What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-09 · 505 added, 674 removed, 26 unchanged (98% of the section changed)

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is

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

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

The discussion should be read in conjunction

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

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

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

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

The discussion should be read

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

Financial Statements.”

FORWARD-LOOKING STATEMENTS

This quarterly report on Form

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

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

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

and state securities laws.

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

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

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

of these words and other similar words.

All forward-looking statements

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

It is routine for our internal projections and expectations to

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

of the next quarter or year.

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

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

of future events or circumstances are forward-looking statements.

We caution and advise readers

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

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

Securities and Exchange Commission on March 1, 2022.

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

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

We undertake no obligation

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

as required by law.

Overview of Our Business

Our mission is to improve

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

We are a digitally-native

vertical brand founded on comfort product innovation with premium offerings.

We design and manufacture a variety of innovative, branded

and premium comfort products, including mattresses, pillows, cushions, frames, sheets, and other products.

Our products are the result

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

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

that differentiate our offerings from other competitors’ products.

We market and sell our products directly to consumers through

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

FORWARD-LOOKING

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

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

current expectations and beliefs.

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

for purposes of federal and state securities laws.

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

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

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

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

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

It is routine for our internal projections

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

prior to the end of the next quarter or year.

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

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

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

We caution and advise readers that these statements are only predictions

and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those included in the “Risk Factors”

section of this Quarterly Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22,

2023, as amended on May 1, 2023.

Therefore, actual results may differ materially and adversely from those expressed in any forward-looking

statements and investors are cautioned not to place undue reliance on any such statements.

We undertake no obligation to publicly update

or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

of Our Business

mission is to help people feel and live better through innovative comfort solutions.

began as a digitally-native vertical brand founded on comfort product innovation with premium offerings, and are now omni-channel.

design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames,

sheets, duvets, duvet covers, and other products.

Our products are the result of over 30 years of innovation and investment in proprietary

and patented comfort technologies and the development of our own manufacturing 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’

We market and sell our products directly to consumers through our e-commerce and Purple owned retail showroom channels (collectively

“DTC”), online marketplaces and retail wholesale partners.

Our business consists of Purple

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 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

In March 2022, the Company

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

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

The aggregate net proceeds received by the

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

Debt Financing

On September 3, 2020, Purple

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

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 its underwritten public offering, described above,

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

The Company’s operating

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

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 as holder of all Class A units 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 March 31, 2023,

had a 99.6% economic interest in Purple LLC while Class B unit holders had the remaining 0.4%.

August 31, 2022, the Company acquired all the issued and outstanding stock of Intellibed pursuant to the Merger Agreement in which Gelato

Merger Sub, Inc., a wholly owned subsidiary of Purple Inc., merged with and into Intellibed, with Intellibed continuing as a wholly owned

subsidiary of Purple Inc.

On October 3, 2022, Purple Inc.

contributed 100% of the membership interest in Intellibed to Purple LLC and

Intellibed became a wholly owned subsidiary of Purple LLC.

For further discussion see Note 4 — Acquisition.

Summary – Results of Operations

Net revenues decreased 23.6%

to $109.4 million for the three months ended March 31, 2023 compared to $143.2 million for the three months ended March 31, 2022.

decrease was primarily due to continued softening demand for home related products as consumer spending patterns shift more towards services

and experiences, the negative effect of inflationary pressures on consumer discretionary spending, and our intentional reduction in advertising

This decrease was also due in part to wholesale demand for our legacy mattress models being negatively impacted by the upcoming

launch of our new premium and luxury product lineup in the second quarter of 2023.

profit decreased 16.3% to $43.2 million for the three months ended March 31, 2023 compared to $51.6 million for the three months ended

March 31, 2022 due primarily to the decrease in sales volume.

The gross profit percentage in 2023 was 39.5% as compared to 36.1% in 2022.

Our gross profit percentage in the prior year was adversely impacted by elevated levels of materials, labor and freight costs.

first quarter of 2023, we benefited from our efficiency and cost reduction initiatives, including greater balancing of production and

fulfillment operations between facilities, that were initiated in the first half of fiscal 2022 and became fully impactful during the

second half of that year.

