our gross profits 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.

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

including balancing production between facilities to reduce freight costs and shorten delivery times.

As the softening of demand for home

related products continues, and consumer spending habits shift from e-commerce to brick and mortar, we are investing in showroom expansion

where we are in the early stages of developing our capabilities.

We also are growing our wholesale partner door count and focusing on

improving wholesale door productivity.

We ended the third quarter with 51 Purple showrooms after opening 11 new locations during the third

quarter and we plan to add three more showrooms over the remainder of the year.

In addition, at the end of the third quarter, our products

are being sold through approximately 3,300 wholesale doors, having added approximately 800 net new doors during the first nine months

Improving the sales productivity of our wholesale doors remains a primary focus and a critical component of our strategy to respond

to 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 that will drive share gains in the premium mattress category and position the Company for accelerated

growth when market conditions improve.

We have also intentionally reduced our advertising spending in 2022 to improve marketing efficiency,

stabilize profitability in a challenging macroeconomic environment and align spending with the current demand environment.

The acquisition of Intellibed

is expected to be a strong strategic addition to the Company because of shared technology, geographic proximity of their primary facility,

and target market extension.

In addition, the acquisition allowed the Company to consolidate ownership of its intellectual property and

more fully capitalize on growing demand for products with gel technologies.

Intellibed’s higher price points compared to the Company’s

existing product offerings will be a natural extension of our product line.

The acquisition also benefits us by accelerating our product

development schedule several years by being able to immediately enter the luxury segment of the sleep and wellness industry.

we expect to capitalize on synergies of the combined companies and benefit from expanding the market presence of Intellibed’s product

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.

Build premium brand position to grow market share of the premium mattress category.

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 to further develop our current product categories and position our business to eventually expand to adjacent categories.

To support our plans for future growth and sustained

profitability, we are focusing on the following opportunities:

Develop and execute on

strategies to meaningfully expand our wholesale business by prioritizing existing door profitability.

Build premium brand position

to grow market share of the premium mattress category.

Refine and enhance marketing

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

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 additional 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%.

Manage input costs, operating efficiencies, and pricing to offset gross profit erosion.

There is no guarantee that

5 unchanged sentences

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,

Operating Results for the Three Months Ended September 30, 2022

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 (dollars in thousands):

Three Months Ended September 30,

Revenues, net

7 unchanged sentences

Other income (expense):

Interest expense

Other income (expense), net

Interest income (expense), net

Other income, net

Change in fair value – warrant liabilities

Tax receivable agreement expense

Total other income (expense), net

Tax receivable agreement income

Total other income, 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.

Net income (loss) attributable to noncontrolling

Net income 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.

Net revenues decreased $27.5 million, or 16.1%, to $143.3 million for the

three months ended September 30, 2022 compared to $170.8 million for the three months ended September 30, 2021.

The decline in net revenues

reflected a $23.7 million decrease in mattress sales, a $1.2 million decrease in other sleep product sales and a $2.6 million decrease

in other product sales.

The decrease in net revenues was primarily due to softening demand for home related products and the negative

effect of inflationary pressures on consumer discretionary spending.

The decline in net revenues from a sales channel perspective consisted

of DTC net revenues decreasing $28.3 million, or 25.0%, offset in part by wholesale net revenues increasing $0.8 million, or 1.3%.

DTC, ecommerce net revenue declined $37.6 million, or 36.6%, due to the reasons stated above and showroom net revenue increased $9.9 million,

or 110.4%, driven largely by the opening of 32 net new showrooms over the past 12 months.

In addition to the softening demand discussed

above, the decrease in DTC net revenues was impacted by a return to more normalized consumption patterns in fiscal 2022 with customers

shifting away from e-commerce buying experienced during COVID and the economic stimulus.

The increase in wholesale net revenues was primarily

due to the Intellibed acquisition which added $2.6 million of wholesale net revenues from the date of acquisition through September 30,

2022, partially offset by reductions in revenue due to market conditions.

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.

Cost of revenues

decreased $25.8 million, or 23.5%, to $83.9 million for the three months ended September 30, 2022 compared to $109.7 million for the

three months ended September 30, 2021.

This decrease was primarily due to the corresponding decrease in sales volume.

profit percentage, which increased to 41.5% of net revenues in the third quarter of 2022 from 35.8% in the third quarter of 2021,

benefited from efficiency and cost saving initiatives implemented in the first half of fiscal 2022 that included headcount

reductions and the balancing of production and fulfillment operations between the facilities.

Also, the gross profit percentage in

the prior year third quarter was adversely impacted by inefficiencies related to the resolution of prior year production issues.

gross profit percentage in the third quarter of 2022 was negatively impacted by a shift in revenue to our wholesale channel, which

carries a lower average selling price than sales from our e-commerce and retail sales channels.

