What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-15 · 397 added, 664 removed, 37 unchanged (97% of the section changed)

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

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

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

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is

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

The discussion should be read

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Financial Statements.”

FORWARD-LOOKING

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

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

current expectations and beliefs.

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

for purposes of federal and state securities laws.

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

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

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

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

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

It is routine for our internal projections

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

prior to the end of the next quarter or year.

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

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

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

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

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

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

Revision of Consolidated Financial Statements

for Correction of Immaterial Misstatements

This Management’s Discussion

and Analysis of Financial Condition and Results of Operations gives effect to the revision of the Company’s unaudited condensed

consolidated financial statements as of and for the three and nine months ended September 30, 2022.

For further detail regarding the revision,

see Note 3 – Revision of Consolidated Financial Statements for Correction of Immaterial Misstatements of the Notes to the

consolidated financial statements and Part I, Item 4 - Controls and Procedures herein.

of Our Business

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

are an omni-channel Company that began as 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, 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, online

marketplaces and retail wholesale partners.

business consists of Purple Inc.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form

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

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

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

securities laws.

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

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

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

of these words and other similar words.

All forward-looking statements

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

It is routine for our internal projections and expectations to

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

of the next quarter or year.

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

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

of future events or circumstances are forward-looking statements.

We caution and advise readers

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

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

Securities and Exchange Commission on March 12, 2024.

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 help people

feel and live better through innovative comfort solutions.

We are an omni-channel company

that began as 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, 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’ products.

our products via our DTC channels, including Purple.com, online marketplaces (e.g., Amazon), our customer contact center, Purple showrooms

and through wholesale retailers.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

was incorporated in Delaware on May 19, 2015

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

On February 2, 2018, Purple Inc.

consummated a transaction structured

similar to a reverse recapitalization pursuant to which Purple Inc.

acquired an equity interest in Purple LLC 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,

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the approval of any other member.

At September 30, 2023, Purple Inc.

had a 99.6% economic interest in Purple LLC while other Class B

Unit holders had the remaining 0.4%.

On August 31, 2022, we acquired

all the issued and outstanding stock of Intellibed pursuant to the Merger Agreement.

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 5 — Acquisition.

Summary – Third Quarter Results of Operations

Net revenues decreased $2.9 million, or 2.0%, to $140.0 million for

the three months ended September 30, 2023 as compared to the corresponding period in the prior year.

This decrease reflected the continued

impact of softening demand for home-related products due to the normalization of demand distribution.

The negative effects of this were

mostly offset by additional existing wholesale partners transitioning to our new Premium and Luxe product lineup coupled with the positive

response to the new products in our DTC channels.

Gross profit decreased $11.7

million, or 19.8%, to $47.3 million for the three months ended September 30, 2023 as compared to the corresponding period in the prior

This decrease reflected the impact of our gross profit percentage declining to 33.8% of net revenues in the third quarter of 2023

as compared to 41.3% in the third quarter of 2022.

The lower gross profit percentage was primarily due to the impact of new mattress and

base floor models being sold to our wholesale partners at reduced pricing, increased labor and freight costs related to the transition

to our new products, the wrap-around on manufacturing efficiencies from last year when we

had a higher amount of inventory production, and a shift in revenue to our wholesale channel

which carries a lower average selling price than sales from our DTC channels.

Operating expenses increased

$21.8 million, or 37.6%, to $79.9 million for the three months ended September 30, 2023 when compared to the corresponding period in the

This increase was primarily due to higher advertising spend which began increasing in mid-May to align with the launch of

our new Premium and Luxe product lineups and enhanced brand positioning.

Operating expenses in 2023 also included a $6.9 million loss

on impairment of goodwill.

Other expense totaled $3.5

million for the three months ended September 30, 2023 compared to other income of $0.3 million for the three months ended September 30,

Other expense in 2023 was primarily comprised of a $3.1 million loss on extinguishment of debt associated with the termination of

the Company’s 2020 Credit Agreement in August 2023.

Net loss was $36.0 million for the three months ended September 30,

2023 compared to net income of $2.0 million for the three months ended September 30, 2022.

Developments in Our Business

Developments – Launch of New Premium and Luxe Product Lineups

In 2022 and continuing into 2023, we expanded our focus on product

development and increased our innovation capabilities.

As a result, in May 2023, we launched our new Premium and Luxe product lineups.

At March 31, 2024, Purple Inc.

had a 99.8% economic interest in Purple LLC while Class B unit holders

had the remaining 0.2%.

Recent Developments in Our Business

Operational Developments – Launch of

New Premium and Luxe Product Lineups

Beginning in 2022 and continuing into 2023, we expanded our focus on

product development and increased our innovation capabilities.

As a result, in May 2023, we launched our new Premium and Luxe product

This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging.

the response to our new products and enhanced brand positioning has been extremely positive, we have continued to experience in 2023 softening

demand for home-related products due to a normalization of demand distribution.

Also, as consumer spending habits have moved away from

the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple owned retail showrooms to 57 at September

The response to our new products and enhanced brand positioning has been extremely positive.

As consumer spending habits have moved away

from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 60 as of March 31, 2024.

In addition, we have focused on growing our placements with wholesale partners and improving wholesale door productivity.

the end of the third quarter, more than half of our approximately 3,300 wholesale doors had transitioned to our new line of mattress products.

We expect to convert the remaining wholesale doors to our new product lineup by the end of the year.

Improving the sales productivity

of both our wholesale doors and existing showrooms remains a primary focus and 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 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 early 2023, we purposely reduced our advertising spending to improve marketing efficiency, conserve profitability

in a challenging macroeconomic environment and align spending with current demand levels.

With the introduction of our new product lineups

in May 2023, we initiated a new marketing campaign and enhanced brand positioning.

As a result, in the third quarter of 2023, the first

full quarter with our new product lineup in-market, we grew net revenues 31.2% and 18.8% over the first and second quarters of 2023, respectively.

Also, sales from our e-commerce channel reached a more normalized level in the third quarter of 2023 as e-commerce net revenues increased

15.8% and 15.4% over the first and second quarters of 2023, respectively.

We believe we have set the right course for the next stage of

growth for the Company.

Cooperation Agreement

On February 21, 2023, Coliseum

filed a lawsuit against us and several members of our Board alleging that we 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 our 2023 annual meeting of stockholders.

On April 19, 2023, we entered into a Cooperation Agreement

with Coliseum to resolve the litigation.

The details of the Cooperation Agreement, which became effective on April 27, 2023, are discussed

further in Note 16 — Related Party Transactions — Coliseum Capital Management, LLC.

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.

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 option.

The aggregate net proceeds received by us from the

offering, after deducting offering fees and expenses of $3.3 million, totaled $57.0 million.