Operating expenses decreased

6.8% to $65.2 million for the three months ended March 31, 2023 compared to $70.0 million for the three months ended March 31, 2022.

decrease primarily reflected a $12.0 million reduction in advertising spend due to the intentional

reduction to improve marketing efficiency, stabilize profitability and align spending with current demand levels.

Approximately $3.0 million

in launch related expenses were shifted into the second quarter.

The decrease in advertising spending was offset in part by $5.9

million of non-recurring legal and professional expenses incurred by the Board’s Special Committee.

expense totaled $1.3 million for the three months ended March 31, 2023 compared to other income of $2.9 million for the three months

ended March 31, 2022.

Other expense in 2023 included a $1.2 million loss on extinguishment of the Company’s term loan during the

Other income in 2022 primarily reflected a $3.9 million gain related to a decrease in the fair value of the sponsor warrants

outstanding at the end of March 31, 2022.

Net loss increased $9.8 million

to $23.3 million for the three months ended March 31, 2023 compared to $13.5 million for the three months ended March 31, 2022.

in net loss in 2023 was due to an $8.4 million decrease in gross profit due primarily to the decrease in net revenues, a decrease of

$6.2 million in other income and income tax benefit partially offset by $4.8 million in reduced operating costs.

Developments in Our Business

Cooperation Agreement

February 21, 2023, Coliseum filed a complaint against the Company and several members of the Board alleging that the Company and the named

directors authorized an improper dividend of preferred stock in bad faith to impede stockholder voting rights and interfered with Coliseum’s

nomination of a competing slate of director candidates ahead of the Company’s 2023 annual meeting of stockholders.

19, 2023, the Company entered into a Cooperation Agreement with Coliseum in connection with the previously disclosed complaint.

The Cooperation

Agreement became effective on April 27, 2023 and included the following provisions:

size of the Board was increased from seven directors to eight directors.

Company amended and restated the Company’s Second Amended and Restated Bylaws to include references to the Company’s Lead

Independent Director Charter.

Board member and Coliseum managing partner Adam Gray was appointed Chairman of the Board.

Board member Gary DiCamillo continues to serve as Lead Independent Director and was appointed chair of the Nomination and Governance

● Paul Zepf and Pano Anthos resigned as directors of the Company.

● The Board appointed S.

Hoby Darling, R.

Carter Pate, and Erika Serow

to fill the vacancies created by increasing the size of the board and the resignations of Mr.

● Scott Peterson, who is a stockholder and has served as Board Observer

since the Company’s acquisition of Intellibed, will be a nominee on the Board’s slate of directors at the 2023 Annual Meeting

in place of Dawn Zier, who previously announced her intention not to stand for re-election.

● Other than as described above with respect to

Dawn Zier, the Board will nominate all incumbent directors for election at the Company’s annual meetings of stockholders to be held

in 2023 and 2024.

● The Company amended its Corporate Governance Guidelines for Operation

of the Board of Directors and adopted a Lead Independent Director Charter to provide for the responsibilities of the Lead Independent

● The Company terminated the stockholder rights agreement it adopted

on September 25, 2022 and agreed not to adopt a new stockholder rights agreement prior to the termination of the Cooperation Agreement

without Coliseum’s prior consent.

● The Company redeemed all outstanding shares of PRPLS and agreed not

to issue any similar security or take any other action prior to the termination of the Cooperation Agreement that would change the stockholder

voting standards from those in effect prior to the issuance of the PRPLS.

The PRPLS redemption payment record date will be as of April

Company will reimburse Coliseum for all out-of-pocket fees, costs, and expenses incurred

in connection with the complaint, provided that such an amount shall not exceed $4 million

in the aggregate.

● The Company terminated the Special Committee.

● Coliseum dismissed its litigation against the Company.

