Purple Innovation, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS PURPLE INNOVATION, INC. Condensed Consolidated Balance Sheets (unaudited – in thousands, except for par value) June 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 23,408 $ 26,857 Accounts receivable, net 32,083 37,802 Inventories 69,657 66,878 Prepaid expenses 5,368 8,536 Other current assets 886 1,737 Total current assets 131,402 141,810 Property and equipment, net 119,465 128,661 Operating lease right-of-use assets 90,509 95,767 Intangible assets, net 18,711 22,196 Other long-term assets 2,063 2,191 Total assets $ 362,150 $ 390,625 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 37,452 $ 49,831 Accrued compensation 9,186 5,064 Customer prepayments 4,732 5,718 Accrued rebates and allowances 8,635 13,243 Accrued warranty liabilities – current portion 8,141 9,793 Operating lease obligations – current portion 15,122 14,843 Other current liabilities 8,736 12,490 Total current liabilities 92,004 110,982 Related party debt 46,235 — Long-term debt, net of current portion — 26,909 Accrued warranty liabilities, net of current portion 27,291 25,798 Operating lease obligations, net of current portion 102,217 109,094 Warrant liabilities 24,477 — Other long-term liabilities 3,394 2,235 Total liabilities 295,618 275,018 Commitments and contingencies (Note 13) Stockholders’ equity: Class A common stock; $ 0.0001 par value, 210,000 shares authorized; 107,503 issued and outstanding at June 30, 2024 and 105,507 issued and outstanding at December 31, 2023 11 11 Class B common stock; $ 0.0001 par value, 90,000 shares authorized; 205 issued and outstanding at June 30, 2024 and at December 31, 2023 — — Additional paid-in capital 592,541 591,380 Accumulated deficit ( 526,159 ) ( 475,969 ) Total stockholders’ equity attributable to Purple Innovation, Inc. 66,393 115,422 Noncontrolling interest 139 185 Total stockholders’ equity 66,532 115,607 Total liabilities and stockholders’ equity $ 362,150 $ 390,625 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 PURPLE INNOVATION, INC. Condensed Consolidated Statements of Operations (unaudited – in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues, net $ 120,271 $ 117,882 $ 240,304 $ 224,609 Cost of revenues 71,331 82,408 149,644 148,557 Gross profit 48,940 35,474 90,660 76,052 Operating expenses: Marketing and sales 41,377 46,379 82,839 84,552 General and administrative 18,117 26,437 37,845 50,104 Research and development 3,986 2,925 7,652 6,297 Total operating expenses 63,480 75,741 128,336 140,953 Operating loss ( 14,540 ) ( 40,267 ) ( 37,676 ) ( 64,901 ) Other income (expense): Interest expense ( 4,161 ) ( 352 ) ( 8,635 ) ( 554 ) Other income, net 53 37 4,447 110 Loss on extinguishment of debt — — ( 3,394 ) ( 1,217 ) Change in fair value – warrant liabilities 18,693 — ( 4,906 ) — Total other income (expense), net 14,585 ( 315 ) ( 12,488 ) ( 1,661 ) Net income (loss) before income taxes 45 ( 40,582 ) ( 50,164 ) ( 66,562 ) Income tax expense ( 54 ) ( 72 ) ( 113 ) ( 144 ) Net income (loss) ( 9 ) ( 40,654 ) ( 50,277 ) ( 66,706 ) Net loss attributable to noncontrolling interest ( 36 ) ( 167 ) ( 87 ) ( 286 ) Net income (loss) attributable to Purple Innovation, Inc. $ 27 $ ( 40,487 ) $ ( 50,190 ) $ ( 66,420 ) Net income (loss) per share: Basic $ 0.00 $ ( 0.39 ) $ ( 0.47 ) $ ( 0.65 ) Diluted $ ( 0.00 ) $ ( 0.39 ) $ ( 0.47 ) $ ( 0.65 ) Weighted average common shares outstanding: Basic 107,489 105,079 106,755 101,760 Diluted 107,779 105,079 106,755 101,760 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 PURPLE INNOVATION, INC. Condensed Consolidated Statements of Stockholders’ Equity (unaudited – in thousands) Class A Class B Additional Total Common Stock Common Stock Paid-in Accumulated Stockholders’ Noncontrolling Total Shares Par Value Shares Par Value Capital Deficit Equity Interest Equity Balance – December 31, 2023 105,507 $ 11 205 $ — $ 591,380 $ ( 475,969 ) $ 115,422 $ 185 $ 115,607 Net loss — — — — — ( 50,217 ) ( 50,217 ) ( 51 ) ( 50,268 ) Stock-based compensation — — — — 492 — 492 — 492 Issuance of stock for Intellibed acquisition 1,500 — — — — — — — — Issuance of stock under equity compensation plans 473 — — — ( 115 ) — ( 115 ) — ( 115 ) Impact of transactions affecting NCI — — — — ( 33 ) — ( 33 ) 33 — Balance – March 31, 2024 107,480 $ 11 205 $ — $ 591,724 $ ( 526,186 ) $ 65,549 $ 167 $ 65,716 Net income (loss) — — — — — 27 27 ( 36 ) ( 9 ) Stock-based compensation — — — — 825 — 825 — 825 Issuance of common stock under equity compensation plans 23 — — — — — — — — Impact of transactions affecting NCI — — — — ( 8 ) — ( 8 ) 8 — Balance – June 30, 2024 107,503 $ 11 205 $ — $ 592,541 $ ( 526,159 ) $ 66,393 $ 139 $ 66,532 Class A Class B Additional Total Common Stock Common Stock Paid-in Accumulated Stockholders’ Noncontrolling Total Shares Par Value Shares Par Value Capital Deficit Equity Interest Equity Balance – December 31, 2022 91,380 $ 9 448 $ — $ 529,466 $ ( 355,212 ) $ 174,263 $ 908 $ 175,171 Net loss — — — — — ( 25,933 ) ( 25,933 ) ( 119 ) ( 26,052 ) Stock-based compensation — — — — 1,192 — 1,192 — 1,192 Issuance of stock under equity compensation plans 265 — — — — — — — — Issuance of stock upon underwritten offering, net of costs 13,400 2 — — 57,198 — 57,200 — 57,200 Impact of transactions affecting NCI — — — — ( 103 ) — ( 103 ) 103 — Balance – March 31, 2023 105,045 $ 11 448 $ — $ 587,753 $ ( 381,145 ) $ 206,619 $ 892 $ 207,511 Net loss — — — — — ( 40,487 ) ( 40,487 ) ( 167 ) ( 40,654 ) Stock-based compensation — — — — 1,661 — 1,661 — 1,661 Exchange of stock 20 — ( 20 ) — — — — — — Proportional Representation Preferred Linked Stock redemption fee — — — — ( 105 ) — ( 105 ) — ( 105 ) Additional costs associated with underwritten public stock offering — — — — ( 201 ) — ( 201 ) — ( 201 ) Issuance of stock under equity compensation plans 258 — — — — — — — — Impact of transactions affecting NCI — — — — 37 — 37 ( 37 ) — Balance – June 30, 2023 105,323 $ 11 428 $ — $ 589,145 $ ( 421,632 ) $ 167,524 $ 688 $ 168,212 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 PURPLE INNOVATION, INC. Condensed Consolidated Statements of Cash Flows (unaudited – in thousands) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 50,277 ) $ ( 66,706 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,821 12,890 Non-cash interest 3,372 686 Paid-in-kind interest 4,375 — Loss on extinguishment of debt 3,394 1,217 Change in fair value – warrant liabilities 4,906 — Stock-based compensation 1,317 2,853 Loss on disposal of property and equipment 112 — Changes in operating assets and liabilities: Accounts receivable 5,719 11,467 Inventories ( 2,779 ) ( 5,061 ) Prepaid expenses and other assets 4,665 2,952 Operating leases, net ( 1,340 ) 1,315 Accounts payable ( 9,522 ) 3,304 Accrued compensation 4,122 ( 2,709 ) Customer prepayments ( 986 ) 1,025 Accrued rebates and allowances ( 4,608 ) ( 3,977 ) Accrued warranty liabilities ( 159 ) 5,063 Other accrued liabilities ( 862 ) ( 2,372 ) Net cash used in operating activities ( 25,730 ) ( 38,053 ) Cash flows from investing activities: Purchase of property and equipment ( 5,142 ) ( 5,443 ) Investment in intangible assets ( 111 ) ( 380 ) Net cash used in investing activities ( 5,253 ) ( 5,823 ) Cash flows from financing activities: Payments on term loan ( 25,000 ) ( 24,656 ) Payments on revolving line of credit ( 5,000 ) — Proceeds from related party loan 61,000 — Payments for debt issuance costs ( 3,466 ) ( 2,898 ) Proceeds from stock offering — 60,300 Payments for public offering costs — ( 3,301 ) Proportional Representation Preferred Linked Stock redemption fee — ( 105 ) Tax receivable agreement payments — ( 269 ) Net cash provided by financing activities 27,534 29,071 Net decrease in cash, cash equivalents and restricted cash ( 3,449 ) ( 14,805 ) Cash, cash equivalents and restricted cash, beginning of the year 26,857 41,754 Cash, cash equivalents and restricted cash, end of the period $ 23,408 $ 26,949 Supplemental disclosures of cash flow information: Cash paid during the period for interest, net of amounts capitalized $ 203 $ ( 226 ) Cash paid during the period for income taxes $ 293 $ 281 Supplemental schedule of non-cash investing and financing activities: Property and equipment included in accounts payable $ 375 $ 3,209 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Organization Purple Innovation, Inc.’s mission is to help people feel and live better through innovative comfort solutions. Purple Innovation, Inc. collectively with its subsidiary (the “Company” or “Purple Inc.”) is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. The Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products. The Company markets and sells its products through its e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. The Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”). On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple LLC”). At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc. 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. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Purple LLC’s wholly owned subsidiary Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”). All intercompany balances and transactions have been eliminated in consolidation. As of June 30, 2024, Purple Inc. held 99.8 % of the common units of Purple LLC and Purple LLC Class B Unit holders held 0.2 % of the common units in Purple LLC. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any other interim period or other future year. Variable Interest Entities Purple LLC is a variable interest entity. The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At June 30, 2024, Purple Inc. had a 99.8 % economic interest in Purple LLC and consolidated 100 % of Purple LLC’s assets, liabilities and results of operations in the Company’s unaudited condensed consolidated financial statements contained herein. The holders of Class B Units of Purple LLC (“Class B Units”) held 0.2 % of the economic interest in Purple LLC as of June 30, 2024. For further discussion see Note 15 — Stockholders’ Equity. Use of Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company regularly makes estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and the allowance for credit losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and liabilities assumed in business combinations, impairment reviews of long-lived assets and definite-lived intangible assets, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s tax receivable agreement with InnoHold, LLC (“InnoHold”). Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ materially from those estimates. 5 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Reclassification Certain amounts in the prior year condensed consolidated balance sheet have been reclassified to conform to the current year’s presentation with no effect on previously reported net (loss) income, cash flows or stockholders’ equity. Accrued compensation, previously included in the condensed consolidated balance sheet within other current liabilities, is now presented separately. Recent Accounting Pronouncements Enhanced Segment Disclosures In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities, including those that have a single reportable segment, to provide enhanced disclosures about significant expenses. This ASU requires disclosure to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is currently analyzing the impact this ASU will have on its disclosures. Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU amends existing income tax disclosure guidance, primarily requiring more detailed disclosures for income taxes paid and the effective tax rate reconciliation. This ASU is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. The Company is currently evaluating the impact this update will have on its income tax disclosures in the consolidated financial statements. 3. Acquisition The Company acquired Intellibed, a premium sleep and health wellness company, in August 2022. The acquisition date fair value of the consideration transferred for Intellibed was $ 28.2 million. Included in this amount was $ 1.5 million for the fair value of contingent consideration related to 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock did not equal or exceed certain thresholds during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date. The contingent shares were valued using a Monte-Carlo simulation model. Because the contingent consideration was payable with a fixed number of shares of the Company’s Class A common stock, it was classified as equity and did not require remeasurement in subsequent periods. During March 2024, the Company issued 1.5 million shares of Class A common stock to Intellibed security holders since the Company’s stock price did not meet any of the indicated thresholds during the contingency period. 6 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 4. Fair Value Measurements The Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are: Level 1—Quoted market prices in active markets for identical assets or liabilities; Level 2—Significant other observable inputs (i.e., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions. The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. Financial instruments, although not recorded at fair value on a recurring basis include cash and cash equivalents, receivables, accounts payable and the Company’s debt obligations. The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts. The estimated fair value of the Company’s debt arrangement is based on Level 2 inputs, which include observable inputs approximated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of debt instruments. As of June 30, 2024, the estimated fair value of the Company’s debt arrangement was $41.7 million. The warrant liabilities (see Note 11 — Warrant Liabilities for more information) are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable inputs which require determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities generally decrease (increase) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities generally increase (decrease) in value if the expected average life or expected volatility were to increase (decrease). The following table summarizes the Company’s total Level 3 liability activity for the six months ended June 30, 2024. (In thousands) Sponsor Warrants Fair value as of December 31, 2023 $ — Initial measurement at time of issuance 19,571 Change in valuation inputs (1) 4,906 Fair value as of June 30, 2024 $ 24,477 (1) Changes in valuation inputs are recognized as the change in fair value – warrant liabilities in the condensed consolidated statement of operations. 7 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 5. Revenue from Contracts with Customers The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer, subject to shipping terms. Disaggregated Revenue The Company classifies revenue into two sales categories: direct-to-consumer (“DTC”) and wholesale. The DTC category is comprised of the Company’s e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple showrooms channel that sells directly to consumers who purchase at a showroom location. The wholesale channel includes all product sales to our retail brick and mortar wholesale partners where consumers make purchases at their retail locations or through their online channels. The Company classifies products into two major types: sleep products and other. Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products. The following tables present the Company’s net revenue disaggregated by sales category and product type (in thousands): Three Months Ended June 30, Six Months Ended June 30, Sales Category 2024 2023 2024 2023 DTC $ 66,863 $ 68,056 $ 133,078 $ 134,361 Wholesale 53,408 49,826 107,226 90,248 Revenues, net $ 120,271 $ 117,882 $ 240,304 $ 224,609 Three Months Ended June 30, Six Months Ended June 30, Product Type 2024 2023 2024 2023 Sleep products $ 116,977 $ 114,423 $ 234,076 $ 217,926 Other 3,294 3,459 6,228 6,683 Revenues, net $ 120,271 $ 117,882 $ 240,304 $ 224,609 Contract Balances Payments for sale of products through the e-commerce online channel, third-party online retailers, Purple showrooms and contact center are collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled $ 4.7 million and $ 5.7 million at June 30, 2024 and December 31, 2023, respectively. During the three months ended June 30, 2024 and 2023, the Company recognized all revenue that was deferred in customer prepayments at March 31, 2024 and 2023, respectively. 6. Inventories Inventories consisted of the following (in thousands): June 30, December 31, 2024 2023 Raw materials $ 22,519 $ 23,232 Work-in-process 5,843 5,962 Finished goods 41,295 37,684 Inventories $ 69,657 $ 66,878 8 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 7. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, December 31, 2024 2023 Equipment $ 73,160 $ 72,424 Equipment in progress 14,810 15,077 Leasehold improvements 59,025 60,563 Furniture and fixtures 32,526 31,084 Office equipment 2,740 2,737 Total property and equipment 182,261 181,885 Accumulated depreciation ( 62,796 ) ( 53,224 ) Property and equipment, net $ 119,465 $ 128,661 Equipment in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2024 or December 31, 2023. Interest capitalized on borrowings during the active construction period of major capital projects totaled $ 0.3 million and $ 0.7 million during the three and six months ended June 30, 2024, respectively and totaled $ 0.1 million and $ 0.5 million during the three and six months ended June 30, 2023, respectively. Depreciation expense was $ 5.1 million and $ 10.3 million during the three and six months ended June 30, 2024, respectively, and totaled $ 4.9 million and $ 9.7 million during the three and six months ended June 30, 2023, respectively. 8. Leases The Company leases its manufacturing and distribution facilities, corporate offices, Purple showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036. The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while Purple showrooms have initial lease terms of up to 10 years. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s discretion. Any lease renewal options are included in the lease term if exercise is reasonably certain at lease commencement. The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of three to five years . The right-of-use asset (“ROU”) for finance leases totaled $ 0.6 million and $ 0.7 million at June 30, 2024 and December 31, 2023, respectively. The following table presents the Company’s lease costs (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Operating lease costs $ 5,178 $ 4,620 $ 9,964 $ 9,505 Variable lease costs 1,173 1,204 2,042 2,177 Total lease costs $ 6,351 $ 5,824 $ 12,006 $ 11,682 9 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet at June 30, 2024 (in thousands): 2024 (excluding the six months ended June 30, 2023) (a) $ 10,093 2025 21,274 2026 19,926 2027 19,688 2028 19,666 Thereafter 54,681 Total operating lease payments 145,328 Less – lease payments representing interest ( 27,989 ) Present value of operating lease payments $ 117,339 (a) Amount consists of $ 10.8 million of undiscounted cash flows offset by $ 0.7 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2024. As of June 30, 2024 and December 31, 2023, the weighted-average remaining term of operating leases was 7.7 years and 8.0 years, respectively, and the weighted-average discount rate of operating leases was 5.81 % and 5.77 %, respectively. The following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2024 and 2023 (in thousands): Six Months Ended June 30, 2024 2023 Cash paid for amounts included in present value of operating lease liabilities (b) $ 8,388 $ 6,691 Right-of-use assets obtained in exchange for operating lease liabilities 2,981 3,518 (b) Operating cash flows paid for operating leases are included within the change in operating leases, net within the condensed consolidated statement of cash flows offset by non-cash ROU asset amortization and lease liability accretion. 9. Other Current Liabilities Other current liabilities consisted of the following (in thousands): June 30, December 31, 2024 2023 Accrued sales returns $ 4,545 $ 5,404 Accrued sales tax and use tax 1,862 1,949 Insurance financing 884 1,079 Long-term debt and unamortized issuance costs – current portion — 2,129 Accrued interest — 506 Other 1,445 1,423 Total other current liabilities $ 8,736 $ 12,490 10 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 10. Debt Debt consisted of the following (in thousands): June 30, December 31, 2024 2023 Related party loan $ 65,375 $ — Term loan — 25,000 Revolving line of credit — 5,000 Less: unamortized debt issuance costs ( 19,140 ) ( 962 ) Total debt 46,235 29,038 Current portion of debt and unamortized issuance costs (c) — ( 2,129 ) Debt, net of current portion $ 46,235 $ 26,909 (c) – Amount is included in other current liabilities in the condensed consolidated balance sheet. 2024 Credit Agreement On January 23, 2024, Purple LLC, Purple Inc. and Intellibed (collectively, the “Loan Parties”) entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”), which amended and restated the then existing term loan agreement (“Term Loan Agreement”), with Coliseum Capital Partners (“CCP”) and other lenders (collectively, the “Lenders”) and Delaware Trust Company, as administrative agent. The Lenders agreed to assume the Loan Parties’ obligations under the Term Loan Agreement and refinance their existing obligations. A term loan in the amount of $ 61.0 million (the “Related Party Loan”) was funded by the Lenders that repaid in full the $ 25.0 million of term loans outstanding, repaid in full the $ 5.0 million of asset based lending loans outstanding, paid fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to the Company (after payments of outstanding debt, unpaid accrued interest and expenses) equal to approximately $ 27.0 million. Interest on the Related Party Loan is payable each month and the principal outstanding matures and is due on December 31, 2026. The Company may elect for interest to be capitalized and added to the principal amount. The Related Party Loan bears interest at a rate equal to (i) the secured overnight financing rate as administered by the Federal Reserve Bank of New York 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 it 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 %. The Loan Parties may request an additional term loan from the Lenders in an aggregate amount not to exceed $ 19.0 million on terms requested by them 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 the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (see Note 11 – Warrant Liabilities ) and incurred fees and expenses of $ 3.5 million that were recorded as debt issuance costs in the first quarter of 2024. Interest expense under the Related Party Loan was $ 4.3 million and $ 7.7 million for the three and six months ended June 30, 2024, respectively. The Amended and Restated Credit Agreement granted a security interest to the Lenders in substantially all of the assets (subject to certain limited exceptions) of the Loan Parties to secure the Loan Parties’ loans and other obligations under the Amended and Restated Credit Agreement, including a security interest in the intellectual property owned by the Loan Parties. The Loan Parties (other than Purple LLC) provided an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement also provides for standard indemnification of the Lenders and contains representations, warranties and certain covenants of the Loan Parties. While any amounts are outstanding under the Amended and Restated Credit Agreement, the Loan Parties are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. The Loan Parties are also restricted from paying dividends or making other distributions or payments on their capital stock, subject to limited exceptions. As of June 30, 2024, the Company was in compliance with all covenants under the Amended and Restated Credit Agreement. 11 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 2023 Credit Agreements On August 7, 2023, the Loan Parties entered into the Term Loan Agreement. Also, on August 7, 2023, the Loan parties entered into a separate financing arrangement with a group of financial institutions (collectively the “ABL Lenders”) that provided for a revolving asset-based credit facility (the “ABL Agreement”). Pursuant to entering into these agreements (collectively, the “2023 Credit Agreements”), the Company incurred fees and expenses of $ 3.1 million that were recorded as debt issuance costs in the third quarter of 2023. The 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 were used for general corporate purposes. The borrowing rates under the Term Loan Agreement were 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 were to be repaid at the earlier of (i) a three-year amortization schedule ending on August 7, 2026 or (ii) the payment in full of the ABL Agreement. The Term Loans could be prepaid in whole or in part at any time, but subject to a prepayment premium. There were also potential mandatory prepayment obligations based on certain asset dispositions, casualty events and extraordinary receipts. Once repaid, no portion of the Term Loans could be reborrowed. The ABL Agreement provided 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 reduced the amount available under the borrowing base. Outstanding principal and accrued interest on the ABL Loans were to be repaid on August 7, 2026. Term loans totaling $ 25.0 million were fully drawn at closing and, subsequent to the closing in August 2023, the Company executed $ 17.0 million in ABL loan draws and then repaid $ 12.0 million of those borrowings prior to the end of 2023. The outstanding balance of ABL Loans totaled $ 5.0 million at December 31, 2023. In connection with the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the agreements were terminated. The termination was accounted for as an extinguishment of debt and $ 3.4 million of unamortized debt issuance costs related to the 2023 Credit Agreements were recorded as a loss on extinguishment of debt in the first quarter of 2024. Interest expense under the 2023 Credit Agreements was $ 0.4 million for the six months ended June 30, 2024. For the three months ended June 30, 2024, there was no interest expense associated with the 2023 Credit Agreements. 2020 Credit Agreement On September 3, 2020, Purple LLC entered into a financing arrangement with a group of financial institutions (the “2020 Credit Agreement”). The 2020 Credit Agreement provided for a $ 45.0 million term loan and a $ 55.0 million revolving line of credit. The term loan was to be repaid in accordance with a five-year amortization schedule or prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility had a term of five years and carried the same interest provisions as the term debt. A commitment fee was due quarterly based on the applicable margin applied to the unused total revolving commitment. In connection with the Company’s execution of the 2023 Credit Agreements, the Company terminated its 2020 Credit Agreement. The Company had no outstanding borrowings under the 2020 Credit Agreement at the time of termination. On February 17, 2023, the Company entered into a fifth amendment to the 2020 Credit Agreement. The amendment, among other things, revised various covenants associated with the 2020 Credit Agreement. As a condition of entering into the amendment, the Company repaid the $ 24.7 million outstanding balance on the term loan plus accrued interest. Pursuant to this amendment, the Company incurred fees and expenses of $ 2.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The amendment was accounted for as an extinguishment of debt and $ 1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in the first quarter of 2023. Interest expense under the 2020 Credit Agreement totaled $ 0.5 million and $ 1.1 million for the three and six months ended June 30, 2023, respectively. 12 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 11. Warrant Liabilities On January 23, 2024, in connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million warrants to the Lenders (the “Warrants”). Each Warrant entitles the registered holder to purchase one share of the Company’s 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. The holders do not have the rights or privileges of holders of Class A common stock or any voting rights until they exercise their Warrants. After the issuance of shares of Class A common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Class A common stock held on all matters to be voted on by stockholders generally. A holder of the Warrants will not have the right to exercise its Warrants, 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 a repurchase provision which, upon an occurrence of a fundamental transaction as defined in the warrant agreement, could give rise to an obligation of the Company to pay cash to the warrant holders. In addition, other provisions may lead to a reduction in the exercise price of the Warrants. The Company determined the fundamental transaction provisions require the Warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. As a result, the liability for these Warrants was recorded at fair value on the date of issuance with the offset included in debt issuance costs. This liability is subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. The Company used a the Monte Carlo Simulation model to determine the fair value of the liability associated with the Warrants. The model uses key assumptions and inputs such as exercise price, fair market value of common stock, risk free interest rate, warrant life, expected volatility and the probability of a warrant re-price event. The following are the assumptions used in calculating fair value of the Warrants on the date of issuance: Trading price of common stock on measurement date $ 0.82 Exercise price $ 1.50 Risk free interest rate 4.14 % Warrant life in years 10.0 Expected volatility 88.62 % Expected dividend yield — Probability of an event causing a warrant re-price 25.0 % The following are the assumptions used in calculating fair value of the Warrants on June 30, 2024: Trading price of common stock on measurement date $ 1.04 Exercise price $ 1.50 Risk free interest rate 4.36 % Warrant life in years 9.6 Expected volatility 89.24 % Expected dividend yield — Probability of an event causing a warrant re-price 25.0 % The Warrants had a fair value of $ 24.5 million as of June 30, 2024. The Company recognized a gain of $ 18.7 million in its condensed consolidated statement of operations for the three months ended June 30, 2024 related to a decrease in the fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants outstanding at the end of the first quarter of 2024. For the six months ended June 30, 2024, the Company recognized a loss of $ 4.9 million in its condensed consolidated statement of operations related to an increase in the fair value of the Warrants outstanding at the end of the period compared to the fair value of the Warrants on the date of issuance. 12. Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands): June 30, December 31, 2024 2023 Asset retirement obligations $ 2,299 $ 2,230 Other 1,095 5 Total other long-term liabilities $ 3,394 $ 2,235 13 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 13. Commitments and Contingencies Warranty Liabilities The Company provides a limited warranty on most of the products it sells. The estimated warranty costs associated with products sold through DTC channels are expensed at the time of sale and included in cost of revenues. The estimated warranty return costs associated with products sold through the wholesale channel are recorded at the time of sale and included as an offset to net revenues. Estimates for warranty costs are based on the results of product testing, industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. Actual warranty claim costs could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs. The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability. Chief Executive Officer Cash Bonus Award On January 26, 2024, the Company’s board of directors (the “Board”) approved an amendment to the Chief Executive Officer’s employment agreement. Under the amendment, the Company agreed that, among other things, 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 the Company’s Class A common stock on NASDAQ during the period from March 16, 2026 through June 30, 2026 subject to his continued employment with the Company. The amount earned will be payable in quarterly installments commencing with the first payroll period following June 30, 2026. The Company determined the provisions surrounding the future bonus payment require it to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. The Company recorded compensation expense of $ 0.2 million in its condensed consolidated statement of operations for the six months ended June 30, 2024 related to this future bonus payment. For the three months ended June 30, 2024, the Company recognized a compensation expense reduction of $ 0.2 million in its condensed consolidated statement of operations related to a decrease in the fair value of the future bonus payment. Senior Leadership Team Special Recognition Bonus On January 26, 2024, the Board unanimously approved a special recognition bonus payment to certain members of the Company’s 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 the Company, 10 % on August 1, 2024, 20 % on February 1, 2025, and 70 % on August 1, 2025. The Company recorded compensation expense of $ 1.5 million in its condensed consolidated statement of operations for the six months ended June 30, 2024 related to this future bonus payment. Performance Cash Long-Term Incentive Award On June 20, 2024, the Board unanimously approved a performance cash long-term incentive award to those employees eligible to participate in the Company’s Long-Term Incentive Plan. The incentive award payment is based on a performance goal of the volume weighted average price per share of the Company’s Class A common stock on NASDAQ on March 31, 2027. The Company determined the provisions surrounding the performance cash long-term incentive award require it to be accounted for as a liability at fair value at each reporting period, with changes in fair value recognized in earnings in the period of change. The Company recorded a de minimis compensation expense in the consolidated statement of operations for the six months ended June 30, 2024 related to this future award payment. Settlement of Insurance Claim In January 2024, the Company received $ 4.3 million for partial settlement of a previously filed business interruption claim. The Company recorded the cash upon receipt as other income, net in the condensed consolidated statement of operations for the six months ended June 30, 2024. The remaining settlement amount of $ 7.3 million was received subsequent to June 30, 2024, refer to Note 20 – Subsequent Events . 14 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Rights of Securities Holders On January 23, 2024, in connection with the issuance of the Warrants, the Company entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”) with holders of the Warrants (the “Holders”), providing for the registration under the Securities Act of 1933, as amended of the Warrants, the shares issuable upon the exercise of the Warrants and Class A common stock held by the Holders as of such date (the “Registrable Securities”), subject to customary terms and conditions. The Registration Rights agreement entitles the Holders to demand registration of the Registrable Securities and to piggyback on the registration of securities by the Company and other Company securityholders. The Company will be 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. The Registration Rights Agreement provided further that the Company was required to prepare and file with the SEC a registration statement to register the resale of the Registrable Securities. The registration statement filed by the Company on March 21, 2024 registering the Registrable Securities became effective on June 4, 2024. NOL Rights Plan On June 27, 2024, the Board approved the adoption of a limited-duration stockholder rights agreement (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 the Company’s ability to use its estimated $ 238 million of net operating losses (the “Current NOLs”) to reduce potential future federal income tax obligations from becoming substantially limited by future ownership changes in the Company’s common stock under Code Section 382. See Note 15 – Stockholders’ Equity – NOL Rights Plan for further discussion of the NOL Rights Plan. NOL Protective Charter Amendment In connection with the NOL Rights Plan, the Board adopted, and recommended that the Company’s stockholders approve, an amendment to the Company’s Certificate of Incorporation (the “NOL Protective Charter Amendment”) that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding certain transfers of common stock that could result in an ownership change under Code Section 382. The NOL Protective Charter Amendment is not yet effective and will be submitted for stockholder approval at the Company’s special meeting of the stockholders (the “Special Meeting”). See Note 15 – Stockholders’ Equity – NOL Protective Charter Amendment for further discussion of the NOL Protective Charter Amendment. 15 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Non-Income Related Taxes The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. , No.17-494, reversed a longstanding precedent that remote sellers are not required to collect state and local sales taxes. The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce. The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, value-added tax and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet. The application of these taxes on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business. Legal Proceedings On December 16, 2022, Purple’s founders filed a complaint against Purple Inc. in the Fourth Judicial District Court in the State of Utah. In that suit, the plaintiffs alleged that they each entered into employment agreements with Purple LLC in February 2018. The plaintiffs contended that certain corporate transactions reduced their “ownership interest and voting power in Purple” and that, as a result, they should have continued to be paid a salary when they retired from Purple LLC. The plaintiffs calculated that they were each owed “no less than $ 500,000 ” in unpaid salary. In October 2023, the Court granted Purple Inc.’s motion and ordered that the claims brought by the plaintiffs be dismissed in full, with prejudice. The Court entered a final judgment dismissing the case in January 2024. The plaintiffs have filed an appeal to the Utah Court of Appeals. The Company maintains insurance to cover the costs of defending against claims of this nature and intends to continue to vigorously defend against these claims in the course of the plaintiffs’ appeal. On April 3, 2023, Purple’s founders filed a complaint against Purple LLC in the Delaware Court of Chancery. The complaint alleges that Purple LLC breached the limited liability company agreement of Purple LLC by failing to pay the full amount of tax distributions owed under the agreement. The plaintiffs seek damages of approximately $ 3.0 million in allegedly unpaid tax distributions as well as legal fees and expenses incurred in connection with the litigation. On June 13, 2023, Purple LLC filed an answer to the complaint denying the plaintiffs’ allegations, setting forth its affirmative defenses, and requesting dismissal of all claims and entry of judgment in Purple LLC’s favor. The outcome of the litigation cannot be predicted at this early stage in the proceedings. Purple LLC denies all allegations and intends to vigorously defend against these claims. On January 17, 2024, two customers filed a punitive class action lawsuit (the “Class Action Lawsuit”) against Purple LLC in California Superior Court in the County of San Francisco alleging unlawful marketing and pricing practices, fraud and unjust enrichment. The suit seeks damages and other relief on behalf of all persons who purchased Purple LLC products during the applicable statutory periods in California. On February 22, 2024, Purple LLC removed the case to the United States District Court for the Northern District of California. Purple LLC denies all allegations and intends to vigorously defend against these claims. On April 16, 2024, Purple’s founders, in their capacity as a former landlord of Purple LLC, brought a lawsuit against Purple LLC, as lessee, for amounts allegedly owed under a real estate lease which the parties terminated effective September 30, 2023. In the suit, the plaintiffs allege approximately $ 2.5 million in damages, based primarily on a dispute regarding whether Purple LLC left the premises in the condition required by the lease. The plaintiffs further claim approximately $ 0.8 million in holdover rent, as well as unspecified amounts in interest, late fees, liquidated damages, attorney fees and costs. Purple LLC denies all allegations and intends to vigorously defend against these claims. The Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company. 16 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 14. Related Party Transactions The Company has engaged in various transactions with entities or individuals which are considered related parties. Coliseum Capital Management, LLC Immediately following the Business Combination, Adam Gray was appointed to the Board. Mr. Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and Coliseum Co-Invest Debt Fund, L.P. (“CDF”), and he is also a managing partner of CCM, which is the investment manager of Blackwell Partners LLC – Series A (“Blackwell”) and also manages investment funds and accounts. Mr. Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell. Lenders under the Amended and Restated Credit Agreement included CCP and Blackwell. See Note 10— Debt — 2024 Credit Agreement for further discussion . In April 2023, Adam Gray was appointed Chairman of the Board of the Company as part of an agreement to resolve litigation that had been brought by Coliseum against the Company. Purple Founder Entities Purple LLC began leasing its Alpine facility from entities controlled by Purple’s founders in 2010. On September 3, 2021, in accordance with the terms of that original lease, Purple LLC gave notice that it intended to exercise its right to an early termination of the lease to occur on September 30, 2022. On July 20, 2022, the Company entered into an amendment to its Alpine facility lease agreement that rescinded the Company’s previous notice of termination and extended the lease term to remain in effect until September 30, 2023. The Company vacated the Alpine facility and returned the property back to its owner on September 30, 2023, in accordance with the terms of the lease agreement and notice of termination. In conjunction with leasing the Alpine facility, Purple LLC incurred rent expense of $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2023, respectively (see Note 13— Commitments and Contingencies—Legal Proceedings for information regarding a complaint filed by Purple’s founders regarding this matter). 15. Stockholders’ Equity Class A Common Stock The Company has 210.0 million shares of Class A common stock authorized. Holders of the Company’s Class A common stock are entitled to one vote for each share held on all matters to be voted on by the stockholders. Holders of Class A common stock and holders of Class B common stock voting together as a single class have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. At June 30, 2024, 107.5 million shares of Class A common stock were outstanding. Class B Common Stock The Company has 90.0 million shares of Class B common stock authorized. Holders of the Company’s Class B common stock will vote together as a single class with holders of the Company’s Class A common stock on all matters properly submitted to a vote of the stockholders. Shares of Class B common stock may be issued only to InnoHold, their respective successors and assigns, as well as any permitted transferees of InnoHold. A holder may transfer their shares of Class B common stock to any transferee (other than the Company) only if such holder also simultaneously transfers an equal number of such holder’s Class B Units to such transferee. The Class B common stock is not entitled to receive dividends, if declared by the Board, or to receive any portion of any such assets in respect of their shares upon liquidation, dissolution, distribution of assets or winding-up of the Company in excess of the par value of such stock. At June 30, 2024, 0.2 million shares of Class B common stock were outstanding. 17 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Preferred Stock The Company has 5.0 million shares of preferred stock authorized. The preferred stock may be issued from time to time in one or more series. The Board is expressly authorized to provide for the issuance of shares of the preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, designations and other special rights or restrictions. At June 30, 2024, there were no shares of preferred stock outstanding. On June 27, 2024, 0.3 million shares of the Company’s authorized shares of preferred stock were designated as Series C Junior Participating Preferred Stock, par value $ 0.0001 per share (“Series C Preferred Shares”). NOL Rights Plan On June 27, 2024, the Board adopted, and the Company entered into the NOL Rights Plan, which is designed to preserve approximately $ 238 million of the “Current NOLs under Section 382 of the of the Internal Revenue Code of 1986, as amended (“Code Section 382”). The Company’s ability to use the Current NOLs to offset future taxable income may be significantly limited if the Company experiences an “ownership change” under Code Section 382, which occurs if one or more stockholders or groups of stockholders that is deemed to own at least 5% of the Company’s common stock increases their aggregate ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year period. The NOL Rights Plan is intended to prevent an ownership change by acting as a deterrent to any Person (as such term is defined in the NOL Rights Plan) acquiring 4.9% or more of the outstanding common stock of the Company (or, in the case of a Grandfathered Person (as such term is defined in the NOL Rights Plan), an additional one-half of one percentage point of the outstanding common Stock of the Company above their current ownership percentage). Any Person that acquires shares of the Company’s common Stock in violation of the limitations of the NOL Rights Plan is known as an “Acquiring Person.” For purposes of the NOL Rights Plan, “common stock” includes (i) the Class A common stock, (ii) the Class B common stock, and (iii) any interest that would be treated as “stock” of the Company pursuant to Treasury Regulation § 1.382-2T(f)(18). Notwithstanding the foregoing, the NOL Rights Plan allows for the exercise of currently outstanding conversion rights, exchange rights, warrants or options, or otherwise, without triggering the NOL Rights Plan. See Note 11 – Warrant Liabilities for further discussion of the Company’s outstanding warrants. The NOL Rights Plan provides for a dividend of one preferred share purchase right (a “Right”) for each share of common stock outstanding on July 26, 2024. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series C Preferred Share for a purchase price of $ 2.75 , subject to adjustment as provided in the NOL Rights Plan. Each Series C Preferred Share is designed to be the economic equivalent of one share of common stock. Unless the Board determines to effect an exchange (as discussed below), each Right will become exercisable on the “Distribution Time”, which is the earlier to occur of (i) the tenth day following a public announcement, or the public disclosure of facts indicating, that a Person has become an Acquiring Person or (ii) the tenth business day (or such later date as may be determined by action of the Board prior to such time as any Person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in a Person becoming an Acquiring Person. After the Distribution Time, any Rights held by an Acquiring Person will be void and will not be exercisable. As a result, any Acquiring Person will be subject to significant dilution upon the occurrence of the Distribution Time. At any time after a Person becomes an Acquiring Person, but before such Acquiring Person holds more than 50% of the common stock, the Board, in its sole discretion, may instead extinguish the Rights by exchanging one share of Class A common stock for each Right, other than Rights held by the Acquiring Person. The Rights will expire on the earliest to occur of (i) the close of business on the date of the Special Meeting if a majority of the Company’s stockholders voting do not ratify the NOL Rights Plan, (ii) the close of business on June 30, 2025; (iii) the time at which the Rights are redeemed (as discussed below) or exchanged by the Company; (iv) the repeal of Code Section 382, if the Board determines that this Agreement is no longer necessary for the preservation of the Current NOLs; or (v) the beginning of a taxable year of the Company to which the Board determines that no Current NOLs may be carried forward. At any time prior to the expiration of the NOL Rights Plan, the Company may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right (subject to adjustment and payable in cash, Class A common stock or other consideration deemed appropriate by the Board). Immediately upon the action of the Board authorizing any redemption or at a later time as the Board may establish for the effectiveness of the redemption, the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price. The initial issuance of the Rights as a dividend will have no tax, financial accounting or reporting impact. The fair value of the Rights will be nominal since the Rights are not exercisable when issued and no value is attributable to them. Additionally, the Rights do not meet the definition of a liability under GAAP and will therefore not be accounted for as a long-term obligation. Accordingly, unless the Rights become exercisable upon the occurred of the Distribution Time as discussed above, the NOL Rights Plan and the Rights issued thereunder have no impact on the Company’s consolidated financial statements. The NOL Rights Plan is subject to stockholder ratification at the Special Meeting. If the NOL Rights Plan is not ratified by the stockholders at the Special Meeting, the NOL Rights Plan will be terminated and the Rights will expire. 18 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) NOL Protective Charter Amendment Concurrently with the adoption of NOL Rights Plan, on June 27, 2024, the Board adopted, and recommended that the Company’s stockholders approve at the Special Meeting, the NOL Protective Charter Amendment that adds an additional layer of protection of the Current NOLs until June 30, 2025 by voiding any transfer of common stock that results in any Person holding 4.9% or more of the outstanding common stock of the Company (or, in the case of a Person already holding more than 4.9% of the outstanding common stock of the Company as of the date of the NOL Protective Charter Amendment, one-half of one percentage point of the outstanding common stock of the Company above their current ownership percentage). Any acquisition of common stock in violation of the NOL Protective Charter Amendment will be void as of the date it is attempted. Upon the Company’s written demand, the purported acquiring stockholder must transfer the excess acquired common stock to the Company’s transfer agent (along with any dividends or other distributions paid with respect to such excess acquired common stock). The Company’s transfer agent is then required to sell such excess acquired common stock in an arm’s-length transaction (or series of transactions) that would not constitute a violation under the NOL Protective Charter Amendment. The net proceeds of the sale together with any other distributions with respect to such excess acquired common stock received by the Company’s transfer agent, after deduction of all costs incurred by the transfer agent, will be transferred first to the purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar transfer, the fair market value of the excess securities on the date of the prohibited transfer) incurred by the purported transferee to acquire such excess securities, and the balance of the proceeds, if any, will be transferred to a charitable beneficiary. Further, the Company may hold any stockholder liable, to the fullest extent of the law, for any intentional violation of the NOL Protective Charter Amendment. The NOL Charter Amendment will be submitted for stockholder approval at the Special Meeting. The NOL Protective Charter Amendment will not become effective unless and until it is approved by stockholders at the Special Meeting. Warrants In connection with the Amended and Restated Credit Agreement, the Company issued 20.0 million Warrants to the Lenders. Each Warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $ 1.50 per share, subject to adjustment. While the Warrants are exercisable, the Company may call the Warrants for redemption in whole and not in part at any time at a price of $ 0.01 per share of Class A common stock issuable upon exercise of the Warrants upon not less than 45 days’ prior written notice of redemption to each holder, provided that this redemption right is only available if the reported last sale price of the Class A common stock equals or exceeds $ 24.00 per share on each of 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the holders. A holder of the Warrants will not have the right to exercise its Warrants, 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. Sponsor Warrants There were 12.8 million sponsor warrants issued pursuant to a private placement simultaneously with the Company’s initial public offering. Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warrants had no fair value on the date of expiration. Noncontrolling Interest Noncontrolling interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company. At June 30, 2024 and December 31, 2023, the combined NCI percentage in Purple LLC was 0.2 % and 0.2 %, respectively. The Company has consolidated the financial position and results of operations of Purple LLC and reflected the proportionate interest held by all such Purple LLC Class B Unit holders as NCI. 16. Income Taxes The Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC’s net taxable income and any related tax credits are passed through to its members and are included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. 19 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) The Company reported income tax expense related to various state taxes of $ 0.1 million on a pretax loss of $ 50.2 million for the six months ended June 30, 2024 as compared to various state taxes of $ 0.1 million on a pretax loss of $ 66.6 million for the six months ended June 30, 2023. This resulted in an effective tax rate of ( 0.22 )% for the six months ended June 30, 2024 as compared to ( 0.22 )% for the six months ended June 30, 2023. The Company’s effective tax rate for the six months ended June 30, 2024 differs from the statutory federal rate of 21 % primarily due to the impact of the full valuation allowance recorded against the Company’s deferred tax assets at June 30, 2024. In connection with the Business Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment by the Company to InnoHold of 80 % of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the agreement. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a tax receivable agreement liability may be recorded based on 80 % of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant liability to be recorded will depend on the price of the Company’s Class A common stock at the time of the relevant redemption or exchange. The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of June 30, 2024, the Company had unrecognized tax benefits of $ 0.9 million. 17. Net Loss Per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of Class A common stock outstanding during each period. Diluted net income (loss) per share reflects the weighted-average number of common shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock equivalents that are dilutive. The following table sets forth the calculation of basic and diluted weighted average shares outstanding and net loss per share for the periods presented (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net income (loss) attributable to Purple Innovation, Inc. – basic $ 27 $ ( 40,487 ) $ ( 50,277 ) $ ( 66,420 ) Less – net loss attributed to noncontrolling interest ( 36 ) — — — Net income (loss) attributable to Purple Innovation, Inc. – diluted $ ( 9 ) $ ( 40,487 ) $ ( 50,277 ) $ ( 66,420 ) Denominator: Weighted average shares—basic 107,489 105,079 106,755 101,760 Add – dilutive effect of Class B shares 205 — — — Add – dilutive effect of equity securities 85 — — — Weighted average shares—diluted 107,779 105,079 106,755 101,760 Net loss per common share: Basic $ 0.00 $ ( 0.39 ) $ ( 0.47 ) $ ( 0.65 ) Diluted $ ( 0.00 ) $ ( 0.39 ) $ ( 0.47 ) $ ( 0.65 ) The Company excludes certain shares issuable from equity awards, warrants and exchange of Class B common stock from the diluted net loss per common share computation when their exercise or performance vesting price is greater than the average market price of the Company’s common stock or they are otherwise anti-dilutive. For the three months ended June 30, 2024, the Company excluded 22.7 million shares of Class A common stock issuable upon conversion of certain warrants, stock options and restricted stock. For the six months ended June 30, 2024, the Company excluded 25.0 million shares of Class A common stock issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock. For the three and six months ended June 30, 2023, the Company excluded 3.0 million and 3.4 million, respectively, of Class A common stock issuable upon conversion of certain warrants, stock options restricted stock and exchange of Class B common stock. 20 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 18. Equity Compensation Plans 2017 Equity Incentive Plan The Purple Innovation, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock units and other stock-based awards. Directors, officers and other employees, as well as others performing consulting or advisory services for the Company and its subsidiaries, will be eligible for grants under the 2017 Plan. As of June 30, 2024, an aggregate of 2.2 million shares remain available for issuance or use under the 2017 Plan. Employee Stock Options The following table summarizes the Company’s total stock option activity for the six months ended June 30, 2024: Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Intrinsic Value (in thousands) Options outstanding as of January 1, 2024 863 $ 8.13 2.2 $ — Granted — — — — Exercised — — — — Forfeited ( 309 ) 9.69 — — Options outstanding as of June 30, 2024 554 $ 7.27 2.6 $ — Outstanding and exercisable stock options as of June 30, 2024 are as follows: Options Outstanding Options Exercisable Exercise Prices Number of Options Outstanding (in thousands) Weighted Average Remaining Life (Years) Number of Options Exercisable (in thousands) Weighted Average Remaining Life (Years) Intrinsic Value (in thousands) $ 6.82 500 2.8 333 2.8 $ — 7.99 19 0.4 19 0.4 — 13.12 35 0.9 35 0.9 — The following table summarizes the Company’s unvested stock option activity for the six months ended June 30, 2024: Options (in thousands) Weighted Average Grant Date Fair Value Nonvested options as of January 1, 2024 337 $ 0.41 Granted — — Vested ( 170 ) 0.59 Forfeited — — Nonvested options as of June 30, 2024 167 $ 0.22 The estimated fair value of Company stock options is amortized over the options vesting period on a straight-line basis. For the three and six months ended June 30, 2023, the Company recognized stock option expense of $ 0.1 million and $ 0.4 million, respectively. Stock option expense was de minimis for the three and six months ended June 30, 2024. As of June 30, 2024, outstanding stock options had a de minimis amount of unrecognized stock compensation cost with a remaining recognition period of 0.8 years. The fair value of stock options vested during the six months ended June 30, 2024 totaled $ 0.1 million. 21 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Employee Restricted Stock Units During the first six months of 2024, the Company granted 1.8 million restricted stock units under the 2017 Equity Incentive Plan to certain members of the Company’s management team. Of the restricted stock units granted, 0.4 million included a market vesting condition. The restricted stock awards that did not have a market vesting condition had a weighted average grant date fair value of $ 1.00 per share. The estimated fair value of these awards is recognized on a straight-line basis over the vesting period. For those awards that include a market vesting condition, the estimated fair value of the restricted stock was measured on the grant date and incorporated the probability of vesting occurring. The estimated fair value is recognized over the derived service period (as determined by the valuation model), with such recognition occurring regardless of whether the market condition is met. The Company determined the weighted average grant date fair value of the awards with the market vesting condition to be $ 1.13 per share using a Monte Carlo Simulation model with the following weighted average assumptions: Trading price of common stock on measurement date $ 1.50 Risk free interest rate 4.46 % Expected life in years 3.0 Expected volatility 97.1 % Expected dividend yield — The following table summarizes the Company’s restricted stock unit activity for the six months ended June 30, 2024: Number Outstanding (in thousands) Weighted Average Grant Date Fair Value Nonvested restricted stock units as of January 1, 2024 3,057 $ 2.97 Granted 1,828 1.03 Vested ( 582 ) 3.87 Forfeited ( 260 ) 3.44 Nonvested restricted stock units as of June 30, 2024 4,043 $ 1.94 The Company recorded restricted stock unit expense of $ 0.8 million and $ 1.3 million during the three and six months ended June 30, 2024, respectively, and $ 0.9 million and $ 1.8 million during the three and six months ended June 30, 2023, respectively. As of June 30, 2024, outstanding restricted stock units had $ 5.2 million of unrecognized stock compensation cost with a remaining recognition period of 1.6 years. 22 PURPLE INNOVATION, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Aggregate Non-Cash Stock-Based Compensation The Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation . This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period. The following table summarizes the aggregate non-cash stock-based compensation recognized in the statement of operations for stock awards, employee stock options and employee restricted stock units (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenues $ 103 $ 23 $ 190 $ 98 Marketing and sales 128 240 224 215 General and administrative 514 1,332 755 2,452 Research and development 80 66 148 88 Total non-cash stock-based compensation $ 825 $ 1,661 $ 1,317 $ 2,853 19. Employee Retirement Plan In July 2018, the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS Code. All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan. The plan provides for the Company to match employee contributions up to 5 % of eligible earnings. Company contributions immediately vest. The Company’s matching contribution expense was $ 1.0 million and $ 2.1 million for the three and six months ended June 30, 2024, respectively, and $ 0.9 million and $ 1.8 million for the three and six months ended June 30, 2023, respectively. 20. Subsequent Events Settlement of Insurance Claim In July 2024, pursuant to a previously filed business interruption claim, the Company received the remaining settlement amount of $ 7.3 million. The Company recorded the payment received as other income, net in the third quarter of 2024. Class Action Lawsuits On July 15, 2024, the Company entered into a settlement agreement (the “Settlement Agreement”) with the plaintiffs in connection with the Class Action Lawsuit. Pursuant to the Settlement Agreement, the Company will make a cash payment upon the receipt of an executed release of all claims by the plaintiffs. The payment will have no material impact on results of operations, financial condition or cash flow of the Company. The Settlement Agreement is subject to approval by the United States District Court for the Northern District of California. If the court does not grant final approval of the Settlement Agreement, or the settlement does not otherwise become final or effective, proceedings in the Class Action Lawsuit will continue. See Note 13 - Commitments and Contingencies - Legal Proceedings for further discussion of the Class Action Lawsuit. On July 24, 2024, a former part-time employee filed a class action lawsuit against Purple LLC in California Superior Court in the County of Alameda alleging failure to pall all wages, failure to pay overtime pay rate, failure to provide all meal periods, and other employment-related causes of action. The suit seeks damages, interest, attorneys’ fees, costs and other relief on behalf of all non-exempt California employees of Purple LLC during the applicable statutory periods. 23