On August 7, 2023, Purple LLC, Purple Inc.

and Intellibed, (collectively

the “Loan Parties”) entered into a term loan credit agreement (the “Term Loan Agreement”) with Callodine Commercial

Finance, LLC and a group of financial institutions.

Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement

with the Bank of Montreal and a group of financial institutions (collectively the “ABL Lenders”) that provided for a revolving

asset-based credit facility (the “ABL Agreement” and together with the Term Loan Agreement the “2023 Credit Agreements”).

Pursuant to entering into these agreements, the Company incurred fees and expenses of $3.1 million that were recorded as debt issuance

costs in the third quarter of 2023.

Term Loan Agreement provided for up to $25.0 million of term loans, with up to $5.0 million of incremental term loans available, subject

to certain conditions (collectively, the “Term Loans”).

Proceeds from the Term Loans, which were fully drawn at closing,

are being used for general corporate purposes.

The borrowing rates under the Term Loan Agreement are based on SOFR, plus a credit spread

adjustment of 0.15% per annum, plus 8.5% per annum, with a SOFR floor of 2.0% per annum.

The Term Loans will be repaid at the earlier

of (a) a three-year amortization schedule ending on August 7, 2026 or (b) the payment in full of the ABL Agreement.

The Term Loans may

be prepaid in whole or in part at any time, but subject to a prepayment premium.

There may also be mandatory prepayment obligations based

on certain asset dispositions, casualty events and extraordinary receipts.

Once repaid, no portion of the Term Loans may be reborrowed.

The outstanding balance of the Term Loans was $25.0 million at September 30, 2023.

to a pledge and security agreement, the Loan Parties’ obligations under the Term Loan Agreement are secured by a perfected second-priority

security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected first-priority security interest

in substantially all other assets of the Loan Parties, including, without limitation, the intellectual property and equipment of the

Loan Parties, subject to certain exceptions.

The ABL Agreement provides for up to $50.0 million of revolving loans

subject to a borrowing base calculation and minimum availability requirements (with sub-facilities for swing line loans and the issuance

of letters of credit), with incremental increases available up to $20.0 million (the “ABL Loans”), subject to certain conditions,

availability reserves, minimum availability requirements, borrowing base calculations, and restrictive covenants.

In October 2023, the

ABL Lenders implemented an availability reserve of $5.0 million, which reduces the amount available under our borrowing base.

were drawn under the ABL Agreement at closing and there was no outstanding balance at September 30, 2023.

We executed $17.0 million in

draws on our ABL Loans in October and November 2023 and have given notice to repay $2.0 million.

We may use the funds drawn from the ABL

Agreement to finance permitted acquisitions, as defined in the ABL Agreement, and for working capital, capital expenditures and other

general corporate purposes.

Outstanding principal and accrued interest on the ABL Loans shall be repaid on August 7, 2026.

borrowing rates under the ABL Agreement will accrue on a three-tiered grid based on revolving availability, ranging from (i) SOFR, plus

a credit spread adjustment of 0.10% per annum, plus 2.75% per annum to (ii) SOFR, plus a credit spread adjustment of 0.10% per annum,

plus 3.25% per annum, with a SOFR floor of 0% per annum.

The ABL Loans may be prepaid in whole or in part at any time without premium

or penalty, subject to reimbursement of certain costs.

There may be mandatory prepayment obligations based on certain asset dispositions,

casualty events, equity issuances and extraordinary receipts.

to a pledge and security agreement, the Loan Parties’ obligations under the ABL Agreement are secured by a perfected first-priority

security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected second-priority security interest

in substantially all of the other assets of the Loan Parties, subject to certain exceptions.

connection with our execution of the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement in August

The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination.

The termination was accounted

for as an extinguishment of debt and $3.1 million of unamortized debt issuance costs related to the 2020 Credit Agreement were recorded

as a loss on extinguishment of debt in the condensed consolidated statement of operations.

Amendments to 2023 Credit Agreements

On November 6, 2023, we entered

into (i) a First Amendment and Waiver to the ABL Agreement (the “ABL Amendment”) and (ii) a First Amendment and Waiver to

the Term Loan Agreement (the “Term Loan Amendment”), with the Term Loan Lenders and ABL Lenders, respectively (collectively,

the “Lenders”), including waivers of the Subject Events of Default.

In addition, the ABL Amendment and Term Loan Amendment

also amended certain provisions of the 2023 Credit Agreements, including, among other changes, to require (i) weekly borrowing base certificates,

(ii) 13-week cash flow reports and budgets, (iii) budget variance reports, (iv) the appointment of a third-party consultant, and (v) daily

cash sweeps from the Loan Parties’ accounts to an account at the ABL Lender (collectively, the “2023 Credit Agreement Amendments”).

The foregoing descriptions of the ABL Amendment and Term Loan Amendment do not purport to be complete and are qualified in their entirety

by reference to the ABL Amendment and Term Loan Amendment, which are attached as Exhibit 10.2 and Exhibit 10.3, respectively, to this

report and are incorporated by reference herein.

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:

our wholesale relationships, prioritize existing door productivity, and develop and execute our other strategies to meaningfully

expand our wholesale business.

our fleet of Purple owned retail showrooms, increase door productivity, provide a brand halo benefit to other channels in the surrounding

areas, strengthen the relationship with the consumer, and develop a more profitable DTC revenue mix.

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

We launched our new Premium and Luxe product

lineups in the second quarter of 2023.

This launch was supported by enhancements to our in-store presence and refinements to our

marketing programs and brand messaging.

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

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 September 30, 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:

Three Months Ended September 30,

By the end of

2023, we had transitioned all of our wholesale partners to the new line of mattress products.

Improving the sales productivity of both

our wholesale partners and existing showrooms remains a primary focus and critical component of our strategy to respond to shifting demand

We are also diligently working to improve e-commerce conversion by determining ways to best optimize traffic on our website.

We experienced several years of growth during the pandemic and increased investments to support current and future expansion.

After right-sizing

our operations, improving our execution, and refining our strategies to drive share gains in the premium mattress category, we are now

building the framework for improved operational maturity and accountability to position us for accelerated growth.

With the introduction

of our new product lineups, we initiated a new marketing campaign which included enhanced brand positioning and increased media investment

at the top of the acquisition funnel.

In 2024, we believe we can achieve efficiencies with our media investments by targeting specific

segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product.

believe we have set the right course for the next stage of growth for the Company.

Debt Financing

On January 23, 2024, we entered

into the Amended and Restated Credit Agreement, which amended and restated the Term Loan Agreement, with the Lenders.

The Lenders agreed

to assume our obligations under the Term Loan Agreement and agreed to refinance our existing obligations.