● At the 2023 and 2024 annual meetings of stockholders, Coliseum

will cause all of the common stock that Coliseum or any of its affiliates has the direct or indirect right to vote as of the applicable

record date, to be present in person or by proxy for quorum purposes and to be voted (i) in favor of each of the candidates for election

on the Company’s slate of nominees for election to the Board, (ii) against any stockholder nominations for any other directors,

and (iii) against any proposals or resolutions to remove any member of the Board other than for cause.

agreed to be bound by customary standstill restrictions, including, among others, agreements not to acquire additional shares of the

Company’s securities that would cause Coliseum’s ownership of Voting Securities to exceed 44.4% of the total outstanding

Common Stock (other than acquisitions directly from the Company), engage in proxy solicitations and related matters, form or join any

“group” with respect to shares of the Company, encourage others to pursue a “contested solicitation,” or make

any public proposals, subject to certain exceptions.

agreed to condition any proposal from it or any of its affiliates to acquire the Company or all or substantially all of the outstanding

stock of the Company held by stockholders unaffiliated with Coliseum on (i) such transaction being negotiated by, and subject to the

approval of, a special committee of directors of the Board who are independent with respect to Coliseum and disinterested under Delaware

law and (ii) a nonwaivable condition that such transaction be approved by the affirmative vote of the holders of a majority of the Company’s

outstanding common stock not beneficially owned by Coliseum or its affiliates or other parties with a material conflict of interest in

such transaction.

The Cooperation Agreement shall terminate on the day following the date on which the 2024 annual meeting of stockholders is held.

Registration Statement and Equity Financing

January 30, 2023, the Form S-3 shelf registration statement we filed with the SEC in December 2022 became effective.

As a result, we

may offer and sell from time to time, in one or more series or issuances and on terms that we will determine at the time of the offering,

any combination of the securities described in the registration statement, up to an aggregate amount of $90.0 million.

In February 2023, we completed an underwritten offering of 13.4

million shares of Class A common stock at a public offering price of $4.50 per share.

The underwriters did not exercise their over-allotment

The aggregate net proceeds received by us from the offering, after deducting offering fees and expenses of $3.1 million, totaled

$57.2 million.

September 3, 2020, Purple LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions

(the “2020 Credit Agreement”).

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

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

This amendment contained a covenant

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

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

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

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

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

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

2023 until certain conditions are met, and the interest rate was changed from LIBOR plus 3.00% to SOFR plus 4.75%.

Pursuant to this amendment,

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

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

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 2020 Credit Agreement provided for a $45.0 million term loan and a $55.0 million revolving

line of credit.

The term loan was to be repaid in accordance with a five-year amortization schedule or 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.

On February 17, 2023, we entered into a fifth amendment to the 2020

Credit Agreement.

As a condition of entering into the amendment, we repaid the $24.7 million outstanding balance on the term loan plus

accrued interest.

The amendment provided that the maximum leverage ratio covenant will not be tested for the first and second quarters

of 2023, revised the ratio to 4.50x for the third quarter of 2023, and revised the ratio to 3.00x for all quarters thereafter.

the minimum fixed charge coverage ratio covenant will not be tested for the first and second quarters of 2023, was revised to 1.50x for

the third and fourth quarters of 2023, and was revised to 2.00x for all quarters thereafter.

The amendment also revised the lease incurrence

test which allows us to incur ten new showroom leases for stores that will open in 2023 and six new leases for stores that will open in

Moreover, beginning in the fourth quarter of 2023, we will be allowed to begin incurring leases for stores that will open in 2024,

subject to leverage ratio requirements.

The leverage ratio must be less than 2.50x to sign leases, with up to a maximum of six new leases

per quarter, increasing to eight new leases per quarter if the leverage ratio is less than 2.00x.

The amendment further provided certain

minimum consolidated EBITDA covenants for the first and second quarters of 2023 based on our total unrestricted cash and unused revolver

availability.

The amendment also modified the definition of consolidated EBITDA to allow for nonrecurring / one-time and non-cash expenses

and certain other expenses that are cash capped.

In addition, for purposes of the definition of consolidated EBITDA, annual non-recurring

and unusual out-of-pocket legal expenses were capped at $5.0 million for 2023 and $2.0 million per year thereafter.

the amendment (i) reduced the amount available under the revolving line of credit to $50.0 million, (ii) provided

that the maturity date of the 2020 Credit Agreement will spring forward to June 30, 2024 if consolidated EBITDA is not greater than

$15.0 million for 2023, (iii) reduced limits on maximum growth capital expenditures to $32.0 million for 2023 and $35.0 million

for 2024 and 2025, and (iv) revised the current minimum liquidity covenant of $25.0 million to provide that it will increase

to $30.0 million for each three-month period following the applicable fiscal quarter if the leverage ratio is greater than 3.00x

for any fiscal quarter ending on or after the third quarter of 2023.