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.

Marketing and sales expense decreased

$11.8 million, or 24.2%, to $37.0 million for the three months ended September 30, 2022 compared to $48.8 million for the three months

ended September 30, 2021.

This decrease was driven by a $16.7 million or 56.8% decline in advertising spending and a $3.8 million decrease

in other marketing costs.

The reduction in advertising spending was primarily due to management’s ongoing efforts to improve marketing

efficiency, stabilize profitability in a challenging macroeconomic environment and align spending with current demand levels.

in other marketing costs reflected the impact of management restructuring the marketing organization earlier in 2022.

These decreases

were offset in part by a $2.4 million increase in wholesale-related marketing and sales costs due primarily to growing the sales organization

of our wholesale business and a $6.2 million increase in marketing and sales costs associated with continued expansion of our showroom

Marketing and sales expense as a percentage of net revenues was 25.8% in the third quarter of 2022 compared to 28.6% in the

third quarter of 2021.

This decrease was primarily the result of reduced 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.

General and administrative

expense increased $2.1 million, or 12.5%, to $19.2 million for the three months ended September 30, 2022 compared to $17.0 million for

the three months ended September 30, 2021.

This increase was primarily due to a $1.4 million increase in legal and professional fees,

a $0.2 million increase in payroll and benefit expense and $0.5 million in general and administrative expense attributable to Intellibed.

The increase in legal and professional fees was primarily due to $2.8 million of transaction costs associated with the Intellibed acquisition.

Excluding the impact of Intellibed acquisition costs, legal and professional fees declined $1.4 million during the quarter due to lower

consulting and legal fees.

The increase in payroll and benefit costs was due mainly to job restructuring of certain employees in the first

half of 2022.

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.

increased $0.1 million, or 8.0%, to $1.9 million for the three months ended September 30, 2022 from $1.8 million for the three months

ended September 30, 2021.

This increase reflected higher payroll and benefit costs as our renewed focus on product innovation resulted

in the growth of our research and development team, which included the addition of our chief innovation officer.

The increase in payroll

expenses was offset in part by a decrease in professional services costs as product development priorities were being refocused.

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.

Operating income was $1.3

million for the three months ended September 30, 2022 compared to an operating loss of $6.6 million for the three months ended September

The $7.9 million increase in operating income was primarily due to 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.

million for the three months ended September 30, 2022 compared to a negligible amount of net interest income for the three months ended

September 30, 2021.

Interest expense was impacted by capitalized interest on borrowings that totaled $0.2 million and $0.8 million during

the three months ended September 30, 2022 and 2021, respectively.

The increase in interest expense was also impacted by the term loan

interest rate increasing to 6.07% during the third quarter of 2022 compared to 3.50% in the third quarter of 2021.

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.

Other Income (Expense), Net

Other income totaled $1.1 million

in the three months ended September 30, 2022 compared to a negligible amount of other income for the three months ended September 30,

This increase primarily resulted from the effective settlement of a preexisting legal matter between the Company and Intellibed

upon the Company’s acquisition of Intellibed on August 31, 2022 at an estimated fair value gain of $1.4 million.

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.

The 1.9 million sponsor warrants outstanding at September 30, 2022

and 2021 had fair values of $0.1 million and $9.0 million, respectively.

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

Class A common stock price, one of the primary assumptions used to re-measure the warrant liability, declining from $21.02 at September

30, 2021, to $4.05 at September 30, 2022.

During the three months ended September 30, 2022, the Company recorded a loss of $0.1 million

related to an increase in the fair value of the warrants outstanding at the end of the period.

For the three months ended September 30,

2021, the Company recognized a gain of $5.4 million related to a decrease in the fair value of the warrants outstanding at the end of

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.

of $0.6 million for the three months ended September 30, 2022 compared to an income tax benefit of $2.5 million for the three months

ended September 30, 2021.

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

during the first nine months of 2022.

Noncontrolling Interest

1 unchanged sentence

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,

attributed to noncontrolling interests and net loss attributed to noncontrolling interest were both negligible for the three months ended

September 30, 2022 and 2021.

Operating Results for the Nine Months Ended

September 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 (dollars in thousands):

Nine Months Ended September 30,

Revenues, net

8 unchanged sentences

Interest expense

Other expense, net

Other income (expense), net

Change in fair value – warrant liabilities

Tax receivable agreement expense

Tax receivable agreement income

Total other income, net

5 unchanged sentences

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.

Net revenues decreased $109.2 million, or 20.2%, to $430.6 million for

the nine months ended September 30, 2022 compared to $539.8 million for the nine months ended September 30, 2021.

The decline in net revenues

reflected a $93.5 million decrease in mattress sales, a $9.3 million decrease in other sleep product sales and a $6.4 million decrease

in other product sales.

The decrease in net revenues was primarily due to softening demand for home related products and the negative

effect of inflationary pressures on consumer discretionary spending.

Net revenues in the prior year nine-month period were positively

impacted by the pull forward of demand in the first half of 2021 that was driven by the effects of COVID and economic stimulus.

in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $102.2 million, or 28.9% and wholesale net revenues

decreasing $7.0 million, or 3.8%.

Within DTC, ecommerce net revenue declined $127.1 million, or 38.4%, due to the reasons stated above

and showroom net revenue increased $25.6 million, or 129.1%, driven largely by the opening of 32 net new showrooms over the past 12 months.

In addition to the softening demand discussed above, the decrease in DTC net revenues was impacted by a return to more normalized consumption

patterns in fiscal 2022 with customers shifting away from e-commerce buying.

The decrease in wholesale net revenues reflected reduced

purchases by our existing wholesale partners during the first nine months of 2022 due to market conditions, offset in part by the effects

of adding approximately 800 net new wholesale partner doors in fiscal 2022 coupled with wholesale net revenues contributed by Intellibed.

Cost of Revenues

Cost of revenues decreased $38.8 million, or 12.5%, to $270.7 million

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.

for the nine months ended September 30, 2022 compared to $309.5 million for the nine months ended September 30, 2021.

This decrease was

primarily due to the corresponding decrease in sales volume, offset in part by an increase in indirect labor and manufacturing overhead

Our gross profit percentage decreased to 37.1% of net revenues during the first nine months of 2022 from 42.7% for the first nine

months of 2021.

Our gross profit percentage was adversely impacted by elevated levels of material, labor and freight costs and lower-than-expected

demand levels.

In addition, we had a shift in revenue to our wholesale channel, which carries a lower average selling price than sales

from our e-commerce and retail showroom channels.

Our efficiency and cost saving initiatives, as well as the balancing of production and

fulfillment operations between the facilities, were implemented during the first half of fiscal 2022 and did not become fully impactful

until the third quarter.

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

Marketing and sales expense decreased

$35.7 million, or 21.9%, to $127.3 million for the nine months ended September 30, 2022 compared to $163.1 million for the nine months

ended September 30, 2021.

This decrease was driven by a $56.4 million or 50.4% decline in advertising spending and a $5.8 million decrease

in other marketing costs.

The reduction in advertising spending was primarily due to management’s ongoing efforts to improve marketing

efficiency, stabilize profitability in a challenging macroeconomic environment and align spending with current demand levels.

in other marketing costs reflected the impact of management restructuring the marketing organization earlier in 2022.

These decreases

were offset in part by a $9.4 million increase in wholesale-related marketing and sales costs due in part to growing the sales organization

of our wholesale business and a $17.1 million increase in marketing and sales costs associated with showroom expansion.

Marketing and

sales expense as a percentage of net revenues was 29.6% during the first nine months of 2022 compared to 30.2% for the first nine months

General and Administrative

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.

General and administrative expense increased $1.8 million, or 3.3%,

to $55.8 million for the nine months ended September 30, 2022 compared to $54.0 million for the nine months ended September 30, 2021.

This increase was primarily due to a $3.9 million increase in payroll and benefits expense and $0.5 million in added costs from the

Intellibed consolidation, offset in part by a $3.2 million decrease in legal and professional fees.

The increase in payroll and benefit

costs was due mainly to job restructuring of certain employees in the first half of 2022.

The decrease in legal and professional fees

was primarily due to $7.9 million of underwriting commissions and other costs we paid in the prior year second quarter for shares sold

by Coliseum 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 coupled with $2.8 million of Intellibed

transaction costs.

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.

increased $0.4 million, or 7.1%, to $5.8 million for the nine months ended September 30, 2022 from $5.4 million for the nine months ended

September 30, 2021.

This increase reflected higher payroll and benefit costs as our renewed focus on product innovation resulted in the

growth of our research and development team, which included the addition of our chief innovation officer.

The increase in payroll expenses

was offset in part by a decrease in professional services costs as product development priorities were being refocused.

Operating Income (Loss)

Operating income decreased $36.9

$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

million to an operating loss of $29.1 million for the nine months ended September 30, 2022 compared to operating income of $7.8 million

for the nine months ended September 30, 2021.

This decrease primarily reflected a decrease in gross profit that was driven by lower net

revenues and a decrease in gross profit margin.

Interest Expense

Interest expense totaled $2.4

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.

million for the nine months ended September 30, 2022 compared to $1.1 million for the nine months ended September 30, 2021.

million increase was due in part 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 nine months of 2021 to 5.42% during the first nine 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.

Interest capitalized on borrowings totaled $0.6 million and $0.8 million during

the nine months ended September 30, 2022 and 2021, respectively.

Other Income (Expense), Net

Other income totaled $1.0 million in the nine months ended September

30, 2022 compared to a negligible amount of other expense recorded during the nine months ended September 30, 2021.

The increase in other

income primarily resulted from the effective settlement of a preexisting legal matter between the Company and Intellibed upon the Company’s

acquisition of Intellibed on August 31, 2022 at an estimated fair value gain of $1.4 million.

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.

outstanding at September 30, 2022 and 2021 had fair values of $0.1 million and $9.0 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.

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

declining from $21.02 at September 30, 2021, to $4.05 at September 30, 2022.

During the nine months ended September 30, 2022 and 2021,

we recognized gains of $4.2 million and $19.4 million, respectively, that resulted from 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.

of $6.6 million for the nine months ended September 30, 2022 compared to income tax expense of $1.0 million for the nine months ended

September 30, 2021.

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

before income taxes of $26.4 million.

Noncontrolling Interest

2 unchanged sentences

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

interests was $0.2 million for the nine months ended September 30, 2022 compared to net income of $0.1 million for the nine months ended

September 30, 2021.

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 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.

Our principal sources of funds are cash flows from operations and cash

and cash equivalents on hand, supplemented with borrowings made pursuant to our credit 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 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 unrestricted cash and working capital positions were $57.4 million and $86.2 million, respectively, as of September 30, 2022 compared

to $91.6 million and $87.5 million, respectively, as of December 31, 2021.

Cash used for capital expenditures decreased from $41.5 million

in the first nine months of 2021 to $34.1 million during the first nine months of 2022.

Our capital expenditures in the first nine months

of 2022 primarily consisted of leasehold improvements and furniture and fixtures associated with the opening of new Purple retail showrooms.

In the event our cash flow

from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses and 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 our 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

2 unchanged sentences

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.

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 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

14 unchanged sentences

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.

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

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 ratio.

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

As of September 30, 2022, the Company was

in compliance with all of the financial covenants related to the 2020 Credit Agreement, as amended.

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

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

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 our board of directors, serves as a managing partner of CCM.

On May 13, 2022 and September

9, 2022, the Company entered into a third and fourth amendment, respectively, to the 2020 Credit Agreement.

These amendments modified

the permitted leases schedule to reflect a change in showroom locations and a new lease for an innovation building.

The amendments did

not meet the criteria for a modification of existing debt and the minimal expenses were recorded as a general and administrative expense

in the condensed consolidated statement of operations.

Pursuant to the second amendment

1 unchanged sentence

condensed consolidated balance sheet.

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

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

ASC 470 – Debt .

Tax Receivable Agreement

2 unchanged sentences

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.

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 September 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

2 unchanged sentences

See Note 9 of the condensed consolidated financial statements for additional information.

Cash Flows for the Six Months Ended June 30,

2022 Compared to the Six Months Ended June 30, 2021

Cash Flows for the Nine Months Ended September

30, 2022 Compared to the Nine Months Ended September 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

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

Nine Months Ended

September 30,

Net cash provided by (used in) operating activities

2 unchanged sentences

Net decrease in cash

Cash, beginning of the period

Cash, end of the period

Cash, cash equivalents and restricted cash, beginning of the period

Cash, cash equivalents and restricted cash, end of the period

Cash used in operating activities

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.

of $30.5 million for the nine months ended September 30, 2022 primarily resulted from a $19.8 million net loss combined with a $13.9

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

These decreases related mostly to

a $26.6 million decrease in accounts payable, offset in part by an $11.5 million decrease in inventories.

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

$34.1 million during the nine months ended September 30, 2022 compared to $41.5 million for the nine months ended September 30, 2021.

expenditures during the first nine months of 2022 primarily consisted of investments in leasehold improvements and furniture and fixtures

related to the opening of new Purple retail showrooms.

Cash flows from investing activities also included cash acquired in the acquisition

of Intellibed that consisted of $1.9 million of cash and cash equivalents and $1.7 million of restricted cash.

Cash provided by financing

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.

activities was $28.4 million during the nine months ended September 30, 2022 compared to $2.0 million during the nine months ended September

Financing activities during the first nine 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.

Critical Accounting Policies

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

Results of Operations in our 2021 Annual Report on Form 10-K filed March 1, 2022.

There were no significant changes in our critical

accounting policies since the end of fiscal 2021.

We discuss our critical accounting

policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in

our 2021 Annual Report on Form 10-K filed March 1, 2022.

There were no significant changes in our critical accounting policies since

the end of fiscal 2021.

Available Information

10 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 2. Management’s Discussion and Analysis