Pursuant to the Amended and

Restated Credit Agreement, we borrowed $61.0 million from the Lenders that was used to repay the $25.0 million of Term Loans outstanding,

the $5.0 million of ABL Loans outstanding, loan fees, premiums and expenses incurred in connection with this transaction, and provided

net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) equal to approximately $27.0 million.

on the new loan is payable each month and the principal outstanding matures and is due on December 31, 2026.

We may elect for interest

to be capitalized and added to the principal amount.

The loan bears interest at a rate equal to (i) the secured overnight financing rate

plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce its

cash obligations, 10.25% per annum).

Any prepayments on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment

penalty of 1.25%, and any prepayments on or after August 7, 2025 are subject to a prepayment penalty of 2.50%.

We may request an additional

term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by us to the extent agreed to by the

Lenders at their discretion.

The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated

with an asset-based loan.

In connection with our execution of the Amended and Restated Credit Agreement, all obligations under the 2023

Credit Agreements were paid in full and the 2023 Agreements were terminated.

In connection with the Amended and Restated Credit Agreement, we issued

Warrants to the Lenders to purchase 20.0 million shares of our Class A common stock.

Each Warrant entitles the registered holder to purchase

one share of our Class A common stock at a price of $1.50 per share, subject to adjustment.

The Warrants will expire on the 10-year anniversary

of issuance, or earlier upon redemption.

A holder of the Warrants will not have the right to exercise them, to the extent that after giving

effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A

common stock outstanding immediately after giving effect to such exercise.

The Warrants contain certain provisions that do not meet the

criteria for equity classification and therefore were recorded as liabilities.

The liability for these Warrants was recorded at a fair

value of $19.6 million on the date of issuance with the offset included in debt issuance costs.

This liability is re-measured to fair

value at each reporting date or exercise date with changes in the fair value included in earnings.

During the three months ended March

31, 2024, we recognized a loss of $23.6 million in our condensed consolidated statement of operations related to an increase in the fair

value of the Warrants outstanding at March 31, 2024.

Registration Rights Agreement

In connection with the issuance

of the Warrants, we entered into the Registration Rights Agreement with the Holders, providing for the registration of Registrable Securities,

subject to customary terms and conditions.

We are responsible for the payment of the Holders’ expenses in connection with any offering

or sale of Registrable Securities by the Holders, including underwriting discounts or selling commissions, placement agent or broker fees

or similar discounts, commissions or fees relating to the sale of certain Registrable Securities.

On March 21, 2024, we filed a registration

statement registering the Registrable Securities.

Amended Employment Agreement and Special Recognition

January 26, 2024, the Board approved an amendment to our Chief Executive Officer’s employment agreement.

Under the amendment, we

agreed that, among other things:

(i) the Chief Executive Officer’s base salary will be increased, effective March 19, 2024, to $0.7

(ii) the Chief Executive Officer will be eligible to earn an incremental aggregate cash bonus equal to $0.9 million that will

vest 10% on August 1, 2024, 20% on February 1, 2025, and 70% on August 1, 2025, provided he continues to be employed by us and subject

to the Chief Executive Officer’s obligation to repay any such bonus actually received in the event his employment is terminated

other than by us without cause prior to June 30, 2026, subject to certain conditions;

and (iii) the Chief Executive Officer will be eligible

to earn a cash payment of up to $5.0 million, less tax and other required withholdings, based on the Volume Weighted Average Price per

share of our Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment

The amount earned will be payable in quarterly installments commencing with the first payroll period following June 30, 2026.

Also, on January 26, 2024,

the Board unanimously approved a special recognition bonus payment to certain members of our senior leadership team.

Each participant

is eligible to earn a special recognition bonus payment equal to 15 months of their regular salary.

The special recognition bonus payment

is payable, subject to the employee’s continued employment with us, 10% on August 1, 2024, 20% on February 1, 2025, and 70% on August

Executive Summary – Results of Operations

Net revenues increased 12.5%

to $120.0 million for the three months ended March 31, 2024 compared to $106.7 million for the three months ended March 31, 2023.

increase was primarily due to a $13.4 million, or 33.1%, increase in wholesale channel net revenues.

This growth reflected the continued

positive response by our wholesale partners to the new Premium and Luxe product lineups which became fully accessible to all our wholesalers

in the fourth quarter of 2023.

This increase was further affected by wholesale partner “slots” (a term commonly used to describe

a section in a wholesale partner’s store to display a particular product) growing approximately 11% during the quarter as compared

to the prior year first quarter.

Within our DTC channel, e-commerce net revenues decreased $1.8 million, or 3.5%, while Purple showroom

net revenues increased $1.7 million, or 11.3%.

The decrease in e-commerce net revenues reflected the ongoing impact of soft demand and

a reduction in price promotions.

The growth in Purple showroom net revenues was driven by the continued positive response to our new products

and the number of retail locations increasing to 60 at the end of the first quarter of 2024 from 55 at the end of the prior year first

Gross profit increased 2.8%

to $41.7 million for the three months ended March 31, 2024 compared to $40.6 million for the three months ended March 31, 2023 due primarily

to an increase in sales volume.

The gross profit percentage in 2024 was 34.8% as compared to 38.0% in 2023.

The lower gross profit percentage

in the first quarter of 2024 was primarily due to a shift in revenue to our wholesale channel, which carries a lower average selling price

than sales from our DTC channels.

Operating expenses decreased

0.5% to $64.9 million for the three months ended March 31, 2024 compared to $65.2 million for the three months ended March 31, 2023.

decrease primarily reflected a $3.9 million reduction in general and administrative expense, offset in part by a $3.3 million increase

in marketing and sales costs.

The decrease in general and administrative expense was primarily due to the prior year comparative quarter

including non-recurring legal and professional costs incurred by the Board’s special committee.

The increase in marketing and sales

expense was driven by higher advertising spend to further support our new product lineup coupled with an increase in wholesale marketing

and sales costs.

Other expense totaled $27.1

million for the three months ended March 31, 2024 compared to other expense of $1.3 million for the three months ended March 31, 2023.

Other expense in 2024 included a $23.6 million loss related to an increase in the fair value of the Warrants outstanding at March 31,

2024, a $3.4 million loss on extinguishment of the Company’s 2023 Credit Agreements during the quarter, and $4.5 million of interest

expense related primarily to our new loan under the Amended and Restated Credit Agreement.

These expenses were offset in part by $4.3

million of other income associated with proceeds received in January 2024 as partial settlement for a previously filed business interruption

insurance claim.

Net loss attributable to Purple Inc.

increased $24.3 million to $50.2

million for the three months ended March 31, 2024 compared to $25.9 million for the three months ended March 31, 2023.