Pursuant to this amendment, we incurred fees and expenses of $2.9

million that were recorded as debt issuance costs in the condensed consolidated balance sheet.

The amendment was accounted for as an extinguishment

of debt and $1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in

the condensed consolidated statement of operations.

For us to draw on our revolving line of credit, we must be in compliance with the

covenants outlined in the fifth amendment.

As of March 31, 2023, we complied with all the financial covenants associated with the

2020 Credit Agreement, as amended, and the full $50.0 million of the revolving line of credit was available to draw upon.

The COVID-19 pandemic has impacted many aspects of our operations,

1 unchanged sentence

market overall.

The scope and nature of these impacts continue to evolve.

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

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

As inflationary

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

In addition, COVID-19 and other events,

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

and constraints.

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

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

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

levels, we have increased wages and other compensation.

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

cost of goods sold and lower margins.

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

increase further in the foreseeable future.

In the fourth quarter of 2021

and continuing into 2022, our gross 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 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 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 profit erosion.

There is no guarantee that

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

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

Therefore, actual results may differ

materially and adversely from those described above.

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

the market or our business.

Operating Results for the Three Months Ended 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,

Soon after the pandemic began, we experienced an increase in demand in our e-commerce channel, and in 2021 we doubled

our production capacity by opening a second, larger plant in Georgia to match actual and anticipated demand growth.

After two years of

the pandemic, we experienced a pull-back in growth.

In 2022, our gross profit and results of operations were adversely affected by elevated

levels of materials, labor and freight costs and the lower demand levels.

In the first quarter of 2023, we benefited from various efficiency

and cost reduction initiatives at the plant level that became fully impactful during the second half of 2022.

These efficiency and cost

saving initiatives helped increase our gross margin in the first quarter of 2023 to 39.5% compared to 36.1% in the first quarter of 2022.

In the first quarter of 2023,

we continued to experience a softening of demand for home-related products as consumers shift spending patterns more towards services

and experiences.

As consumer spending habits shift away from e-commerce purchases to brick and mortar buying, we have invested in showroom

expansion while continuing to develop our capabilities and improving productivity.

We have also focused on growing our placements with

wholesale partners and improving wholesale door productivity.

Although we ended both the first quarter of 2023 and year-end 2022 with

55 Purple owned retail showrooms, we expect to start adding new showrooms again across the remainder of 2023.

In addition, at March 31,

2023, our products were being sold through approximately 3,400 wholesale doors, having added approximately 300 net new doors during the

past 12 months.

Showroom expansion and improving the sales productivity of both our wholesale doors and existing showrooms remain primary

focuses and are critical components 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 building the framework for improved 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 us for accelerated growth.

In 2022 and continuing into the first quarter of 2023, we have purposely

reduced our advertising spending to improve marketing efficiency, conserve profitability in a challenging macroeconomic environment and

align spending with current demand levels.

As we have expanded our focus on product development and increased our innovation capabilities,

in the first quarter of 2023 we announced the upcoming May 2023 launch of our new Premium and Luxe product lineup.

This launch is being

supported by enhancements to our in-store presence, refinements to our marketing programs and brand messaging and the shift of approximately

$3.0 million of launch related expenses into the second quarter of 2023.

We believe the acquisition

of Intellibed was a strong strategic addition because of shared technology and geographic proximity of their primary facility.

The acquisition

also provided an immediate impact on our target luxury market expansion.

We also expect to capitalize on synergies of the combined companies

and to benefit from expanding the market presence of premium product offerings.

In addition, the acquisition has allowed us to consolidate

ownership of our intellectual property and more fully capitalize on growing demand for products with gel technologies.

Moreover, the acquisition

has accelerated our product development program by several years and allowed us to immediately enter the higher price point luxury segment

of the sleep and wellness industry that are a natural extension of our existing product offerings.

We believe that our four strategic initiatives – accelerating

innovation, brand elevation, developing our three distribution channels and operational excellence – will be fundamental to our

future success.

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

Develop and execute our strategies to meaningfully expand our wholesale business by strengthening wholesale relationships and prioritizing existing door productivity.

The initial testing of our new product line-up with our wholesale partners was positive and we currently have increased our existing footprint by 1,900 slots, a 15% increase, and we continue to receive orders to further expand our existing footprint.

Expand and mature our fleet of Purple company owned showrooms in 2023 to increase door productivity, provide a brand halo benefit to other channels in the surrounding areas, strengthen the relationship with the consumer, and increase share of more profitable DTC revenues.

Build brand position to grow our market share of the premium and luxury mattress categories.

We plan to launch our elevated brand positioning in the second quarter of 2023.

and enhance marketing strategies to reach a broader audience, increase customer engagement

and reduce dependency on price promotions as a means of driving sales.

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.

production labor and capacity utilization to promote efficient use of our manufacturing facilities

as we grow into our production footprint.

input costs, operating efficiencies and pricing to further enhance our gross margin.

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

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

Therefore, actual

results may differ materially and adversely from those described above.

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

to changes in the market or our business.

Results for the Three Months Ended March 31, 2023 and 2022

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 March 31,

Revenues, net

5 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other income (expense):

Interest income (expense), net

Other income, net

Change in fair value – warrant liabilities

Tax receivable agreement income

Total other income, net

Net income (loss) before income taxes

Income tax benefit

Net income (loss) attributable to noncontrolling

Net income attributable to Purple Innovation, Inc.

Revenues, Net

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 $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

$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 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

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 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 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.

Other income, net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

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

Total other income (expense), net

Net loss before income taxes

Income tax (expense) benefit

We had an income tax benefit

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

The Company calculates net

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

attributed to noncontrolling interests 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

Cost of revenues

Operating expenses:

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating income (loss)

Other income (expense):

Interest expense

Other income (expense), net

Change in fair value – warrant liabilities

Tax receivable agreement income

Total other income, net

Net income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Net income (loss) attributable to noncontrolling interest

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

Revenues, Net

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 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

$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

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Net revenues decreased $33.8

million, or 23.6%, to $109.4 million for the three months ended March 31, 2023 compared to $143.2 million for the three months ended March

The decrease in net revenues was primarily due to continued softening demand for home related products as consumer spending

patterns shift more towards services and experiences, the negative effect of inflationary pressures on consumer discretionary spending,

and our intentional reduction in advertising spend.

This decrease was also due in part to wholesale demand for our legacy mattress models

being impacted by the upcoming launch of our new Premium and Luxe product lineup in the second quarter.

The decline in net revenues from

a sales channel perspective consisted of DTC net revenues decreasing $19.2 million, or 22.5% and wholesale net revenues decreasing $14.6

million, or 25.3%.

Within DTC, e-commerce net revenues decreased $22.2 million, or 30.1%, while Purple owned retail showroom net revenues

increased $2.9 million, or 24.4%.

The decrease in e-commerce net revenues reflected the impact of the reasons previously stated.

in Purple owned retail showroom net revenue was mainly driven by showrooms increasing from 34 at the end of March 2022 to 55 at the end

of March 2023.

The decrease in wholesale net revenues was due in part to reduced purchases by our existing wholesale partners ahead of

taking delivery of new models in conjunction with the upcoming launch of our new premium product lineup in the second quarter.

in wholesale net revenues was offset in part by the effects of adding $5.3 million of Intellibed wholesale net revenues.

Cost of revenues decreased

$25.4 million, or 27.7%, to $66.1 million for the three months ended March 31, 2023 compared to $91.6 million for the three months ended

March 31, 2022.

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

Our gross profit percentage, which increased

to 39.5% of net revenues in the first quarter of 2023 from 36.1% in the first quarter of 2022, benefited from the continued realization

of efficiency and cost saving initiatives that we introduced in the first half of fiscal 2022 and became more fully impactful during the

second half of the year and into 2023.

Marketing and sales expense

decreased $11.8 million, or 23.6%, to $38.2 million for the three months ended March 31, 2023 compared to $50.0 million for the three

months ended March 31, 2022.

This decrease reflected a decline in advertising spending of $12.0 million, or 50.7% to $11.7 million in

2023 from $23.7 million in 2022.

This reduction was primarily due to management focusing its efforts on improving marketing efficiency

with its legacy products and delaying advertising spend increases to align with the upcoming launch of our new premium and luxury product

lineup in the second quarter.

Marketing and sales expense as a percentage of net revenues was 34.9% in both the first quarter of 2023

and the first quarter of 2022.

and Administrative

General and administrative

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

expense increased $5.8 million, or 32.3%, to $23.7 million for the three months ended March 31, 2023 compared to $17.9 million for the

three months ended March 31, 2022.

This increase was primarily due to $5.9 million in legal and professional fees associated

with expenses incurred by the Special Committee.

and Development

Research and development costs

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

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 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 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 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 $6.6 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

The Company calculates net income or loss attributable

to noncontrolling interests on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling

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

September 30, 2021.

increased $1.2 million, or 57.3%, to $3.4 million for the three months ended March 31, 2023 compared to $2.1 million for the three months

ended March 31, 2022.

This increase primarily reflected higher costs associated with our renewed focus on product innovation.

Income (Loss)

loss increased $3.6 million to $22.0 million for the three months ended March 31, 2023 compared to $18.4 million for the three months

ended March 31, 2022.

The larger operating loss primarily resulted from a decrease in gross profit that was driven by lower sales, offset

in part by a decrease in operating expenses related primarily to lower advertising spend.

expense totaled $0.2 million for the three months ended March 31, 2023 compared to $1.0 million for the three months ended March 31,

This decrease was primarily due to higher interest expense of $0.7 million incurred during the three months ended March 31, 2022

on the term loan that was paid off in February 2023 and 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.

on Extinguishment of Debt

February 17, 2023, the Company entered into a fifth amendment to the 2020 Credit Agreement and repaid in full the $24.7 million outstanding

balance of the term loan plus accrued interest.

The amendment was accounted for as an extinguishment of debt during the first quarter

of 2023 and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in the condensed consolidated

statement of operations.

in Fair Value – Warrant Liabilities

In February 2023, the 1.9 million of sponsor warrants outstanding expired

and were cancelled pursuant to the terms of the agreement.

These sponsor warrants had no fair value on the date of expiration.

the three months ended March 31, 2022, we recognized a gain of $3.9 million in our condensed consolidated statement of operations related

to a decrease in the fair value of the warrants outstanding at the end of the quarter.

The 1.9 million sponsor warrants outstanding at

March 31, 2022 had a fair value of $0.4 million.

Tax (Expense) Benefit

We had income tax expense of $0.1

million for the three months ended March 31, 2023 compared to an income tax benefit of $1.8 million for the three months ended March 31,

The income tax expense amount in the first quarter of 2023 related to various state taxes.

Noncontrolling

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

Net loss attributed to noncontrolling interests was $0.1 million for both the three months ended March 31, 2023 and 2022.

and Capital Resources

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 facility

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, working capital needs, and operating lease payment obligations.

Our working capital needs depend

largely upon the timing of cash receipts from product sales, payments to vendors and others, and changes in inventories.

Our unrestricted

cash and working capital positions were $52.8 million and $77.5 million, respectively, as of March 31, 2023 compared to $40.0 million

and $62.4 million, respectively, as of December 31, 2022.

Cash used for capital expenditures decreased from $13.1 million in the first

quarter of 2022 to $2.9 million in the first quarter of 2023.

Our capital expenditures in the first quarter of 2023 primarily consisted

of additional investments made in our manufacturing facilities in Utah and Georgia.

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 continue satisfying the conditions of our 2020 Credit Agreement, as amended, 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

In such event, this could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may not

be able to timely satisfy customer orders, and we may not be able to retain all of our employees.

We may also consider seeking additional

funding sources including new debt or equity capital.

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.

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 owned retail store channels will

be sufficient to meet our working capital requirements, comply with debt covenants and cover anticipated capital expenditures for at least

the next 12 months.

Registration Statement and Offering of Class A Common Stock

January 30, 2023, the registration statement we filed in December 2022 on Form S-3 with the SEC using the “shelf” registration

process became effective.

As a result, we may offer and sell from time to time, in one or more series or issuances and on terms that

we will determine at the time of the offering, any combination of the securities described in the registration statement, up to an aggregate

amount of $90.0 million.

In February 2023, the Company completed an underwritten offering of 13.4

million shares of Class A common stock at a public offering price of $4.50 per share.

The underwriters did not exercise their over-allotment

The aggregate net proceeds received by the Company from the offering, after deducting offering fees and expenses of $3.1 million,

totaled $57.2 million.

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

revolving line of credit.

The term loan was to be repaid in accordance with a five-year amortization schedule and could 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.

On February 17, 2023, we entered

into a fifth amendment to the 2020 Credit Agreement.

As a condition of entering into the amendment, we repaid the $24.7 million outstanding

balance on the term loan plus accrued interest.

The amendment provided that the maximum leverage ratio covenant will not be tested for

the first and second quarters of 2023, revised the ratio to 4.50x for the third quarter of 2023, and revised the ratio to 3.00x for all

quarters thereafter.

In addition, the minimum fixed charge coverage ratio covenant will not be tested for the first and second quarters

of 2023, was revised to 1.50x for the third and fourth quarters of 2023, and was revised to 2.00x for all quarters thereafter.

The amendment

also revised the lease incurrence test which allows us to incur ten new showroom leases for stores that will open in 2023 and six new

leases for stores that will open in 2024.

Moreover, beginning in the fourth quarter of 2023, we will be allowed to begin incurring additional

leases for stores that will open in 2024, subject to leverage ratio requirements.

The leverage ratio must be less than 2.50x to sign leases,

with up to a maximum of six new leases per quarter, increasing to eight new leases per quarter if the leverage ratio is less than 2.00x.

The amendment further provided certain minimum consolidated EBITDA covenants for the first and second quarters of 2023 based on our total

unrestricted cash and unused revolver availability.

The amendment also modified the definition of consolidated EBITDA to allow for nonrecurring

/ one-time and non-cash expenses and certain other expenses that are cash capped.

In addition, for purposes of the definition

of consolidated EBITDA, annual non-recurring and unusual out-of-pocket legal expenses were capped at $5.0 million for 2023 and $2.0 million

per year thereafter.

Moreover, the amendment (i) reduced the amount available under the revolving line of credit to $50.0 million, (ii) provided

that the maturity date of the 2020 Credit Agreement will spring forward to June 30, 2024 if consolidated EBITDA is not greater than

$15.0 million for 2023, (iii) reduced limits on maximum growth capital expenditures to $32.0 million for 2023 and $35.0 million

for 2024 and 2025, and (iv) revised the current minimum liquidity covenant of $25.0 million to provide that it will increase

to $30.0 million for each three-month period following the applicable fiscal quarter if the leverage ratio is greater than 3.00x

for any fiscal quarter ending on or after the third quarter of 2023.

Pursuant to this amendment, we incurred fees and expenses of $2.9

million that were recorded as debt issuance costs in the condensed consolidated balance sheet.

The amendment was accounted for as an extinguishment

of debt and $1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in

the condensed consolidated statement of operations.

For us to draw on the revolving line of credit, we must be in compliance with the

covenants outlined in the fifth amendment.

As of March 31, 2023, we complied with all the financial covenants associated with the

2020 Credit Agreement, as amended, and the full $50.0 million of the revolving line of credit was available to draw upon.

Receivable Agreement

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

liquidity and capital resources.

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

In March 2022, the Company

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

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

The aggregate net proceeds received by the

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

On September 3, 2020, Purple

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

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

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

the 2020 Credit Agreement.

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

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

This amendment contained a covenant

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

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

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

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

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

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

2023 until certain conditions are met.

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

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

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

If the Company does not meet this threshold, the

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

Once the Company achieves a consolidated leverage ratio that is

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

leverage 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

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

condensed consolidated balance sheet.

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

ASC 470 – Debt .

Tax Receivable Agreement

We are required to make certain

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

We are currently unable to determine the total future amount of these payments due to the unpredictable nature of several factors, including

the timing of future exchanges, the market price of shares of Class A common stock at the time of the exchanges, the extent to which

such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes that give rise to

the payments under the agreement.

As of 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

In addition to the material

contractual obligations discussed above, other material contractual obligations primarily include operating lease payments obligations.

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

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 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

As of both March 31, 2023 and December 31, 2022, there was no tax receivable agreement liability reflected

in the Company’s consolidated balance sheet.

For reasons similar to those that led to the recording of a full valuation allowance

on our deferred tax assets in the fourth quarter of 2022, we evaluated the probability of amounts being owed pursuant to the tax receivable

agreement and determined the likelihood of a future liability was not probable.

As result, we continued to record no tax receivable

agreement liability in the first quarter of 2023.

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.

Contractual Obligations

Other material

contractual obligations primarily include operating lease payment obligations.

Also, as discussed above regarding the Cooperation

Agreement, we will reimburse Coliseum for all out-of-pocket fees, costs, and expenses incurred in connection with their complaint,

provided that such an amount shall not exceed $4 million in the aggregate.

See Note 9 of the condensed consolidated financial

statements for additional information on leases.

Flows for the Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

following summarizes our cash flows for the three months ended March 31, 2023 and 2022 as reported in our condensed consolidated statements

of cash flows (in thousands):

Three Months Ended

Net cash used in operating activities

Net cash used in investing activities

1 unchanged sentence

Net decrease in cash

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

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

Cash, beginning of the period

Cash, end of the period

Cash used in operating activities

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 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,

was $13.5 million and $44.3 million for the three months ended March 31, 2023 and 2022, respectively.

Cash used in operating activities

in 2023 was primarily comprised of a net loss of $23.3 million, offset in part by non-cash adjustments totaling $9.6 million.

These non-cash adjustments primarily related to $6.9 million of depreciation and amortization, a $1.2 million loss on the extinguishment

of debt and $1.2 million of stock-based compensation.

Changes in operating assets and liabilities increased cash used in operating activities

by $0.3 million in 2023.

This increase primarily reflected a $20.1 million decrease in accounts receivable and a $1.2 million increase

in accounts payable, offset by a $14.5 million increase in inventories combined with a $6.8 million decrease in accrued rebates and allowances.

The decline in accounts receivable was due in part to a $23.3 million decrease in wholesale net revenues in the first quarter of 2023

compared to the fourth quarter of 2022.

The increase in inventories was primarily due to an increase in finished goods inventory.

decrease in accrued rebates and allowances primarily resulted from a large credit memo issued to a wholesale partner for volume rebates

related to 2022 purchases.

Cash used in investing activities

reflected capital expenditures of $3.1 million for the three months ended March 31, 2023 compared to $13.1 million for the three months

ended March 31, 2022.

Capital expenditures in the first quarter of 2023 primarily consisted of additional investments made in our

manufacturing facilities in Utah and Georgia.

provided by financing activities was $29.4 million during the three months ended March 31, 2023 compared to $28.4 million during the

three months ended March 31, 2022.

Financing activities in the first quarter of 2023 included $57.2 million of net proceeds received

from the stock offering, offset in part by a $24.7 million term loan payment, a $0.3 million payment on the tax receivable agreement,

and $2.9 million in other debt related payments.

Critical Accounting Policies

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

Our website address is www.purple.com.

We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K,

quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a)

or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or

furnish it to, the SEC.

We also use the Investor Relations

portion of our website, investors.purple.com, as a channel of distribution of additional Company information that may be deemed material.

Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls

and webcasts.

Accounting Policies

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

Results of Operations in our 2022 Annual Report on Form 10-K filed March 22, 2023.

There were no significant changes in our

critical accounting policies since the end of fiscal 2022.

website address is www.purple.com.

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

our annual report on Form 10-K and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those

reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable

after we electronically file such material with, or furnish it to, the SEC.

The inclusion of our website address in this report does

not include or incorporate by reference into this report any information on our website.

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

that may be deemed material.

Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings

and public conference calls and webcasts.

The contents of our website shall not be deemed to be incorporated herein by reference.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis