Item 1. Business
Item 1. Business
Introduction
Our mission is to help people
feel and live better through innovative comfort solutions.
We began as a digitally-native
vertical brand founded on comfort product innovation with premium offerings, and are now omni-channel. We offer a variety of innovative,
branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets and more. Our products are the result of
decades of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes.
Our proprietary Hyper-Elastic Polymer gel technology underpins many of our comfort products and provides a range of benefits that differentiate
our offerings from other competitors’ products. Specially engineered to relieve pressure, maintain an ideal body temperature, and
provide instantly adaptive support, Purple’s patented technology has been used and tested rigorously within medical and consumer
applications for over 30 years. Originally designed for use in hospital beds and wheelchairs, we adapted this unique pressure-relieving
material for our mattresses and other cushion products.
We market and sell our products
through direct-to-consumer e-commerce and Purple owned retail showrooms (collectively “DTC”) and retail wholesale partners.
The foundation of our business is core competencies in design, development
and manufacturing. Our accumulated knowledge enables us to create all aspects of our innovative products, including fundamental comfort
technologies and machines and processes necessary to bring them to market. We have integrated our operations to include research and development,
marketing and manufacturing, resulting in an ability to rapidly test, learn, adapt and scale our product offerings. In order to solve
complex manufacturing challenges such as large-format injection molding of our Hyper-Elastic Polymer cushioning material, we designed
and produced our own manufacturing equipment including our proprietary and patented molding machinery. These fully customized machines
are unique to Purple and, we believe, can handle both our size and scale requirements. We believe our combination of patents and intellectual
property, proprietary and patented manufacturing equipment, production processes and decades of acquired knowledge create an advantage
over our competitors who rely on commoditized materials, such as foam and outsourced manufacturing.
In addition to developing
differentiated products and technologies, we have built a brand that we believe has high customer engagement and avid brand advocates.
We have an experienced marketing team, providing efficient customer acquisition and brand demand development. Our marketing strategy enables
us to market our full product suite to customers, generate frequent interactions online and drive traffic to all channels offering our
products.
Our knowledge of and engagement
with consumers across digital and brick and mortar retail channels is advantageous and increasing. To complement our DTC efforts, we have
developed multiple wholesale relationships with best-in-class retailers in the furniture, mattress specialty, home décor, and department
store spaces. Our goal is to provide opportunities for each customer to learn, shop, and buy in the way that works for them. We believe
our distinctly differentiated products, including newly broadened spectrum of mattresses across price points, comfort preferences, benefit
segments, marketing strategies, manufacturing capabilities, unique branding and proprietary technologies position us to continue to drive
our growth. In 2022, our DTC sales, which includes online and Purple owned retail showrooms, accounted for 57.4% of our net revenues and
wholesale accounted for 42.6% of net revenues, while sales of sleep products accounted for 91.2% of our net revenues and other products
accounted for 8.8%.
In 2022, we grew our DTC efforts by adding 27 Purple owned retail showrooms,
making a total of 55 Company locations across the United States. We anticipate opening 11 additional Purple owned retail showrooms throughout
2023 and in the future.
1
Industry and Competition
Our portfolio of products
is driven by our commitment to innovating real comfort solutions that meaningfully help people sleep, feel and live better. Whether it’s
getting a better night’s rest or elevating the work from home experience, we design and manufacture truly innovative, differentiated
products that put our customers’ comfort first.
Sleep Products
The sleep products category
encompasses a variety of products including mattresses, pillows, bases, foundations, sheets, mattress protectors, blankets and duvets.
Meaningful innovation in sleep products has remained stagnant and limited over the last 150 years. Coil spring mattresses and memory foam,
two of the primary materials underpinning mattress technology today, were invented in the 1860’s and 1990’s. Latex, water
and air mattresses followed, emerging in the latter part of the 20 th century. Since these early inventions, the sleep product
industry has remained complacent with little meaningful innovation, until the introduction of our proprietary Hyper-Elastic Polymer material,
which represents a meaningful innovation in pressure relief, temperature neutrality, responsiveness, durability and limited motion transfer.
Our proprietary technology solves problems that regular mattresses create and has proven that material innovations can have a positive
impact on sleep.
Beginning in 2015, the market
for sleep products underwent a fundamental transformation with the rise of e-commerce-based brands and direct to consumer distribution,
which disrupted the traditional category dynamics and drove the majority of category growth (versus traditional mattress companies) for
several years. Today, the U.S. sleep product industry has rebalanced to be comprised of vendors that rely on retail distribution as well
as a consolidated number of direct-to-consumer retailers who have tried to expand brick and mortar distribution to capture more market
share in a category still tied to instore product trials. Amidst this changing category dynamic, Purple’s manufacturing capabilities
paired with our strategic mix of showrooms, e-commerce and third-party retailers, has allowed us to gain share and be a leader in the
sleep products category.
In 2022, we acquired Advanced Comfort Technologies, Inc., dba Intellibed
(“Intellibed”), a premium sleep and health wellness company that was a pre-existing licensee of our founders of some
of our technologies. That acquisition resulted in us owning the sole right to use all of our Hyper-Elastic Polymer technologies in our
beds. In addition, the acquisition will allow us to immediately expand into the luxury mattress segment. Purple has recently announced
three collections to be available in the second quarter of 2023: Essentials (including the New Day, The Purple Mattress, and The Purple
Plus), Premium (including Restore, RestorePlus, and RestorePremier) and Luxe (including Rejuvenate, RejuvenatePlus and RejuvenatePremier).
In general, direct to consumer mattress companies offer convenience,
free shipping and returns, and low prices, while leveraging third-party manufacturing and distribution. Materials used by online mattress
retailers include layers of foam cushioning that are assembled, compressed and folded into a box for distribution. This market is highly
fragmented, commoditized and competitive, with customer purchase decisions based primarily on price. Prior to Purple, there has been little
recent success disrupting the premium market, where the majority of category revenue and profit is realized. Competitors in the premium
market include Tempur Sealy and Sleep Number.
While e-commerce home goods
purchases have increased over the past five years, traditional brick-and-mortar retailers command a significant part of the market for
mattress products. This part of the retail market is also highly fragmented and competitive. The leading brick-and-mortar specialty mattress
retailers in the United States and Canada are, respectively, Mattress Firm and Sleep Country Canada, both of which Purple has significant
partnerships with. These national retailers compete with both regional and local retailers as well as furniture and department stores.
Purple has also expanded into many of these regional furniture retailers.
Across these channels, some
key factors that impact competition in our industry include comfort feel, product features, reliable logistics and manufacturing capabilities,
marketing efficacy and efficiency, brand differentiation, expertise of sales associates, customer care, pace of innovation and product
roadmap, price of products and services, financial stability and ability to invest in innovation.
2
What Makes Purple Different?
We believe we have a particular
set of competitive strengths that differentiate and position us for continued success:
● History
of innovation that produced new comfort technology— We are a company built on innovation and licensing, with more than 30
years of expertise in comfort innovation. Purple is founded upon decades of history developing innovative comfort solutions, including
the invention of our proprietary and patented Hyper-Elastic Polymer technology. Our breakthrough mattress represents what we believe
to be the first substantive innovation in the sleep product industry since the introduction of memory foam in 1992. We believe that the unique
properties of our technology enable several improvements to existing sleep products that are not addressed by foam, spring and air mattresses.
● Pressure
Relief— Our Hyper-Elastic Polymer technology is designed around the science of column buckling which enables our mattresses
to be both firm and soft. This offers support across the body’s larger surface areas, such as the back, while providing pressure
relief at local areas or points of pressure, such as the hips and shoulders. We believe Purple’s founders were the first to leverage
this technology in mattresses after its success in licensing its proprietary Hyper-Elastic Polymer technology to medical manufacturers
for use in wheelchairs, critical care beds and to this day, hospital beds. The resulting feel is often described as buoyant and responsive.
● Temperature
Neutral— The Hyper-Elastic Polymer material itself is temperature neutral, with the surface comprised mostly of air, made
from thousands of open-air channels. The channels allow for high airflow and dissipation of heat and vapor. This is the opposite of foam
beds, which absorb heat from the body and then radiate the heat back, constantly increasing the temperature. Our technology allows for
continual sleeping without waking up hot.
● Responsive— Unlike
memory foam, which compresses, gets hard and then takes time to recoil, our Hyper-Elastic Polymer technology is instantly responsive
to the body as it moves. It will immediately flex to support the sleeper’s position and spring back into place as the sleeper readjusts
during the night.
● Durable— Hyper-Elastic
Polymer material is a highly durable gel that we believe is more durable than most foams. The Hyper-Elastic Polymer technology
also has numerous applications beyond mattress products including seat cushions, pillows, and others. The development of the Hyper-Elastic
Polymer technology is only one of numerous innovations we have developed to produce a range of unique and effective comfort products
across the sleep, seat cushion and other categories.
● Proprietary
technologies and manufacturing expertise provide a significant competitive advantage— We believe the combination of patent
protection, proprietary manufacturing equipment and decades of accumulated knowledge creates a competitive advantage through barriers
to imitation. We have hundreds of granted or pending patents and hundreds of patent filings that cover current and future products as
well as proprietary manufacturing equipment we have designed and fabricated. In addition to intellectual property protection of key products
and manufacturing capabilities, our team has in depth experience and unique insights derived from inventing and refining proprietary
comfort technologies, machines and products. Our patented and proprietary molding processes and machines allow for large-format injection
molding of gels efficiently and at scale.
● Growing
a brand with a passionate following— Our brand mirrors our passion for uncompromising performance, quality and durability,
and our dedication to improving lives by delivering better sleep and better comfort We believe our brand awareness and consideration
rivals category leaders, after only seven years. Our brand has extended beyond awareness of individual products and we have successfully
marketed our full suite of products to customers using our omni-channel strategy. We believe our customers’ satisfaction with our
product has continued to drive “word of mouth” recommendations, one of the most persuasive ways customers learn about our
products.
3
●
Balanced, omni-channel distribution strategy— We have sought opportunities to expand brand awareness in brick-and-mortar retailers where our beds can be displayed. This is a very different approach from most bed-in-a-box players who seek traditional consumer packaged goods distribution, e.g., boxes on shelves. Our goal is to support the customer wherever and however they want to learn, try, and buy. Whether in wholesale, Purple owned retail showrooms, or our e-commerce channel, we are a leader in the sleep products market. Our flexible return policies and aggressive expansion of wholesale doors and our own showrooms allow for more of our targeted customers to feel and experience our products throughout the purchase process. In our wholesale channel, we sell most of our products through select national and regional retailers as well as a variety of independent retail partners throughout the United States and Canada. As a result, we believe we will drive accelerated growth in the sleep products industry.
●
Vertical integration
enables nimble design, development and execution —We design and develop our products in-house and we have extensive
research and development capabilities led by a team of engineers, industrial designers and marketing specialists. The ability to
develop and test products in this manner enables us to not only prototype and deploy new ideas, but also design and develop corresponding
manufacturing equipment and processes. In addition, we continuously refine our production methods to improve product quality and
enhance efficiency. The resulting real-time feedback cycle is a key differentiator compared to other competitors that outsource many
of these functions and lack an integrated approach.
Growth Strategies
●
Expansion of the Brand to Premium and Luxe Categories— To complement and support our expansion into the higher-priced, higher margin categories, Purple is evolving its differentiated brand to broaden appeal. We are investing in brand demand-driving marketing and advertising to create awareness, engagement, and preference for the Purple brand and for our products across all our sales channels. We also plan on developing a reimagined brand associated with life enhancing sleep. In 2023, we expect to be able to increase effective marketing by 11% over the prior year with an anticipated 40% increase occurring after the launch of our new Premium and Luxe product categories anticipated to occur on May 15 in our showrooms and online and from May to July in our wholesale partners’ retail stores. This strategic focus and investment will support our growth plans in the wholesale channel, in Purple owned retail showrooms, on Purple.com and online marketplaces, and in particular our Luxe offerings are expected to increase average sales prices significantly. We’ll also continue to harness the evangelism of the ever-growing base of Purple owners whose advocacy of our products is one of the brand’s greatest strengths.
●
Further direct-to-consumer growth and penetration— We believe that we are well positioned to leverage our brand, leading product portfolio, vertical integration and strong marketing capabilities to continue to attract new customers via our e-commerce channel. We have invested in substantial improvements to our website, enhancing the education, shopping, and buying experiences, and we have expanded our contact center, enabling live voice, chat and messaging with our sales associates which has driven higher customer satisfaction, higher average order value, and higher conversion. Continued successful execution on Purple.com supports planned e-commerce growth, and growth in all channels given the importance of the site during the customer decision journey. In addition, we currently operate 55 Company showrooms in cities across the U.S. where consumers can experience our brand, learn about and engage with our technology, and purchase our products. We anticipate continual expansion of our showrooms as we optimize the format.
●
Expanded wholesale retail relationships— We continue to work closely with existing retail partners to increase market share and sales, and we are forming new partnerships to expand our wholesale footprint. With our new Premium and Luxe collections, we believe we have an increased opportunity to tap into the large brick-and-mortar category of the sleep products market. Currently during 2023, we anticipate increasing the number of beds in our approximate 3,400 doors by 1.2 to 1.4 beds per door, on a blended basis, which already is over our initial goal for the year of a 20% increase, and we believe this will contribute an estimated $1,000 to $1,500 per month per incremental slot. We believe this is a result of the developing interest in our Premium and Luxe product categories which allows retailers to place these products as alternatives to other premium products to increase sales on high-end mattresses with materially higher margins for the retailer and Purple.
●
Existing product
innovation— We have a rich history of product innovation and have developed core competencies in design, prototyping
and manufacturing. This vertical integration enables us to continuously refine our existing products and manufacturing processes,
as well as introduce new offerings, with the potential to attract new customers and drive repeat sales.
●
New product launches— We have focused intensively on innovation, and we expect to launch more new mattresses in 2023 than all other years of our operations combined to support our long-range growth plan, with more to come. We have a pipeline of future products we are developing. We are constantly exploring new technologies and ways to expand the benefits of our technologies through new product offerings. This includes innovations in mattresses beyond our Hyper-Elastic Polymer technology, an expanded assortment based on the Harmony Pillow that includes new patent-pending technology, other assortment expansion and new products in sleep, comfort and additional categories.
●
International expansion— We believe there is a substantial opportunity for international expansion, and we expect to find new opportunities as we expand into foreign markets. We entered the Canada market in Q4 2020 via the wholesale retailer Sleep Country Canada and we plan to expand in other foreign markets in the future. We believe that our differentiated products, multi-channel distribution strategy, manufacturing capabilities, vertical integration and marketing expertise will enable us to successfully enter new markets.
4
Our Products
Our current product portfolio is as follows:
● Mattresses —Our
mattresses utilize the unique benefits of our Hyper-Elastic Polymer technology creating a
one-of-a-kind sleep solution that is breathable to help regulate body temperature and soft
enough to cradle pressure points while also providing support through localized buckling
columns. Our Hyper-Elastic Polymer products are manufactured with non-toxic ingredients that
are third-party tested and free from carcinogenic chemicals. The patented Hyper-Elastic Polymer
technology is used in all Purple mattresses. The buckling columns in our mattresses instantly
adapt to your body to cradle your hips and shoulders while supporting your spine’s
natural alignment for uniquely buoyant, supportive comfort. We back up the quality and durability
of our mattress with a 100-night trial and a ten-year warranty. Beginning in 2023, we will
have three collections – Essentials, Premium, and Luxe, with mattresses ranging from
our original Purple, to our redesigned and improved Premium and Luxe mattresses, all of which
include our Hyper-Elastic Polymer technology.
● Pillows —We
currently sell five types of pillows: The Purple Harmony Pillow, the Purple Pillow, the Purple
Twin Cloud Pillow, the Purple Cloud Pillow™ and the Kids Pillow. The Purple Harmony
Pillow is a hybrid, hypoallergenic pillow featuring the world’s first and only tapered
360º Hyper-Elastic Polymer Grid Hex surrounding a soft, responsive Talalay latex core
for optimal head and neck support. It has a cool-to-the-touch, moisture-wicking breathable
cover to enhance the benefits of our Hyper-Elastic Polymer technology. It’s the ultimate
balance of soft, cool, and responsive no pressure support. The Purple Pillow is a head-specific
triangular grid-shape to protect against breaking down or losing shape. The Purple Twin Cloud
Pillow is a hypoallergenic down-alternative that features our patented cover construction
which includes two chambers filled with gel fibers that double up for better sleep. The Purple
Cloud Pillow is filled with hypoallergenic, ultra-fine gel fibers that won’t clump,
trap heat, or flatten over time. The result is plush cushioning that molds to support the
head and neck. The Kids Pillow is smaller and softer than our original Purple pillow
and adjusted to fit smaller sleepers. We believe our pillows are unique, with no other products
in the market like them in appearance, design, functionality or comfort. We also back up
the quality and durability of our pillows with a 100-night trial and a one-year warranty.
● Sheets— We
sell two types of sheets and pillowcases. Made from stretchy and breathable bamboo-based Viscose, our SoftStretch sheets are designed
to maximize the functionality of our mattresses and pillows. We developed our own technology to enable customers to experience the full
performance potential of our mattress (or any other mattress). We also sell more traditional cotton-based Complete Comfort sheets designed
to have cushion enhancing two-way stretch. Our sheet sets include pillowcases that also maximize the unique functionality of our pillows.
● Duvets
and Duvet Covers— The Purple TempBalance Duvet insulates yet breathes to deliver an ideal body temperature, all year long. The
Purple PerfectStay Duvet cover offers a unique patent-pending lay-and-zip design that solves the problem of inserting the duvet into
the cover, and ensures the duvet stays put within the cover without ties, pins, or bulky attachments.
● Mattress
Protector —Like our sheets, our mattress protector is designed to optimize the functionality of our Hyper-Elastic Polymer
technology in our mattress. Our mattress protector is stretchy and breathable. Our protector is also stain-resistant and machine-washable,
making it easy to clean.
●
Bases —Our bases have been designed to pair with our mattresses and meet the needs of our customers. Our Purple Ascent Adjustable Base complements our mattresses by adding electrically powered functions, such as adjustable head and foot positions, zero-gravity preset for a near weightless feel, a “sitting” preset, under-bed lighting and a remote with cradle that provides additional USB ports for device charging. Our Purple Bed Frame is easy to ship and assemble, with no tools required. It has the look of a stylish upholstered bed frame. The supports are made of high-density polyethylene, so they don’t creak or make noise like wood supports. Plus, the joints of the Purple Bed Frame are reinforced with nylon buffers to help prevent squeaking. Our Purple Platform Bed Frame is designed specifically for all current Purple bed sizes and offers a high quality, simpler alternative to our more premium offerings. Constructed from lightweight steel, the Purple Platform Bed provides optimal support and prevents the mattress from sagging. Beginning in 2023, we plan to introduce the Purple Premium and Purple Premium Plus smart bases, a new line of smart adjustable bases that are designed to pair with the new mattresses for the ideal Purple sleep experience.
● Seat
Cushions —The evolution of our portfolio of seat cushions has resulted from decades of in-house manufacturing experience
including development of proprietary machines and trade secrets, extending the benefits of our Hyper-Elastic Polymer technology. Purple
currently sells four types of seat cushions and one back cushion, all in varying sizes and shapes to meet the needs of our customers.
5
Technology
Technology is key to our unique
position within the sleep products industry. The introduction of our proprietary Hyper-Elastic Polymer material is the first major innovation
to the consumer mattress category in decades. Mattresses from our competitors are typically manufactured using one or more layers of springs,
standard polyurethane foam, memory foam, air chambers or latex foam. These technologies have existed for decades and are undifferentiated
from competitors within their product type.
Proprietary Technologies
The Purple innovation team,
through their scientific journey to get to the root causes of pressure sores, designed the Hyper-Elastic Polymer material and other
proprietary comfort technologies in order to improve the lives of “every body.” Each different cushioning product line requires
unique molding techniques.
Our Hyper-Elastic Polymer material
is non-toxic and hypoallergenic. This proprietary material is also durable and will not develop body impressions (compression set)
from use over time. It is elastic and can stretch up to 15 times its original size and return without losing its shape. It sleeps and
sits temperature-neutral and has good ventilation to inhibit moisture build-up.
Our Hyper-Elastic Polymer
material is both soft and supportive. While the columns in this structure provide support where it is needed, they also buckle where it
is needed to reduce pressure by allowing shoulders and hips to sink into the cushion with reduced force pushing back on those areas of
the body unlike other cushion technologies. The soft and flexible columns also return to their original position as forces lessen and
are capable of immediately providing support.
Proprietary Machinery
Internally designed, developed
and built, our patented and proprietary molding machines are the only machines able to mold our Hyper-Elastic Polymer material into
large-format king-sized mattresses at scale. We have modified other molding machines to manufacture additional products containing Hyper-Elastic
Polymer material. We also acquired in the Intellibed acquisition the patented manufacturing machine and process we owned that had
been licensed by our founders, preventing others from obtaining access to that technology. The process of molding our Hyper-Elastic Polymer material
using our molding machinery is proprietary, patent-protected and complex, requiring specific knowledge and expertise to successfully execute
manufacturing. We have vertically integrated with our own machine shop with mechanics and engineers at each of our factories to maintain
our machines and other equipment. Furthermore, we have extensive in-house fabrication capabilities, which enable us to design, manufacture,
install and maintain new equipment as well as optimize the performance and efficiency of our existing machinery based on real-time insights
gained from our vertically integrated operations.
Marketing
We have developed a brand that resonates with consumers. Our marketing
efforts are focused on building awareness of the Purple brand and illustrating the unique way our products deliver better sleep and comfort.
We leverage data-driven marketing across all communication channels to engage, acquire, and retain customers. We also amplify the voices
of our evangelical product owners, whose word-of-mouth recommendation is one of our most powerful (and ownable) marketing vehicles. Deep
engagement with current customers enables us to increase additional product sales across our portfolio of offerings. The success we have
achieved through our marketing campaigns has been key to rapidly building our branding and awareness. We plan to launch our elevated
brand positioning with a gradual transition in our wholesale partners’ stores during the period of May 2023 through July 2023 with
a hard conversion in our owned retails stores and online occurring on May 15, 2023 as we build our premium brand position to grow market
share of the premium mattress category during the second half of 2023.
Our Sales Channels
We sell our products via Purple.com,
online marketplaces (e.g., Amazon), our Purple owned retail showrooms, and wholesale retailers.
Direct-to-Consumer Channel
Our e-commerce distribution
channel is a critical hub for consumer education and consumer engagement, as well as conversion. We have benefitted from the rapid growth
of the direct-to-consumer channel in the sleep product industry in addition to our differentiated product offering and unique marketing
campaigns. We sell directly to consumers through our website, our customer contact center and online marketplaces. With our website and
customer contact center, we help customers easily engage in relevant content, research our solutions, transact online or via our customer
contact center, or find the nearest retailer. We believe our online experience expands our brand and connections with consumers, enabling
deeper awareness, engagement and brand loyalty. We believe our 100-night trial, ten-year warranty, attractive financing options, strong
customer testimonials and excellent service provide confidence to consumers in buying a mattress.
6
We operate 55 Purple owned
retail showrooms across the United States where consumers can experience our brand, learn and engage with our technology and purchase
our products. We plan to continue expanding our showroom footprint across the United States.
Wholesale Channel
We sell our assortment of
products through brick-and-mortar and online wholesale partners. We began selling mattresses and other sleep products through our largest
wholesale partner, Mattress Firm, in November 2017 and have continued to expand the number of wholesale partners where our mattresses
and other sleep products are sold. We now sell mattresses through Ashley Furniture, Big Sandy, City Furniture, Furniture Row, HOM Furniture,
Macy’s, Mathis Brothers, Mattress Firm, Raymour & Flanigan, Rooms To Go, Sleep County Canada and Steinhafels, among others.
We typically have four to five mattress models on the floor. Sales associates have been trained and we believe are effective in educating
consumers regarding our unique benefits as well as shifting the mix upward to our more premium and higher-margin mattresses. We expect
to grow our placements with wholesale partners to give our customers the opportunity to feel the difference of our Hyper-Elastic Polymer
technology for themselves.
Operations
Factories, Supply Chain and Manufacturing
We operate factories in Grantsville,
Utah, Salt Lake City, Utah and McDonough, Georgia, which manufacture Purple products. Our factory in Grantsville has approximately
574,000 square-feet and our factory in McDonough, Georgia, which opened to service our customers on the east coast, provides another 844,000
square-feet. At these factories we manufacture our proprietary Hyper-Elastic Polymer cushioning used in our mattress, pillow and seat
cushion products. We also assemble, package and ship our products from these two facilities. Our facility in Salt Lake City was acquired
as part of the Intellibed acquisition and has approximately 67,000 square feet. This facility manufactures our proprietary Hyper-Elastic
Polymer for assembly in our luxury mattresses. We continually improve our manufacturing processes and create efficiencies in production
through new equipment and process designs and resources. We believe these factories will provide ample room to accommodate our future
growth and expansion plans for the near term.
We have a number of contract
manufacturers who assemble mattresses and have established a network of third-party logistics providers to help with order fulfillment
across the United States to minimize delivery times and provide white glove service.
We outsource and resell other
products, including adjustable bases, platform bases, sheets, mattress protectors, blankets and duvets. These products are either designed
in-house or in partnership and are unique to Purple.
We have relationships with
multiple suppliers for our outsourced products and components. These suppliers may be interchanged in order to maintain quality, cost
and delivery expectations.
Environmental and Governmental Regulation
We are subject to numerous
federal, state, local and foreign consumer protection and other laws and regulations applicable to the sleep product industry. These
laws and regulations vary among the states and countries in which we do and intend to do business. For example, in the United States,
we are subject to regulations promulgated by the U.S. Environmental Protection Agency, the Occupational Safety and Health Administration
and other federal agencies that restrict the generation, emission, treatment, storage and disposal of materials, substances and waste.
We are also subject to laws such as the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act. Our mattress
products are also subject to fire-retardant standards developed by the State of California, U.S. Consumer Product Safety Commission and
other jurisdictions where we sell these products.
As a retailer of sleep and
cushioning products, we are also subject to laws and regulations applicable to retailers generally, including those regulations governing
the marketing and sale of our products and the operation of our e-commerce activities. We are also subject to import and export laws
and regulations to the extent our products and their component parts cross international boundaries. Many of these laws and regulations
are consumer-focused and pertain to safety, truth-in-advertising, promotional offers, privacy, “do not call/mail” requirements,
warranty disclosure, delivery timing requirements and similar requirements.
It is our policy and practice
to comply with all applicable domestic and foreign laws and regulations. We have made and will continue to make capital and other expenditures
necessary to comply with these laws and regulations. These expenditures have been immaterial to our financial results. We have not suffered
a material adverse effect from non-compliance with federal, state, local or foreign legislation, but there can be no assurance that material
costs or liabilities will not be incurred in connection with such legislation in the future.
7
Research and Development
In May 2022, we appointed
our first ever Chief Innovation Officer. Our research and development teams are focused primarily on developing new comfort technologies
and products. We have recently announced our three mattress collections including our new line of luxury mattresses. We have an extensive
history of innovation that is core to our culture and key to our continued success. Our inventions have culminated over years of persistent
research and development. We intend to continue to develop and introduce new comfort technologies and products to improve how people live.
Our vertical integration is a key differentiator that enhances the effectiveness of our research and development capabilities. By gaining
real-time feedback, we can integrate these insights into our manufacturing process, digital marketing, products and equipment. In order
to facilitate further innovation and development, we have recently leased a facility that will serve as our new innovation center and
will replace the older and remote facility we previously had in Alpine, Utah. This new facility is located in Draper, Utah, close to our
headquarters and comprises approximately 61,000 square feet. It is expected that we will occupy the building in June of 2023.
Intellectual Property
We rely on patent and trademark
protection laws to protect our intellectual property and maintain our competitive position in the marketplace. We hold various domestic
and foreign patents, patent applications, trademarks and trademark applications regarding certain elements of the design, manufacturing
and function of our products. We also maintain protections over proprietary trade secrets. Our intellectual property portfolio is integral
to our continued success in this industry, with respect to our Hyper-Elastic Polymer material as well as our molding processes and machines.
We own or have the exclusive
right to use hundreds of granted or pending patents and hundreds of patent filings on inventions and designs pertaining to our machines,
processes, mattresses, pillows, seat cushions, packaging techniques and other related existing and future products. Our issued United
States patents that are significant to our operations are expected to expire at various dates up to 2041.
We have several trademarks
registered with the U.S. Patent and Trademark Office (USPTO), including EquaPressure ® , WonderGel ® and
EquaGel ® (for cushions), and Purple ® , No Pressure ® , Hyper-Elastic Polymer ® ,
Somnigel ® , Gel Matrix ® , Matrix ® , Gelee ® , Ascent ® , Softstretch ® ,
Purple Powerbase ® , Sleep Genius ® , Firm and Soft ® , Intellipillow ® , and Intellibed ®
(for plasticized elastomeric gel and certain types of products including mattresses, seat cushions, bed linen, mattress foundation and
others). Additional registered trademarks include, but are not limited to, Purple Grid ® , Reinventing Comfort ® ,
Comfort Reinvented ® , TwinCloud ® , Purple Cloud ® , Purple Pillow ® , The Purple
Mattress ® , Purple Hybrid ® , Purple Hybrid Premier ® , The Purple Mattress ® , The
Purple Plus ® , Gelflex ® and registration of the color purple as a trademark (for mattresses, pillows,
and seat cushions). Applications are pending for registration of additional trademarks and some of these listed trademarks for additional
classes of goods both in the U.S. and internationally. Our Purple, No Pressure and Hyper-Elastic Polymer trademarks are also registered
and have applications pending for various classes of goods in numerous foreign jurisdictions, some of which include Australia, Canada,
China, Europe, United Kingdom, Japan and Korea. Certain international trademark applications previously resided with EdiZONE, LLC, which
is an entity owned by our founders and were licensed to Purple LLC, and we have taken the necessary steps to have those trademarks assigned
to Purple LLC upon registration.
We also have a number of common
law trademarks, including Sleep Purple, Live Better Ô , New Day Ô ,
Restore Ô , RestorePlus Ô , RestorePremier Ô ,
Rejuvenate Ô , RejuvenatePlus Ô, RejuvenatePremier Ô ,
Perfectstay™, TempBalance™, Success Happens Overnight™, Overnight Success™, Harmony™, Purple Harmony Pillow™,
Harmony Pillow™, Purple +™, Purple Plus™, +™, Find Comfort™, Dreams On Dreams™, Reinventing Sleep™,
Gelflex Grid™, Gelflex Grid Plus™, Purple Ascent™, ™, Purple Squishy™, Purple Powerbase Premier™,
Purple Powerbase Plus™, Purple Glove™, Eidertech™, Mattress Max™, WonderGel Original™, WonderGel Extreme™,
DoubleGel™, DoubleGel Plus™, DoubleGel Ultra™, Roll n’ Go™, Fold N’ Go™, Purple Bed™,
Purple Top™, Purple Pillow™, Portable Purple™, Everywhere Purple™, Simply Purple™, Lite Purple™, Royal
Purple™, Double Purple™, Deep Purple™, Ultimate Purple™, Purple Back™, EquaGel Straight Comfort™,
EquaGel General™, EquaGel Protector™, and EquaGel Adjustable™.
Many of the common law marks
have registrations pending with the USPTO and other international jurisdictions. Solely for convenience, we may refer to our trademarks
in this Annual Report without the ™ or ® symbol, but such references are not intended
to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks.
In addition, we maintain
copyrights, many registered, to past and present versions of purple.com, onpurple.com, equapressure.com, wondergel.com, marketing content,
blogs, logos, graphics, videos and other marketing and promotional materials promoting our products.
We protect and enforce our intellectual property
rights, including through litigation as necessary.
8
Human Capital
Employees
At Purple, our focus is to
have our employees develop personally, work with talented teammates, and contribute to the success of Purple while working in a safe environment
and building an authentic culture. We strive to deliver on our promise of improving the lives of our customers by knowing that our most
valuable asset at Purple is our people and their learned institutional knowledge.
As of March 20, 2023, we had approximately 1,600 employees engaged
in manufacturing, research and development, general corporate functions, wholesale, ecommerce, and Purple owned retail showrooms. Net
of showroom growth, this is down approximately 45% from the end of 2021.
With the appointment of our
new Chief People Officer in November 2021, Purple’s People team now operates under the following five pillars that drive our people
strategy: Acquire Great Talent, Retain and Develop Great Talent, Build and Strengthen the Foundation of an Exceptional People Experience,
Champion an Authentic Values-Based Culture, and Support and Drive the Path to Premium.
Acquire Great Talent
We believe our people are
critical for our future success. Therefore, our efforts to acquire great talent begin with inviting the right kind of people to our community.
To support this initiative, we are investing in better recruitment technology to improve our candidate experience.
Retain and Develop Great Talent
In 2022, we created Purple’s
Center of Excellence, a new resource intended to streamline people operations enterprise-wide, resulting in lower wait times for employees
to receive information, resources, and helping to increase the overall efficiency of operations. We also deployed a newly designed Talent
Management and Succession Planning program in 2022.Through this program, we identified high potential employees that will form our first
mentoring group called the Pinnacle Program, which aims to provide meaningful touchpoints across senior leadership team members and the
future leaders of Purple.
In addition to improving the
employee experience and constructing a mentorship program, we are also focused on delivering competitive, meaningful, and transparent
compensation and benefits to our employees.
Build and Strengthen the Foundation of
an Exceptional People Experience
In July 2022, with the appointment
of our new Chief Operating Officer, our top priority has been to take action to promote the safety of our employees through various safety
initiatives. We retooled our on-site safety departments and modeled them after Safety, Health, and Environment (“SHE”) requirements.
In addition, we continue to
invest in new technology to improve communication and enhance our human resource information system functionality to support manager and
employee self-service. Paired with our continued dedication to creating shared experiences for employees to connect and build real relationships
with those they work with, we believe these efforts will result in a more rewarding employee experience.
9
Champion an Authentic Values-Based Culture
After our cost restructuring
in early 2022, we worked to rebuild our Purple culture. Through executive support and sponsorship, we hosted an employee-led committee
that created six new values. Our value roll-out campaign included a roadshow, where all executive senior leadership members as well as
committee members met on-site at our facilities in Utah and Georgia, alongside virtual all-hands meetings for our wholesale and retail
employees. We plan to continue this work in 2023 with events, trainings, and internal branding.
Support and Drive the Path to Premium
In repositioning to a premium
brand, we will rely heavily on our employees to support and drive success. In 2022, we allocated additional resources to our growing wholesale
and retail teams. Additionally, with the launch of our new products and wholesale partnerships, we successfully deployed extensive training
for our employees and external partners. We believe these efforts have equipped our sales channels with the needed expertise to position
our products in the premium category.
Our History
Purple was created by two
brothers that set out to revolutionize the comfort space. One in manufacturing and design, and the other an advanced aerospace scientist,
the brothers embarked on a partnership in the early 1990s to put together a team to develop cushioning solutions for wheelchairs and medical
beds. They later created what we call Hyper-Elastic Polymer —an elastomeric polymer that can stretch up to 15x its resting size
and never lose shape or function. Our proprietary Hyper-Elastic Polymer technology has since been used in mattresses, seat cushions and
pillows.
Available Information
Our website address is www.purple.com.
We make available, free of charge on our Investor Relations website, investors.purple.com, our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934,as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”).
We also use our Investor
Relations website, investors.purple.com, as a channel of distribution of additional Purple information that may be deemed material. Accordingly,
investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts.
The contents of our website shall not be deemed to be incorporated herein by reference.
10
Information About Our Executive Officers
As of the date of this report,
our directors and executive officers are as follows:
Name
Age
Title
Robert T. DeMartini
61
Director, Chief Executive Officer
Bennett L. Nussbaum
75
Interim Chief Financial Officer and Treasurer
Casey K. McGarvey
63
Chief Legal Officer and Secretary
Eric S. Haynor
59
Chief Operating Officer
Jeffrey L. Hutchings
56
Chief Innovation Officer
Jeffery S. Kerby
54
Chief of Owned Retail Officer
Keira M. Krausz
57
Chief Marketing Officer
John J. Roddy IV
55
Chief People Officer
Executive Officers
Robert T. DeMartini has
served as Chief Executive Officer since January 2022. Prior to joining the Company, Mr. DeMartini, served as president and chief
executive officer of USA Cycling, Inc., the official U.S. Olympic & Paralympic Committee governing body for all disciplines of competitive
cycling in the United States, from 2019 until 2021. He previously served as president and chief executive officer of New Balance Athletic
Shoes (U.K.) Ltd., from 2018 to 2019 and as president and chief executive officer of New Balance Athletics, Inc. from 2007 to 2018, each
a business unit of New Balance, Inc. a leading manufacturer and retailer of athletic footwear, apparel and accessories. From 1982 through
2007 Mr. DeMartini held various leadership positions with Procter & Gamble, The Gillette Company, and Tyson Foods, Inc. He also currently
serves on the boards of Welch’s Foods and Q30 Innovations/Q30 Sports Canada, and formerly served on the boards of Advanced Functional
Fabrics of America, The American Apparel & Footwear Association, and Aloha. Mr. DeMartini received a Bachelor of Science degree in
Finance from San Diego State University. He is well qualified to serve on our Board due to his extensive operational and management background.
Bennett L. Nussbaum
has served as our Interim Chief Financial Officer (“CFO”) since August 2021. Prior to joining the Company, Mr. Nussbaum served
as the Interim Chief Financial Officer of American Megatrends, Inc., from 2019 to 2020. During that period he also served as Operating
Partner of HGGC, LLC, from 2017 to 2020. He also served as Interim CFO at 4over, Inc., from 2017 to 2018. From 2016 to 2017 he was the
Chief Financial Officer of American Apparel, LLC. He currently serves on the advisory board for the W. Edwards Deming Center for Quality,
Productivity, and Competitiveness at the Columbia University Graduate School of Business, a position he has held since 2011. Mr. Nussbaum
previously served on the boards of directors of The Collected Group, LLC, from 2018 to 2019, Charlotte Russe, Inc., from 2018 to 2019,
and BCBGMAXAZRIA, LLC, during 2017. Mr. Nussbaum has extensive leadership and stakeholder management expertise and has led multibillion-dollar
publicly traded and private equity-owned businesses through turnarounds, transitions and accelerated growth. Mr. Nussbaum is a graduate
of the Wharton School of the University of Pennsylvania with a BS in Economics and holds an MBA from Columbia University in New York,
NY.
Casey K. McGarvey has
served as the Chief Legal Officer and General Counsel of Purple LLC since its inception in 2010 as WonderGel, LLC. He also has served
as Corporate Secretary of Purple Inc. since the Business Combination. From 2008 until the Business Combination, he also has served as
General Counsel of various affiliated technology companies owned by the founders, including EdiZONE, LLC, focused on developing advanced
cushioning technology. Mr. McGarvey has a deep knowledge of the Company and its technologies and intellectual property. Prior to joining
EdiZONE and Purple LLC, Mr. McGarvey was a shareholder, partner or of counsel at several law firms during which, among other things, he
litigated and advised businesses on the protection of their patents and trademarks and other business matters. Mr. McGarvey has the following
degrees, each from the University of Utah, a Bachelor of Arts and Honors, Bachelor in political science with a Certificate in public administration,
a Juris Doctor and an Executive Masters of Business Administration.
11
Eric S. Haynor has
served as the Chief Operating Officer of the Company since June 2022. Prior to joining the company, Mr. Haynor spent most of his career
with Ecolab in a variety of end-to-end supply chain roles. From August 2019 until he joined the Company in June 2022 he served as Sr.
Vice President, Industrial Supply Chain providing strategic direction for eight Industrial business units. Prior to that he held the role
of Vice President, Global Equipment Operations and Strategy from June 2015 to August 2019. From August 2009 to June 2015, Mr. Haynor led
Ecolab’s EMEA Supply Chain Operations and from April 2005 to August 2009 he led Ecolab’s Asia Pacific Supply Chain Operations.
His early career was spent in a variety of developmental supply chain roles. Mr. Haynor is a graduate of Michigan State University and
holds a BS degree in Mechanical Engineering, with honors.
Jeffrey L. Hutchings
has served as the Chief Innovation Officer of the Company since May 2022. Mr. Hutchings has more than twenty years of experience in strategic
business leadership in innovation, new product introduction and quality assurance. Prior to joining the Company, Mr. Hutchings served
as Chief Product Officer at Skullcandy Inc. since December 2018 and as Vice President of Product from June 2015 to December 2018. Prior
to that from July 2010 to June 2015, Mr. Hutchings served in various engineering and director roles at HARMAN International Mr. Hutchings
holds a BS in Computer Engineering from University of Utah.
Jeffery S. Kerby has
served as the Chief of Owned Retail Officer of the Company since January 2023. Prior to joining the Company, Mr. Kerby served as Vice
President, Head of Stores of Sephora since May 2019, responsible for leading 86 stores throughout Canada. From March 2018 to January 2019,
he served as the Senior Regional Director of American Eagle where he led American Eagle/Aerie stores in the Midwest U.S. and Canada with
225 stores. Prior to joining American Eagle, Mr. Kerby was with L Brands’ LaSensa from February 2017 to March 2018. Prior to that,
Mr. Kerby was the Vice President, Head of Stores/Store Operations for L Brands’ Victoria’s Secret International from June
2015 to September 2016. From October 2008 to June 2015, Mr. Kerby grew from Director to Associate Vice President, Head of Stores for Bath
and Body Works. Mr. Kerby holds a BS from Washington State University’s School of Communications.
Keira M. Krausz has
served as Chief Marketing Officer since November 2022. Prior to joining the Company, Ms. Krausz was Chief Marketing Officer of HealthPlanOne,
a digital health distribution platform from August 2020 to October 2022. From February 2013 to February 2020, Ms. Krausz was the
EVP and Chief Marketing Officer, then President, of Nutrisystem. Prior to Nutrisystem, she held a progression of leadership roles
in consumer marketing at Time Inc. and the Reader’s Digest Association, Inc. She serves on the board of the BioBuilder Educational
Foundation. Past board roles include Second Nature Brands and the Association of National Advertisers. Ms. Krausz attended
Cornell University as an undergraduate and received her MBA from Dartmouth College.
John J. Roddy IV has
served as Chief People Officer of the Company since October 2021. Mr. Roddy brings to the Company over 20 years of experience in
culture transformation, talent development, organization design and change leadership. Prior to joining the Company, Mr. Roddy
served as the Chief People Officer for VASA Fitness since 2018. Prior to that he was the Chief Human Resources Officer for SeaWorld Parks
and Entertainment from 2016 to 2018. From 2012 to 2016, Mr. Roddy was the Senior Vice President of Human Resources for Luxottica Group.
Prior to joining Luxottica Group, he was the Vice President of Human Resources for Starbucks Corporation from 2004 to 2012. Mr.
Roddy holds a master’s degree from Columbia University on Organizational Psychology and a bachelor’s degree in Organizational
Behavior from Brigham Young University – Hawaii.
12