The increase in

net loss in 2024 was primarily due to the $23.6 million loss associated with the increase in the fair value of the Warrants outstanding

at March 31, 2024.

Outlook for Growth

We believe that we are well positioned to build on our recent trends

due to our differentiated product and growing brand strength.

We remain focused on five key initiatives to drive profitable market share

the productivity of our existing wholesale and showroom doors.

With our wholesale partners, we are continuing to focus on deepening

our partnerships at each functional touch point, including joint business planning, collaborative marketing and sales associate training

to maximize productivity and continued brand awareness.

In showrooms, we are prioritizing profitability over door expansion, with only

one store addition planned for 2024.

We plan to drive profitability through a combination of demand driving initiatives as well as cost

optimization.

e-commerce mattress conversion.

The implementation of price changes to improve margins had the expected impact of lower conversion

rates in the first quarter.

We will look to enhance e-commerce conversion rates through data-enabled personalization, improved consumer

financing offers, and streamlining our website while testing new messaging configurations and techniques.

gross margin improvements.

We believe we can drive gross margin improvements through tactics such

as selective pricing actions, continued mix shift towards our Premium and Luxe collections and manufacturing and supply chain optimization.

focus on innovation.

We are strategically evaluating and ensuring we have a pipeline of future products in development of new

comfort and sleep technology.

We focus intensively on innovation to support our long-range growth and profitability plan.

Improving our marketing efficiency.

We are bringing the execution of our paid digital advertising back in-house, shifting more spend toward higher-converting media behind our “Sleep Better, Live Purple” campaign, reallocating media based on consumer segmentation and geographical analyses.

This includes new impactful advertising with the goal of decreasing our cost acquisition.

Additionally, we will look to drive more customer engagement through new marketing techniques.

There is no guarantee that we will be able to effectively execute these

initiatives, 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 March 31, 2024 and

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 March 31,

Revenues, net

4 unchanged sentences

Research and development

Loss on impairment of goodwill

Total operating expenses

Operating income (loss)

Operating loss

Other income (expense):

1 unchanged sentence

Other income, net

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Total other income (expense), net

Net income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Net income (loss) attributable to noncontrolling interest

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

Net revenues decreased $2.9

million, or 2.0%, to $140.0 million for the three months ended September 30, 2023 compared to $142.9 million for the three months ended

September 30, 2022.

This decrease reflected the continued impact of softening demand for home-related products due to the normalization

of demand distribution.

The negative effects of this were mostly offset by additional existing wholesale partners transitioning to our

new Premium and Luxe product lineup coupled with the positive response to the new products in our DTC channels.

From a sales channel perspective,

wholesale net revenues increased $1.5 million, or 2.6%, offset in part by DTC net revenues decreasing $4.4 million, or 5.2%.

in wholesale net revenues was primarily due to additional existing wholesale partners transitioning to our new product lineup during the

third quarter partially offset by an increase in the warranty reserve for products sold to our wholesale customers.

Within DTC, e-commerce

net revenues decreased $6.2 million, or 9.5%, while Purple owned retail showroom net revenues increased $1.8 million, or 9.7%.

e-commerce net revenues decreased as compared to the prior year corresponding quarter, the positive response to our new product lineups

resulted in e-commerce revenue increasing 15.8% and 15.4% over the first and second quarters of 2023, respectively.

The increase in Purple

owned retail showroom net revenue was driven by the positive response to our new product lineups coupled with the impact of showroom expansion.

Cost of revenues

increased $8.8 million, or 10.5%, to $92.7 million for the three months ended September 30, 2023 compared to $83.9 million for the

three months ended September 30, 2022.

This increase was due in part to increased labor and freight costs associated with the

transition to our new products.

Our gross profit percentage, which decreased to 33.8% of net revenues in the third quarter of 2023

from 41.3% in the prior year third quarter, was adversely impacted by new mattress and base floor models being sold to our wholesale

partners at reduced pricing, increased labor and freight costs related to the transition to our new products, the wrap-around on

manufacturing efficiencies from last year when we had a higher amount of inventory production, and increased discounting of

mattresses sold through our online channels as we transitioned to our new Premium and Luxe product lineups.

In addition, the gross

profit percentage in the third quarter of 2023 was negatively impacted by a shift in revenue to our wholesale channel, which carries

a lower average selling price than sales from our DTC channels.

Marketing and sales expense

increased $15.8 million, or 42.7%, to $52.8 million for the three months ended September 30, 2023 compared to $37.0 million for the three

months ended September 30, 2022.

Marketing and sales expense as a percentage of net revenues was 37.7% in the third quarter of 2023 compared

to 25.9% in the third quarter of 2022.

Advertising spending increased $12.6 million to $25.4 million for the three months ended September

30, 2023 compared to $12.7 million for the three months ended September 30, 2022.

Advertising spend began increasing in mid-May to align

with the launch of our new Premium and Luxe product lineups, whereas ad spend in the third quarter of 2022 had been reduced to align spending

with then current demand levels.

The increase in marketing and sales expense also reflected a $2.0 million increase in costs associated

with showroom expansion and a $1.3 million increase in wholesale marketing and sales costs as the majority of our existing wholesale partners

transitioned to our new Premium and Luxe product lineup during the third quarter of 2023.

and Administrative

and administrative expense decreased $1.6 million, or 8.6%, to $17.5 million for the three months ended September 30, 2023 compared to

$19.2 million for the three months ended September 30, 2022.

This decrease was primarily due to a $1.5 million decline in legal and professional

fees as the prior year comparative quarter included transaction costs associated with the Intellibed acquisition.

and Development

and development costs increased $0.8 million, or 40.3%, to $2.7 million for the three months ended September 30, 2023 compared to $1.9

million for the three months ended September 30, 2022.

This increase primarily reflected our continued focus on new product innovation

initiatives to remain competitive and advance our current product line.

Loss on Impairment of Goodwill

The ongoing decline in the Company’s market capitalization, along

with other qualitative considerations was determined to be a triggering event for potential goodwill impairment.

Accordingly, the Company

performed a goodwill impairment analysis as of September 30, 2023.

The Company, considered as a single reporting unit, estimated the implied

fair value of its goodwill using a variety of valuation methods, including both the income and market approaches.

As a result of the impairment

assessment performed, the Company determined goodwill was impaired and recorded an impairment charge to write off the entire $6.9 million

balance of goodwill.

Operating loss was $32.6 million

for the three months ended September 30, 2023 compared to operating income of $0.9 million for the three months ended September 30, 2022.

The operating loss in 2023 primarily reflected a decrease in gross profit that was driven by a reduced gross profit percentage, an increase

in marketing and sales costs associated with our new product launch, and a loss on impairment of goodwill.

expense totaled $0.6 million for the three months ended September 30, 2023 compared to $0.7 million for the three months ended September

In August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided

for up to $50.0 million of revolving loans.

