What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-05-07 · 402 added, 291 removed, 143 unchanged (83% of the section changed)

1 unchanged sentence

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

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

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 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 beliefs.

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

securities laws.

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

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,”

31 unchanged sentences

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

sell 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

and its consolidated subsidiary, Purple LLC.

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, 2024, Purple Inc.

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

had the remaining 0.2%.

As the sole managing member of Purple LLC, Purple Inc., through its officers

and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of

Purple LLC without the approval of any other member.

At June 30, 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

Operational Developments

In May 2023, we launched our new Premium and Luxe product lineups.

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.

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.

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.

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 June 30, 2024.

have also focused on growing our placements with wholesale partners and improving wholesale door productivity.

Improving the sales productivity

of both our wholesale partners and existing showrooms remains a significant priority and critical component of our strategy to respond

to shifting demand patterns.

In addition, we are diligently working to improve e-commerce conversion by determining ways to best optimize

traffic on our website.

Furthermore, we are concentrating efforts on driving gross margin improvement through various methods such as

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

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.

During the second quarter of 2024, we began to realize 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.

We also improved our gross margin in the second quarter of 2024 by driving cost savings through supply

chain initiatives and manufacturing efficiency.

We have delivered direct material cost savings from our supplier diversification efforts,

improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with

improved delivery reliability.

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

Debt Financing

7 unchanged sentences

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).

Interest 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

7 unchanged sentences

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.

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.

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.

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 six months ended June 30, 2024, we recognized a loss of $4.9 million in our condensed consolidated statement of operations

related to an increase in the fair value of the Warrants outstanding at June 30, 2024.

Registration Rights Agreement

3 unchanged sentences

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

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.

The registration statement filed

by the Company on March 21, 2024 to register the Registrable Securities became effective on June 4, 2024.

Stockholder Rights Agreement

On June 27, 2024, our Board

approved the adoption of the NOL Rights Plan with a stated expiration date of June 30, 2025.

The Board approved the NOL Rights Plan to

protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately $238 million to reduce potential

future federal income tax obligations from becoming substantially limited by future ownership of our Common Stock.

Upon adopting the NOL

Rights Plan, 0.3 million shares of our authorized shares of preferred stock were designated as Series C Preferred Shares.

the NOL Rights Plan, the Board authorized and declared a dividend of one Right for each outstanding share of Common Stock to stockholders

of record at the close of business on July 26, 2024.

Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or,

if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point

greater than their current beneficial ownership percentage), the Rights will become exercisable to significantly dilute any stockholder

who violates the ownership limitations of the NOL Rights Plan.

NOL Protective Charter Amendment

In connection with the NOL

Rights Plan, the Board adopted, and recommended that our stockholders approve, the NOL Protective Charter Amendment that adds an additional

layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock that results in a stockholder acquiring

beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership

percentage that is one-half of one percentage point greater than their current beneficial ownership percentage).

The NOL Rights Plan and

the NOL Protective Charter Amendment will be submitted for stockholder approval at the Special Meeting.

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

Net revenues increased 2.0% to $120.3 million for the three months

ended June 30, 2024 compared to $117.9 million for the three months ended June 30, 2023.

Our revenue growth was primarily due to a $3.6

million, or 7.2%, increase in wholesale channel net revenues driven primarily by the continued positive response of our wholesale partners

and strong demand for our new product lineups we launched in 2023.

Within our DTC channel, e-commerce net revenues decreased $2.9 million,

or 5.7%, while Purple showroom net revenues increased $1.7 million, or 10.6%.

The decrease in e-commerce net revenues reflected the ongoing

impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items and delays in our efforts

to improve personalization and streamline the website.

The growth in Purple showroom net revenues was driven by an increase in average

selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products.

We also expanded the

number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter of 2024.

Gross profit increased 38.0%

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.

to $48.9 million for the three months ended June 30, 2024 compared to $35.5 million for the three months ended June 30, 2023.

profit percentage in 2024 was 40.7% as compared to 30.1% in 2023.

These increases reflected improved production efficiency due primarily

to supply chain initiatives and manufacturing efficiency.

We realized direct material cost savings from our supplier diversification efforts

to become less dependent on sole-sourced materials, generated strong efficiency gains in our plants, improved scrap and yield results

through continuous improvements, and our scheduled delivery program for outbound freight is giving us both cost improvements and improved

delivery reliability.

The gross profit percentage in 2023 was adversely impacted by the transition to our new product lineup in the second

quarter of 2023.

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.

16.2% to $63.5 million for the three months ended June 30, 2024 compared to $75.7 million for the three months ended June 30, 2023.

decrease primarily reflected a $5.0 million decrease in marketing and sales costs related to lower advertising spend coupled with an

$8.3 million reduction in general and administrative expense.

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.

Other income totaled $14.6

million for the three months ended June 30, 2024 compared to other expense of $0.3 million for the three months ended June 30, 2023.

Other income in 2024 included an $18.7 million gain related to a decrease in the fair value of Warrants outstanding at June 30, 2024,

partially offset by $4.2 million of interest expense related to the Related Party Loan associated with the Amended and Restated Credit

Net income attributable to

was de minimis for the three months ended June 30, 2024 compared to a net loss of $40.5 million for the three months ended

June 30, 2023.

The $40.5 million reduction in net loss was primarily due to the $18.7 million gain associated with the decrease in the

fair value of the Warrants outstanding at June 30, 2024, the $13.4 million increase in gross profit and the $12.2 million reduction in

operating expenses.

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,

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 sustainable and profitable market share gains:

Improving 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 Purple showrooms, we are focusing on increasing productivity and profitability over door expansion.

This includes establishing a more focused selling environment with new demand driven tactics, a new consumer financing partnership and store expense optimization.

Improving our marketing effectiveness.

Our marketing will support growth in two ways – by enhancing creative and by improving media efficiency.

Our premium branding has been performing well and we believe there is potential to further evolve the marketing creative to attract more consumers to the brand.

We will focus on media efficiency by directing spend based on geography and high sales potential, adjusting the cadence of our spend to match consumer demand periods and shifting some of our upper funnel spend closer to key wholesale distribution points.

Additionally, we recently moved digital media management back in house to increase agility and performance.

Driving e-commerce conversion.

We intend to drive conversion improvements through personalization and streamlining of the website.

Our efforts will focus on altering the website experience by visitor intent and product focus and simplifying the experience for potential customers.

Bringing new products and innovations to market.

We continue to accelerate innovation, keeping our product and technology

pipelines robust and vibrant.

Recent initiatives are generating new and more cost-effective technologies which positions us

for the next stage of growth.

We expect multiple new product launches across each of our major product categories over the

next 12 months as we continue to drive our Path to Premium Sleep strategy with holistic, sleep system solutions.

Driving gross margin improvements.

We believe we can continue to drive gross margin improvements through various strategies that include selective pricing actions, continued mix shift towards our Premium and Luxe collections and manufacturing and supply chain optimization.

We have generated strong efficiency gains in our plants.

In addition, we have delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with improved delivery reliability.

There is no guarantee that

we will be able to effectively continue to execute these initiatives, which are subject to risks, uncertainties, and assumptions that

are difficult to predict, including the risks described 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 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 June 30, 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 June 30,

Revenues, net

12 unchanged sentences

Total other expense, net

Net loss before income taxes

Net income (loss) before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

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

Revenues, Net

Net revenues increased $2.4 million, or 2.0%, to $120.3 million for

the three months ended June 30, 2024 compared to $117.9 million for the three months ended June 30, 2023.

Our revenue growth was primarily

due to a $3.6 million, or 7.2%, increase in wholesale channel net revenues, driven primarily by the continued positive response of our

wholesale partners and strong demand for our new product lineups we launched in 2023.

Within our DTC channel, e-commerce net revenues

decreased $2.9 million, or 5.7%, while Purple showroom net revenues increased $1.7 million, or 10.6%.

The decrease in e-commerce net revenues

reflected the ongoing impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items

and delays in our efforts to improve personalization and streamline the website.

The growth in Purple showroom net revenues was driven

by an increase in average selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products.

We also expanded the number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter

Cost of Revenues

Cost of revenues decreased

$11.1 million, or 13.4%, to $71.3 million for the three months ended June 30, 2024 compared to $82.4 million for the three months ended

June 30, 2023.

The decrease in our cost of revenues was largely due to the operational efficiency improvements implemented over the last

12 months along with increased costs in 2023 due to significant non-recurring costs related to our new product launch.

Our gross profit

percentage increased to 40.7% of net revenues in the second quarter of 2024 from 30.1% in the prior year second quarter.

This increase

reflected improved production efficiency in 2024 due primarily to supply chain initiatives and manufacturing efficiency.

We realized direct

material cost savings from our supplier diversification efforts to become less dependent on sole-sourced materials, generated strong efficiency

gains in our plants, improved scrap and yield results through continuous improvements, and our scheduled delivery program for outbound

freight is giving us both cost improvements and improved delivery reliability.

The gross profit percentage in 2023 was adversely impacted

by the transition to our new product lineup in the second quarter of 2023.

Marketing and Sales

Marketing and sales expense

decreased $5.0 million, or 10.8%, to $41.4 million for the three months ended June 30, 2024 compared to $46.4 million for the three months

ended June 30, 2023.

This decrease primarily consisted of a $4.2 million decrease in advertising spending.

As a percentage of net revenues,

advertising spend was 13.2% in the second quarter of 2024 compared to 17.0% in the second quarter of 2023.

The lower percentage of revenues

reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s expanded marketing efforts

in the second quarter of 2023 to support the launch of the new Premium and Luxe product lineups in May 2023.

General and Administrative

General and administrative

expense decreased $8.3 million, or 31.5%, to $18.1 million for the three months ended June 30, 2024 compared to $26.4 million for the

three months ended June 30, 2023.

This decrease was primarily due to the prior year comparative quarter including non-recurring legal

and professional costs incurred by the Board’s special committee.

Research and Development

Research and development costs

increased $1.1 million, or 36.3%, to $4.0 million for the three months ended June 30, 2024 compared to $2.9 million for the three months

ended June 30, 2023.

This increase was primarily due to the loss incurred on the write off of a project.

Operating Loss

Operating loss decreased $(25.7)

million to $(14.5) million, or 63.9% for the three months ended June 30, 2024 compared to $(40.3) million for the three months ended June

The smaller operating loss in 2024 primarily resulted from an increase in gross profit that was driven by production efficiencies

coupled with a reduction in operating expenses.

Interest Expense

Interest expense totaled

$4.2 million for the three months ended June 30, 2024 compared to $0.4 million for the three months ended June 30, 2023.

This increase

was primarily due to interest incurred on the new $61.0 million 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 second quarter of 2023 was comprised

of only debt issuance cost amortization and commitment fees associated with the line of credit under the 2020 Credit Agreement as the

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

Change in Fair Value – Warrant Liabilities

In January 2024, 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.

This liability is re-measured to fair

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

At June 30, 2024, the outstanding

Warrants had a fair value of $24.5 million.

During the three months ended June 30, 2024, we recognized a gain of $18.7 million in our

condensed consolidated statement of operations for the decrease in fair value of the Warrants outstanding at June 30, 2024 as compared

to the fair value of the Warrants outstanding at the end of the first quarter of 2024.

Income Tax (Expense) Benefit

We had income tax expense

of $0.1 million for the three months ended June 30, 2024 compared to income tax expense of $0.1 million for the three months ended June

The income tax expense amounts in both the second quarter of 2024 and 2023 were 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 de minimis for the three months ended June 30, 2024 and $0.2 million for the three months ended June

Operating Results for the Six Months Ended

June 30, 2024 and 2023

The following table sets

forth for the periods indicated, our results of operations and the percentage of total revenue represented in our statements of operations:

Six Months Ended June 30,

Revenues, net

Cost of revenues

Operating expenses:

Marketing and sales

General and administrative

Research and development

Total operating expenses

Operating loss

Other income (expense):

Interest expense

Other income, net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Total other expense, net

Net loss before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

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Net revenues increased $15.7 million, or 7.0%, to $240.3 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.

the six months ended June 30, 2024 compared to $224.6 million for the six months ended June 30, 2023.

Net revenue growth was primarily

due to a $17.0 million, or 18.8%, increase in wholesale channel net revenues, driven primarily by the continued positive response of our

wholesale partners and strong demand for our new product lineups we launched in 2023.

Within our DTC channel, e-commerce net revenues

decreased $4.7 million, or 4.6%, while Purple showroom net revenues increased $3.4 million, or 10.9%.

The decrease in e-commerce net revenues

reflected the ongoing impact of deteriorating industry trends that led to softness for most big-ticket home related discretionary items

and delays in our efforts to improve personalization and streamline the website.

The growth in Purple showroom net revenues was driven

by an increase in average selling prices from both strategic price adjustments and a sizeable mix shift into our higher priced Luxe Products.

We also expanded the number of retail locations from 56 at the end of the prior year second quarter to 60 at the end of the second quarter

Cost of Revenues

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.

$1.1 million, or 0.7%, to $149.6 million for the six months ended June 30, 2024 compared to $148.6 million for the six months ended June

The increase in our cost of revenues is due to the increase in revenues partially offset by decreases in costs largely due to

the operational efficiency improvements implemented over the last 12 months.

In addition, our costs in 2023 increased due to significant

non-recurring costs related to our new product launch.

Our gross profit percentage increased to 37.7% of net revenues in 2024 from 33.9%

This increase reflected improved production efficiency in 2024 due primarily to supply chain initiatives and manufacturing efficiency.

We realized direct material cost savings from our supplier diversification efforts to become less dependent on sole-sourced materials,

generated strong efficiency gains in our plants, improved scrap and yield results through continuous improvements, and our scheduled delivery

program for outbound freight is giving us both cost improvements and improved delivery reliability.

These savings were offset in part

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

profit percentage in 2023 was adversely impacted by costs associated with the transition to our new product lineup in the second quarter

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

decreased $1.7 million, or 2.0%, to $82.8 million for the six months ended June 30, 2024 compared to $84.6 million for the six months

ended June 30, 2023.

This decrease primarily reflected a $3.1 million decrease in advertising spending, offset in part by a $1.8 million

increase in showroom marketing and sales costs attributable to showroom expansion.

As a percentage of net revenues, advertising spend

was 12.0% in 2024 compared to 14.2% in 2023.

The lower percentage of revenues reflected the impact of using more efficient advertising

techniques in 2024 as compared to management’s expanded marketing efforts that began in the second quarter of 2023 to support the

launch of our new Premium and Luxe product lineups in May 2023.

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.

expense decreased $12.3 million, or 24.5%, to $37.8 million for the six months ended June 30, 2024 compared to $50.1 million for the

six months ended June 30, 2023.

This decrease was primarily due to 2023 including non-recurring legal and professional costs incurred

by the Board’s special committee.

Research and Development

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.

Research and development costs increased $1.4 million, or 21.5%, to

$7.7 million for the six months ended June 30, 2024 compared to $6.3 million for the six months ended June 30, 2023.

This increase was

primarily due to the loss incurred on the write off of a project.

Operating Loss

Operating loss decreased $(27.2)

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.

million, or 41.9%, to $(37.7) million for the six months ended June 30, 2024 compared to $(64.9) million for the six months ended June

The smaller operating loss in 2024 primarily resulted from an increase in gross profit that was driven by higher sales and production

efficiencies coupled with a reduction in operating expenses.

Interest Expense

Interest expense totaled

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

$8.6 million for the six months ended June 30, 2024 compared to $0.6 million for the six months ended June 30, 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

primarily due to interest incurred on the new $61.0 million 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.

Interest expense in the first six months of 2023 was lower because

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

Other Income, Net

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

$4.4 million for the six months ended June 30, 2024 compared to $0.1 million for the six months ended June 30, 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.

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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.

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

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 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.

In January 2024, 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.

30, 2024, the Warrants had a fair value of $24.5 million.

During the six months ended June 30, 2024, we recognized a loss of $4.9 million

in our condensed consolidated statement of operations for the increase in fair value of the Warrants outstanding at June 30, 2024 as

compared to the fair value of the Warrants on the date of issuance.

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.

of $0.1 million for the six months ended June 30, 2024 compared to income tax expense of $0.1 million for the six months ended June 30,

The income tax expense amounts in both 2024 and 2023 were related to various state taxes.

Noncontrolling Interest

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Net loss attributed

to noncontrolling interests was $0.1 million for both the three months ended March 31, 2024 and 2023.

to noncontrolling interests was $0.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

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 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

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, we have elected to pay interest in kind on our 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 $23.4 million and $39.5 million, respectively, as of June 30, 2024 compared to $26.9 million and $30.8 million, respectively,

as of December 31, 2023.

Cash used for capital expenditures totaled $5.3 million and $5.8 million for the six months ended June 30, 2024

and 2023, respectively.

Our capital expenditures in 2024 have 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, which includes the remaining $7.3

million settlement amount received in July 2024 pursuant to a previously filed business interruption claim, we believe our cash on hand,

expected cash to be generated from our operations and up to $19.0 million additional cash available under our Amended and Restated Credit

Agreement, will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12

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.

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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

Other material contractual obligations primarily include operating

lease payment obligations.

See Note 8 - Leases of the condensed consolidated financial statements for additional information on

Cash Flows for the Six Months Ended June 30,

2024 Compared to the Three Months Ended June 30, 2023

The following summarizes

our cash flows for the six months ended June 30, 2024 and 2023 as reported in our condensed consolidated statements of cash flows (in

Six Months Ended

Net cash used in operating activities

4 unchanged sentences

Cash, end of the period

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 operating activities

was $25.7 million and $38.1 million for the six months ended June 30, 2024 and 2023, respectively.

Cash used in operating activities during

the first six months of 2024 was offset by the net proceeds received from entering into the Amended and Restated Credit Agreement in January

Significant components of the year-over-year change in cash used in operating activities included a $16.4 million decrease

in net loss, offset in part by a $4.9 million increase in the fair value of Warrants issued in January 2024.

Cash used in investing activities

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.

reflected capital expenditures of $5.2 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively.

expenditures in the first six months of 2024 primarily consisted of additional investments made in our manufacturing operations and showroom

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 .

activities was $27.5 million during the six months ended June 30, 2024 compared to $29.1 million during the six months ended June 30,

Financing activities during the first six months of 2024 included $61.0 million of proceeds received from the Related Party 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

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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.

There have been no significant changes in our critical accounting policies

since the end of fiscal 2023.

Available Information

2 unchanged sentences

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.

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

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