Interest expense in the third quarter of 2023 totaled $0.9 million related to these new financing

arrangements.

Interest expense was reduced by capitalized interest that totaled $0.4 million and $0.2 million during the three months

ended September 30, 2023 and 2022, respectively.

Income (Expense)

income was $0.2 million for the three months ended September 30, 2023 compared to $1.1 million for the three months ended September 30,

This decrease primarily resulted from the prior year third quarter including an estimated fair value gain of $1.4 million related

to the effective settlement of a preexisting legal matter between the Company and Intellibed upon the Company’s acquisition of

Intellibed on August 31, 2022.

on Extinguishment of Debt

August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided for up to $50.0

million of revolving loans.

In connection with the execution of these new financing arrangements, the Company terminated its 2020 Credit

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

Change in fair value – warrant liabilities

Total other expense, net

Net loss before income taxes

Income tax (expense) benefit

We had a negligible income tax expense for the three months ended September

30, 2023 compared to an income tax benefit of $0.7 million for the three months ended September 30, 2022.

The income tax expense amount

in 2023 resulted from various state income 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 the three months ended September 30, 2023 compared to a negligible

net income amount for the three months ended September 30, 2022.

Results for the Nine Months Ended September 30, 2023 and 2022

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

statements of operations:

Nine Months Ended September 30,

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

Net revenues increased $13.3 million, or 12.5%, to $120.0 million for

the three months ended March 31, 2024 compared to $106.7 million for the three months ended March 31, 2023.

This revenue growth was primarily

due to a $13.4 million, or 33.1%, increase in wholesale channel net revenues.

This growth reflected the continued positive response of

our wholesale partners to the new Premium and Luxe product lineups which became fully accessible to all our wholesalers in the fourth

quarter of 2023.

This increase was further affected by wholesale partner “slots” (a term commonly used to describe a section

in a wholesale partner’s store to display a particular product) growing approximately 11% during the quarter as compared to the

prior year first quarter.

Within our DTC channel, e-commerce net revenues decreased $1.8 million, or 3.5%, while Purple showroom net revenues

increased $1.7 million, or 11.3%.

The decrease in e-commerce net revenues reflected the ongoing impact of soft demand and a reduction

in price promotions.

The growth in Purple showroom net revenues was driven by the continued positive response to our new products and

the number of retail locations increasing to 60 at the end of the first quarter of 2024 from 55 at the end of the prior year first quarter.

Cost of Revenues

Operating expenses:

Cost of revenues increased

$12.2 million, or 18.4%, to $78.3 million for the three months ended March 31, 2024 compared to $66.1 million for the three months ended

March 31, 2023.

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

Our gross profit percentage, which decreased

to 34.8% of net revenues in the first quarter of 2024 from 38.0% in the prior year first quarter, was in part impacted by a shift in revenue

to our wholesale channel, which carries a lower average selling price than sales from our DTC channels.

Marketing and Sales

Marketing and sales expense

increased $3.3 million, or 8.6%, to $41.5 million for the three months ended March 31, 2024 compared to $38.2 million for the three months

ended March 31, 2023.

This increase was primarily comprised of a $1.2 million increase in advertising spending and a $1.8 million increase

in wholesale marketing and sales costs.

Advertising spend as a percentage of net revenues was 10.8% in the first quarter of 2024 compared

to 11.0% in the first quarter of 2023.

The increase in wholesale marketing and sales expenses was primarily due to increased costs associated

with our wholesale partners becoming fully transitioned to the new Premium and Luxe product lineup during the third and fourth quarters

General and Administrative

General and administrative

expense decreased $3.9 million, or 16.6%, to $19.7 million for the three months ended March 31, 2024 compared to $23.7 million for the

three months ended March 31, 2023.

This decrease was primarily due to a $5.0 million decline in legal and professional fees as the prior

year’s comparative quarter included costs associated with the Board’s special committee.

Research and Development

Loss on impairment of goodwill

Total operating expenses

Research and development costs

increased $0.3 million, or 8.7%, to $3.7 million for the three months ended March 31, 2024 compared to $3.4 million for the three months

ended March 31, 2023.

This increase primarily reflected our continued focus on new product innovation initiatives.

Operating Loss

Other income (expense):

Operating loss decreased $1.5

million to $23.1 million for the three months ended March 31, 2024 compared to $24.6 million for the three months ended March 31, 2023.

The smaller operating loss primarily resulted from an increase in gross profit that was driven by higher sales coupled with a minimal

decrease in operating expenses.

Interest Expense

Interest expense totaled $4.5

million for the three months ended March 31, 2024 compared to $0.2 million for the three months ended March 31, 2023.

This increase was

primarily due to interest incurred on the $61.0 million new loan that was entered into in January 2024 to refinance the term loan and

revolving line of credit associated with the 2023 Credit Agreements.

Interest expense in the first quarter of 2023 was lower because the

term loan associated with 2020 Credit Agreement was repaid in full in February 2023.

Other Income, Net

Change in fair value – warrant liabilities

Other income increased to

$4.4 million for the three months ended March 31, 2024 compared to $0.1 million for the three months ended March 31, 2023.

This increase

was primarily due to $4.3 million of proceeds received in January 2024 as partial settlement for a previously filed business interruption

insurance claim.

Loss on Extinguishment of Debt

Total other income (expense), net

Net loss before income taxes

Income tax benefit (expense)

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Net revenues decreased $64.3 million, or 15.0%, to $364.6 million for

the nine months ended September 30, 2023 compared to $428.9 million for the nine months ended September 30, 2022.

The decrease in net

revenues was primarily due to softening demand for home-related products due to the normalization of demand distribution.

was partially offset by the positive response to the launch of our new Premium and Luxe product lineups in May 2023.

The decline in net

revenues from a sales channel perspective consisted of DTC net revenues decreasing $37.0 million, or 14.7%, and wholesale net revenues

declining $27.3 million, or 15.4%.

Within DTC, e-commerce net revenues decreased $43.8 million, or 21.2%, while Purple owned retail showroom

net revenues increased $6.8 million, or 15.1%.

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

The increase in Purple owned retail showroom net revenue was driven in part by the positive response to our new products coupled

with the impact of showroom expansion.

The decrease in wholesale net revenues, which reflected the impact of the reasons previously stated,

was also affected by an increase in the warranty reserve for products sold to our wholesale customers, reduced purchases from existing

wholesale partners prior to them transitioning to our new Premium and Luxe product lineups coupled with floor models of our new mattress

and base products being sold to our wholesale partners at reduced pricing.

Cost of revenues decreased $29.5 million, or 10.9%, to $241.2 million

for the nine months ended September 30, 2023 compared to $270.7 million for the nine months ended September 30, 2022.

This decrease was

due in part to lower sales volume.

Our gross profit percentage, which decreased to 33.8% of net revenues in 2023 from 36.9% in 2022, was

adversely impacted by new mattress and base floor models being sold to our wholesale partners at reduced pricing, increased labor and

freight costs related to the transition to our new products, the wrap-around on manufacturing efficiencies from last year when

we had a higher amount of inventory production, and increased discounting of mattresses sold through our online channels as

we transitioned to our new Premium and Luxe product lineups.

Marketing and sales expense

increased $10.0 million, or 7.9%, to $137.4 million for the nine months ended September 30, 2023 compared to $127.3 million for the nine

months ended September 30, 2022.

This increase was comprised of a $1.8 million increase in advertising spending, a $9.7 million increase

in marketing and sales costs associated with showroom expansion, and a $1.8 million increase in wholesale marketing and sales costs.

increases were offset in part by a $3.2 million decrease in other marketing costs.

The increase in advertising spend began in mid-May

to align with the launch of our new Premium and Luxe product lineups.

The increase in wholesale marketing and sales costs was primarily

due to additional existing wholesale partners transitioning to our new Premium and Luxe product lineup during the third quarter of 2023.

The decrease in other marketing costs reflected the impact of management restructuring the marketing organization in the first half of

Marketing and sales expense as a percentage of net revenues was 36.5% during the first nine months of 2023 compared to 29.6% for

the first nine months of 2022.

The higher percentage of revenues reflected the impact of lower sales coupled with management’s expanded

marketing efforts beginning in the second quarter of 2023 to support the launch of our new Premium and Luxe product lineups.

and Administrative

General and administrative

expense increased $11.8 million, or 21.1%, to $67.6 million for the nine months ended September 30, 2023 compared to $55.8 million for

the nine months ended September 30, 2022.

This increase was primarily due to legal and professional fees incurred by the Special Committee.

We are pursuing insurance claims with our D&O and business interruption policy carriers relating to costs incurred (i) in connection

with the litigation and settlement relating to Coliseum and (ii) due to the interruption of our business following the death of an employee

However, there can be no guarantee that we will be able to recover on such claims in amount to cover such costs, or at all.

and Development

and development costs increased $3.2 million, or 54.7%, to $9.0 million for the nine months ended September 30, 2023 compared to $5.8

million for the nine months ended September 30, 2022.

This increase primarily reflected our continued focus on new product innovation

initiatives to remain competitive and advance our current product line.

Loss on Impairment of Goodwill

The ongoing decline in the Company’s market capitalization, along

with other qualitative considerations was determined to be a triggering event for potential goodwill impairment.

Accordingly, the Company

performed a goodwill impairment analysis as of September 30, 2023.

The Company, considered as a single reporting unit, estimated the implied

fair value of its goodwill using a variety of valuation methods, including both the income and market approaches.

As a result of the impairment

assessment performed, the Company determined goodwill was impaired and recorded an impairment charge to write off the entire $6.9 million

balance of goodwill.

Operating Loss

Operating loss increased $66.7

million to $97.5 million for the nine months ended September 30, 2023 compared to $30.8 million for the nine months ended September 30,

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

profit percentage, an increase in marketing and sales costs related to the launch of our new products and showroom expansion, an increase

in general and administrative expense resulting from legal and professional fees incurred by the Special Committee, and a loss on impairment

expense totaled $1.1 million for the nine months ended September 30, 2023 compared to $2.4 million for the nine months ended September

Interest expense for the nine months ended September 30, 2023 was primarily comprised of $0.9 million related to the new asset

based financing arrangements entered into in August 2023 and $1.1 million related to the 2020 Credit Agreement that was terminated upon

entering into the new financing arrangements, Interest expense was reduced by capitalized interest that totaled $0.9 million and $0.6

million during the nine months ended September 30, 2023 and 2022, respectively.

Income (Expense)

income was $0.3 million for the nine months ended September 30, 2023 compared to $1.0 million for the nine months ended September 30,

This decrease primarily resulted from the prior year third quarter including an estimated fair value gain of $1.4 million related

to the effective settlement of a preexisting legal matter between the Company and Intellibed upon the Company’s acquisition of

Intellibed on August 31, 2022.

in Fair Value – Warrant Liabilities

sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the agreement.

These sponsor

warrants had no fair value on the date of expiration and a de minimis fair value at the previous reporting date.

During the nine months

ended September 30, 2022, we recognized a gain of $4.2 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.

on Extinguishment of Debt

August 2023, the Company entered into a new $25.0 million Term Loan Agreement and a separate ABL Agreement that provided for up to $50.0

million of revolving loans.

In connection with the execution of these new financing arrangements, the Company terminated its 2020 Credit

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

In February 2023, the Company entered into a fifth

amendment to the since terminated 2020 Credit Agreement and repaid in full the $24.7 million outstanding balance of the term loan plus

accrued interest.

This 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.

Tax (Expense) Benefit

had income tax expense of $0.2 million for the nine months ended September 30, 2023 compared to an income tax benefit of $7.0 million for the

nine months ended September 30, 2022.

The income tax expense amount in 2023 resulted from various state income 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 $0.4 million for the nine months ended September 30, 2023 compared to a net loss

of $0.2 million for the nine months ended September 30, 2022.

and Capital Resources

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

to our asset-based lending 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,

changes in inventories, and operating lease payment obligations.

Our unrestricted cash and working capital positions were $26.6 million

and $40.2 million, respectively, as of September 30, 2023 compared to $40.0 million and $62.4 million, respectively, as of December 31,

Cash used for capital expenditures decreased from $34.1 million in the first nine months of 2022 to $9.4 million during the first

nine months of 2023.

Our capital expenditures in 2023 have primarily consisted of additional investments made in our manufacturing and

showroom facilities.

In the event our cash flow from operations or other sources of financing

are less than anticipated, we believe we will be able to fund operating expenses based on our ability to use the liquidity we have available

under our ABL Loans.

In October 2023, the ABL Lenders implemented an availability reserve of $5.0 million, which reduces the amount available

under our borrowing base.

Since September 30, 2023, we have drawn approximately $17.0 million in ABL Loans and have given notice to repay

$2.0 million.

Based on our borrowing base calculation, including application of the $5.0 million availability reserve and a minimum availability

requirement of $11.0 million, as of November 13, 2023, we have approximately $4.6 million available for borrowings under our ABL Agreement.

However, the amount available under the ABL Agreement depends on our borrowing base calculations and minimum availability requirements

at the time of any draw.

Therefore, the amount available to us under the ABL Agreement will change from time to time.

Our cash balance

as of November 13, 2023, was $31.0 million.

In addition, the ABL Amendment

and Term Loan Amendment increased our reporting obligations under the 2023 Credit Agreements and if we are not able to maintain compliance

with such additional requirements we may experience future events of default, which could limit our ability to access the ABL Loans and

adversely affect our financial position and operations.

If we experience further events of default in the future, we may not,

without the approval of the ABL Lenders, be able to access the ABL Loans unless such defaults are resolved, including by obtaining required

waivers from the ABL Lenders.

Even if we are able to obtain such waivers, the ABL Lenders may adopt additional availability reserves,

which would limit the amount we can draw under the ABL Loans.

We may also need to seek additional

funding sources including new debt from subordinated lenders or equity capital.

However, such additional debt or equity capital may not

be available on terms favorable to us or at all.

In addition, our ability to raise additional debt financing is restricted by our covenants

under the 2023 Credit Agreements and would require the consent of the Lenders.

If we are unable to access

sufficient liquidity, we will need to take other actions to fund operational expenses, such as scaling back operations, reducing marketing

spend, and postponing or discontinuing our growth strategies.

Such actions could result in slower growth or no growth, and we may lose

key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees.

In addition, we may be forced

to restructure our obligations to creditors, pursue work-out options or other protective measures.

on our current projections, we believe our cash on hand, amounts available under our asset-based lending arrangement, and expected cash

to be generated from our operations will be sufficient to meet our working capital requirements 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 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.

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 option.

The aggregate net proceeds received by us from the

offering, after deducting offering fees and expenses of $3.1 million, totaled $57.0 million.

August 7, 2023, the Loan Parties entered into the Term Loan Agreement with Callodine Commercial Finance, LLC and a group of financial

institutions.

Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with the ABL Lenders that provides

for the ABL Agreement.

Pursuant to entering into these agreements, the Company incurred fees and expenses of $3.1 million that were recorded

as debt issuance costs in the third quarter of 2023.

Term Loan Agreement provides for up to $25.0 million of term loans, with up to $5.0 million of incremental Term Loans, subject to certain

conditions (collectively, the “Term Loans”).

Proceeds from the Term Loans, which were fully drawn at closing, are being used

for general corporate purposes.

The borrowing rates under the Term Loan Agreement are based on SOFR, plus a credit spread adjustment

of 0.15% per annum, plus 8.5% per annum, with a SOFR floor of 2.0% per annum.

The Term Loans will be repaid at the earlier of (a) a three-year

amortization schedule or (b) the payment in full of the ABL Agreement.

The Term Loans may be prepaid in whole or in part at any time,

but subject to a prepayment premium.

There may also be mandatory prepayment obligations based on certain asset dispositions, casualty

events and extraordinary receipts.

Once repaid, no portion of the Term Loans may be reborrowed.

The outstanding balance of the Term Loans

was $25.0 million at September 30, 2023.

to a pledge and security agreement, the Loan Parties’ obligations under the Term Loan Agreement are secured by a perfected second-priority

security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected first-priority security interest

in substantially all other assets of the Loan Parties, including, without limitation, the intellectual property and equipment of the

Loan Parties, subject to certain exceptions.

The ABL Agreement provides for up to $50.0 million of revolving loans

subject to a borrowing base calculation and minimum availability requirements (with sub-facilities for swing line loans and the issuance

of letters of credit), with incremental increases available up to $20.0 million, subject to certain conditions, availability reserves,

minimum availability requirements, borrowing base calculations, and restrictive covenants.

In October 2023, the ABL Lenders implemented

an availability reserve of $5.0 million, which reduces the amount available under our borrowing base.

No funds were drawn under the ABL

Agreement at closing and there was no outstanding balance at September 30, 2023.

We executed $17.0 million in draws on our ABL Loans in

October and November 2023 and have given notice to repay $2.0 million.

We may use the funds drawn from the ABL Agreement to finance permitted

acquisitions, as defined in the ABL Agreement, and for working capital, capital expenditures and other general corporate purposes.

principal and accrued interest on the ABL Loans shall be repaid on August 7, 2026.

Certain events of default

occurred under each of the 2023 Credit Agreements due to (i) the Company’s failure to (a) provide certain financial reporting and

related materials on a timely basis and (b) complete certain post-closing deliverables as required under the ABL Agreement and (ii) the

Company drawing on the loan under the ABL Agreement while the above events of default were in existence.

On November 6, 2023, we entered

into (i) the ABL Amendment and (ii) the Term Loan Amendment, with the Term Loan Lenders and ABL Lenders, respectively, including waivers

of the Subject Events of Default.

In addition, the ABL Amendment and Term Loan Amendment also amended certain provisions of the 2023 Credit

Agreements, including, among other changes, to require (i) weekly borrowing base certificates, (ii) 13-week cash flow reports and budgets,

(iii) budget variance reports, (iv) the appointment of a third-party consultant, and (v) daily cash sweeps from the Loan Parties’

accounts to an account at the ABL Lender.

The foregoing descriptions of the ABL Amendment and Term Loan Amendment do not purport to be

complete and are qualified in their entirety by reference to the ABL Amendment and Term Loan Amendment, which are attached as Exhibit

10.2 and Exhibit 10.3, respectively, to this report and are incorporated by reference herein.

If we experience further events

of default in the future, we will not be able to access the ABL Loans unless such defaults are resolved, including by obtaining required

waivers from the ABL Lenders.

Even if we are able to obtain such waivers, the ABL Lenders may adopt additional availability reserves,

which would limit the amount we can draw under the ABL Loans.

We may also need to seek additional

funding sources including new debt from subordinated lenders or equity capital.

However, such additional debt or equity capital may not

be available on terms favorable to us or at all.

In addition, our ability to raise additional debt financing is restricted by our covenants

under the 2023 Credit Agreements and would require the consent of the Lenders.

If we are unable to access

sufficient liquidity, we will need to take other actions to fund operational expenses, such as scaling back operations, reducing marketing

spend, and postponing or discontinuing our growth strategies.

Such actions could result in slower growth or no growth, and we may lose

key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees.

In addition, we may be forced

to restructure our obligations to creditors, pursue work-out options or other protective measures.

borrowing rates under the ABL Agreement will accrue on a three-tiered grid based on revolving availability, ranging from (i) SOFR, plus

a credit spread adjustment of 0.10% per annum, plus 2.75% per annum to (ii) SOFR, plus a credit spread adjustment of 0.10% per annum,

plus 3.25% per annum, with a SOFR floor of 0% per annum.

The ABL Loans may be prepaid in whole or in part at any time without premium

or penalty, subject to reimbursement of certain costs.

There may be mandatory prepayment obligations based on certain asset dispositions,

casualty events, equity issuances and extraordinary receipts.

to a pledge and security agreement, the Loan Parties’ obligations under the ABL Agreement are secured by a perfected first-priority

security interest in the cash, inventory and accounts receivable of the Loan Parties, and a perfected second-priority security interest

in substantially all of the other assets of the Loan Parties, subject to certain exceptions.

connection with the Company’s execution of the Term Loan Agreement and ABL Agreement, the Company terminated its 2020 Credit Agreement

in August 2023.

While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted

for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as

loss on extinguishment of debt in the condensed consolidated statement of operations.

Tax Receivable

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

In January 2024, we entered

into the Amended and Restated Credit Agreement that terminated and paid off our 2023 Credit Agreements.

This termination was accounted

for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in

the first quarter of 2024.

In February 2023, we entered into a fifth amendment to the since terminated 2020 Credit Agreement and repaid

in full the outstanding balance of the related term loan plus accrued interest.

This amendment was accounted for as an extinguishment

of debt and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in the first quarter of 2023.

Change in Fair Value – Warrant Liabilities

In connection with the Amended

and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders.

These Warrants contain certain provisions that do not meet

the criteria for equity classification and therefore are recorded as liabilities.

The initial liability for these Warrants was recorded

at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs.

This liability is being re-measured

to fair value at each reporting date or exercise date with changes in the fair value included in earnings.

During the three months ended

March 31, 2024, we recognized a loss of $23.6 million in our condensed consolidated statement of operations related to an increase in

the fair value of the Warrants outstanding at March 31, 2024.

Income Tax (Expense) Benefit

We had income tax expense

of $0.1 million for the three months ended March 31, 2024 compared to an income tax expense of $0.1 million for the three months ended

March 31, 2023.

The income tax expense amount in the first quarter of 2024 related to various state taxes.

Noncontrolling Interest

We 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, 2024 and 2023.

Liquidity and Capital Resources

As of both September 30, 2023 and December 31, 2022, there was no tax receivable agreement liability

reflected in either of these consolidated balance sheets.

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 third 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

material contractual obligations primarily include operating lease payment obligations.

See Note 10 of the condensed consolidated

financial statements for additional information on leases.

Flows for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

following summarizes our cash flows for the nine months ended September 30, 2023 and 2022 as reported in our condensed consolidated statements

of cash flows (in thousands):

September 30,

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

and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated

Credit Agreement and proceeds received from offerings of our equity capital.

Principal uses of funds consist of capital expenditures,

working capital needs, and operating lease payment obligations.

In accordance with the Amended and Restated Credit Agreement, the Company

has elected to pay interest in kind on its new loan to reduce cash obligations.

Our working capital needs depend largely upon the timing

of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations.

Our cash and cash equivalents and working capital positions were $34.5 million and $47.9 million, respectively, as of March 31, 2024 compared

to $26.9 million and $30.8 million, respectively, as of December 31, 2023.

Cash used for capital expenditures totaled $3.1 million for

both the first quarter of 2024 and the first quarter of 2023.

Our capital expenditures in 2024 primarily consisted of additional investments

made in our manufacturing operations and showroom facilities.

Additional details about our Amended and Restated Credit Agreement are described

above under “ Recent Developments in our Business – Debt Financing.

Based on our current projections,

we believe our cash on hand, amounts available under our Amended and Restated Credit Agreement, and expected cash to be generated from

our operations will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next

In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we

will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue

our growth strategies.

Such actions could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy

customer orders, and be unable to retain all of our employees.

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

pursue work-out options or other protective measures.

We may also need to seek additional funding sources including new debt

from subordinated lenders or equity capital.

However, such additional debt or equity capital may not be available on terms favorable to

us or at all.

Our ability to raise additional debt financing would require the consent of the Lenders.

Other Contractual Obligations

Other material contractual

obligations primarily include operating lease payment obligations.

See Note 8 of the condensed consolidated financial statements for additional

information on leases.

Cash Flows for the Three Months Ended March

31, 2024 Compared to the Three Months Ended March 31, 2023

The following summarizes our

cash flows for the three months ended March 31, 2024 and 2023 as reported in our condensed consolidated statements of cash flows (in

Three Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by

financing activities

Net decrease in cash

Net cash provided by financing activities

Net increase in cash

Cash, beginning of the period

Cash, end of the period

Cash used in operating activities

increased $25.3 million in the nine months ended September 30, 2023 as compared to the same period in the prior year.

The increase in

cash used in operating activities was negatively impacted by an increase in our net loss, offset in part by an increase in cash related

to the net change in accounts payable in 2023 compared to 2022.

used in operating activities was $16.8 million and $13.5 million for the three months ended March 31, 2024 and 2023, respectively.

used in operating activities during the first quarter of 2024 was more than offset by the net proceeds received from entering into the

Amended and Restated Credit Agreement in January 2024 .

components of the year-over-year change in cash used in operating activities included a $24.2 million increase in net loss, offset

in part by a $23.6 million increase in the fair value of Warrants issued in January 2024 .

Cash used in investing activities

primarily reflected capital expenditures of $9.4 million for the nine months ended September 30, 2023 compared to $34.1 million for the

nine months ended September 30, 2022.

Capital expenditures during the first nine months of 2023 primarily consisted of additional

investments made in our manufacturing and showroom facilities.

Cash flows from investing activities in the prior year also included the

impact of 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.

provided by financing activities was $50.8 million during the nine months ended September 30, 2023 compared to $28.4 million during the

nine months ended September 30, 2022.

Financing activities during the first nine months of 2023 included $57.0 million of net proceeds

received from the stock offering and $25.0 million from the term loans entered into in August 2023, offset in part by a $24.7 million

payment to pay off the term loan from the 2020 Credit Agreement, $6.1 million in payments on debt issuance costs, and $0.4 million of

other payments.

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.

reflected capital expenditures of $3.1 million for both the three months ended March 31, 2024 and

Capital expenditures in the first quarter of 2024 primarily consisted of additional investments made in our manufacturing

operations and showroom facilities.

Cash provided by financing

activities was $27.5 million during the three months ended March 31, 2024 compared to $29.4 million during the three months ended March

Financing activities in the first quarter of 2024 included $61.0 million of proceeds received from the new loan under the Amended

and Restated Credit Agreement, offset in part by a $25.0 million payment to pay off the Term Loans from the 2023 Credit Agreement, a $5.0

million payment to pay off the ABL Loans from the 2023 Credit Agreement, and payments of $3.5 million for debt issuance costs associated

with entering into the Amended and Restated Credit Agreement .

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 2023 Annual Report on Form 10-K filed March 12, 2024.

There have been no significant changes in our critical accounting policies since

the end of fiscal 2023.

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

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.

We also use the Investor Relations

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

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

and webcasts.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis