What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-05 · 507 added, 359 removed, 186 unchanged (82% of the section changed)

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

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

The discussion should be

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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.” Capitalized terms used in this “Part I.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations and not otherwise defined shall have the meanings set forth in “Part I.

1 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

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 and beliefs.

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

securities laws.

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

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All forward-looking statements

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

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

It is routine for our internal projections and expectations to

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of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products.

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

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

and through wholesale retailers.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

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%.

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

is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without

the approval of any other member.

At September 30, 2024, Purple Inc.

had a 99.8% economic ownership interest in Purple LLC while Class

B unit holders had the remaining 0.2%.

Recent Developments in Our Business

Restructuring Activities

In August 2024, we initiated the Restructuring Plan to strategically

realign our operational focus to achieve operations efficiencies that are expected to improve profitability and provide for reinvesting

in technology and marketing initiatives.

The Restructuring Plan is comprised of the permanent closure of both Utah manufacturing facilities

to consolidate mattress production in our Georgia plant, and a headcount reduction at our Utah headquarters to drive additional operating

efficiencies.

Closure of the two Utah manufacturing facilities is projected to be completed during the first quarter of 2025 while consolidation

into the Georgia facility is expected to be finalized by December 31, 2024.

The reduction in workforce at the Utah headquarters was completed

in August 2024.

During the third quarter of 2024, we recognized $32.7 million of restructuring, impairment and other related charges,

which included $3.6 million of employee-related and other costs, $9.0 million of accelerated depreciation, $9.1 million related to write-downs

of inventory and long-lived assets to be disposed of or equipment in progress that will not be put in service, and $11.0 million of impairment

charges associated with entering into a sublease for one of the Utah manufacturing facilities to be closed and impairment of an intangible

We expect to record additional restructuring and other related charges in the amount of $9.9 million through the second quarter

These charges include certain estimates that are provisional and include management judgments and assumptions that could change

materially as we complete the execution of our plans.

Actual results may differ from these estimates, and the completion of our plan could

result in additional restructuring, impairment or other related charges not reflected.

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.

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

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 was 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

59 as of September 30, 2024.

We 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 2024, we have been realizing 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.

Moreover, we have improved gross margin in the second and third quarters 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 consolidation of our manufacturing footprint pursuant to our Restructuring Plan is

an important step to advance our grid innovation and build momentum to achieve positive operating cash flow and market share growth over

the long term.

Debt Financing

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

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

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

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

We may request an additional

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

Lenders at their discretion.

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

with an asset-based loan.

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

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

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

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

To reduce cash obligations,

we have elected 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, because Purple LLC has elected to

pay interest in kind to reduce its cash obligations, 10.25% per annum).

Any prepayments of principal on or after August 7, 2024 but before

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

a prepayment penalty of 2.50%.

We may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million

on terms requested by us to the extent agreed to by the Lenders at their discretion.

The Amended and Restated Credit Agreement also removed

restrictions and requirements typically associated with an asset-based loan.

In connection with our execution of the Amended and Restated

Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the 2023 Agreements were terminated.

In connection with the Amended

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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.

During the nine months ended September 30, 2024, we recognized a loss of $0.1 million in our condensed consolidated statement of operations

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

Registration Rights Agreement

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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.

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

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.

NOL Rights Plan

On June 27, 2024, our Board

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who violates the ownership limitations of the NOL Rights Plan.

The NOL Rights Plan was ratified by the Company’s stockholders at

the Special Meeting.

NOL Protective Charter Amendment

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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.

The NOL Protective Charter

Amendment was approved by the Company’s stockholders at the Special Meeting.

Executive Summary – Results of Operations

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 $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

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.

Net revenues decreased $21.4

million, or 15.3%, to $118.6 million for the three months ended September 30, 2024 compared to $140.0 million for the three months ended

September 30, 2023.

The drop in revenue was primarily driven by industry-wide demand softness for home-related products in addition to

a reduction in advertising spend.

From a sales channel perspective, DTC net revenues decreased $9.4 million, or 11.7%, and wholesale net

revenues decreased $12.0 million, or 20.1%.

Within DTC, e-commerce net revenues decreased $9.3 million, or 15.7%, while Purple showroom

net revenues were flat.

The decrease in wholesale channel net revenues also reflected our decision to exit our relationship with certain

Gross profit decreased $12.1

million, or 25.6%, to $35.2 million for the three months ended September 30, 2024 compared to $47.3 million for the three months ended

September 30, 2023.

This decrease was due to $12.9 million in restructuring related charges associated with the Restructuring Plan recognized

in cost of revenues and lower sales volume.

These decreases were partially offset by increases in gross profit due to reduced costs that

were largely attributable to supply chain initiatives and operational efficiency improvements implemented over the last 12 months.

also experienced increased costs in 2023 due to non-recurring costs associated with the transition to our new product lineup.

profit percentage, which decreased to 29.7% of net revenues in the third quarter of 2024 from 33.8% in the third quarter of 2023, was

negatively impacted by the restructuring related costs offset by the supply chain initiatives and manufacturing efficiencies previously

We expect our Restructuring Plan will further streamline our operations and provide increased gross profits.

Operating expenses increased $2.1 million, or 2.6% to $82.0 million

for the three months ended September 30, 2024 compared to $79.9 million for the three months ended September 30, 2023.

This increase was

driven by $19.8 million in restructuring related charges as part of the consolidation of our manufacturing operations to achieve operational

efficiencies.

This increase was offset in part by a $9.1 million decrease in advertising spend and the benefit of a reduced prior period

comparison due to a $6.9 loss on impairment of goodwill recorded in the prior year third quarter.

Other income totaled $7.6

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.

million for the three months ended September 30, 2024 compared to other expense of $3.5 million for the three months ended September 30,

Other income in 2024 included $7.3 million associated with proceeds received in July 2024 for the final settlement payment of a

previously filed business interruption insurance claim and a $4.8 million gain resulting from a decrease in the fair value of the Warrants

outstanding at September 30, 2024.

These increases were partially offset by $4.4 million of non-cash interest expense related to the Related

In 2023, other expense was primarily due to a $3.1 million loss on extinguishment of debt due to a refinancing.

Net loss attributable to Purple

was $39.2 million for the three months ended September 30, 2024 compared to a net loss of $36.0 million for the three months ended

September 30, 2023.

The $3.2 million increase in net loss was primarily due to $32.7 million of restructuring, impairment and other related

charges associated with the Restructuring Plan, partially offset by a $17.7 million decrease in operating expenses, excluding the impact

of restructuring, impairment and other related charges, and a $11.1 million increase in other income.

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 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.

We believe, given our announced

cost actions, that we are well positioned to grow our business in this market, that remains challenged.

We remain focused on five key

initiatives to drive sustainable and profitable market share gains:

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, supply chain optimization, and consolidation of our mattress

manufacturing.

We have generated strong efficiency gains in our plants and believe our Restructuring

Plan will achieve further operational efficiencies.

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.

Improve the productivity of our existing showroom and wholesale doors.

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.

Drive 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.

our marketing effectiveness.

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

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.

new products and innovations to market.

We continue to accelerate innovation, keeping our product and technology pipelines robust

Recent initiatives are generating new and more cost-effective technologies which positions us for the next stage

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.

There is no guarantee that

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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,

Operating Results for the Three Months Ended September 30, 2024

The following table sets forth

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

of operations (dollars in thousands):

Three Months Ended September 30,

Revenues, net

Cost of revenues:

Cost of revenues

Cost of revenues - restructuring related charges

Total cost of revenues

Operating expenses:

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Research and development

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

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Other income, net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Total other expense, net

Net income (loss) before income taxes

Loss on extinguishment of debt

Total other income (expense), net

Net loss before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

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

Net 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.

Net revenues decreased $21.4

million, or 15.3%, to $118.6 million for the three months ended September 30, 2024 compared to $140.0 million for the three months ended

September 30, 2023.

This decrease was primarily driven by industry-wide demand softness for home-related products in addition to a reduction

in advertising spend.

From a sales channel perspective, DTC net revenues decreased $9.4 million, or 11.7%, and wholesale net revenues

decreased $12.0 million, or 20.1%.

Within DTC, e-commerce net revenues decreased $9.3 million, or 15.7%, while Purple showroom net revenues

The decrease in wholesale channel net revenues also reflected our decision to exit our relationship with certain customers.

Total Cost of Revenues

Total cost of revenues decreased $9.3 million, or 10.0%, to $83.4 million

for the three months ended September 30, 2024 compared to $92.7 million for the three months ended September 30, 2023.

This decrease was

due primarily to reduced sales volumes coupled with lower production costs that were largely attributable to supply chain initiatives

and operational efficiency improvements implemented over the last 12 months.

This decrease was offset in part by $12.9 million of restructuring

related charges associated with the Restructuring Plan.

We also experienced non-recurring costs in 2023 associated with the transition

to our new product lineup.

Our gross profit percentage, which decreased to 29.7% of net revenues in the third quarter of 2024 from 33.8%

in the third quarter of 2023, was negatively impacted by the $12.9 million of restructuring related charges offset in part by improved

production effectiveness due primarily to supply chain initiatives and manufacturing efficiencies.

We expect the Restructuring Plan will

achieve further operational efficiencies and provide increased gross profits.

We expect to record additional cost of revenue restructuring

related charges in the amount of $5.2 million through the second quarter of 2025.

These charges include certain estimates that are provisional

and include management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results

may differ from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.

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.

decreased $9.9 million, or 18.7%, to $42.9 million for the three months ended September 30, 2024 compared to $52.8 million for the three

months ended September 30, 2023.

This decrease primarily consisted of a $9.1 million decrease in advertising spending over last year when

we invested heavily to support our new product launch.

As a percentage of net revenues, advertising spend was 13.7% in the third quarter

of 2024 compared to 18.1% in the third quarter of 2023.

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

advertising techniques in 2024 as compared to management’s use of expanded marketing efforts in 2023 to support the launch of our

new product lineups.

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.

expense decreased $0.3 million, or 1.5%, to $17.3 million for the three months ended September 30, 2024 compared to $17.5 million for

the three months ended September 30, 2023.

This decrease primarily reflected the net effect of a $1.7 million decrease in legal and professional

fees that was partially offset by a $1.3 million increase in compensation expense, which included severance costs associated with the

Restructuring Plan.

There will be no additional severance cost associated with the Restructuring Plan recorded in General and Administrative

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.

increased $0.2 million, or 8.0%, to $2.9 million for the three months ended September 30, 2024 compared to $2.7 million for the three

months ended September 30, 2023.

This increase is consistent with our continued focus on product development and generating new products.

Restructuring, Impairment and Other Related

August 2024, we initiated a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress

production in our Georgia plant.

The Restructuring Plan also provided for a headcount reduction at our Utah headquarters to drive additional

operating efficiencies.

The $18.9 million of restructuring and impairment charges recorded during the third quarter of 2024 included

$2.4 million of employee-related costs, $0.4 million of accelerated depreciation on non-manufacturing assets, $5.1 million related to

write-downs of long-lived assets to be disposed of or equipment in progress that will not be put in service, and $11.0 million of impairment

charges which included $2.5 million associated with entering into a sublease for one of the Utah manufacturing facilities to be closed

and $8.5 million for the write-off of an indefinite-lived intangible asset.

We expect to record additional restructuring and other related

charges in the amount of $4.7 million through the second quarter of 2025.

These charges include certain estimates that are provisional

and include management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results

may differ from these estimates, and the completion of our plan could result in additional restructuring, impairment or other related

charges not reflected.

Loss on Impairment of Goodwill

recorded a $6.9 million loss on impairment of goodwill in the third quarter of 2023 as a result of an impairment assessment performed

that determined goodwill was impaired.

An ongoing decline in our market capitalization, along with other qualitative considerations,

was determined to be a triggering event for potential goodwill impairment.

The Company, considered as a single reporting unit, estimated

the implied fair value of its goodwill as of September 30, 2023 using a variety of valuation methods, including both the income and market

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.

Operating loss increased $14.2

million, or 43.5%, to $46.8 million, for the three months ended September 30, 2024 compared to $32.6 million for the three months ended

September 30, 2023.

The larger operating loss in 2024 primarily resulted from restructuring and impairment charges recorded during the

third quarter of 2024.

We expect to record additional restructuring and other related charges of $4.7 million through the second quarter

These charges include certain estimates that are provisional and include management judgments and assumptions that could change

materially as we complete the execution of our plans.

Actual results may differ from these estimates, and the completion of our plan could

result in additional restructuring, impairment or other related charges not reflected.

Interest Expense

Interest expense totaled $4.4

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

million for the three months ended September 30, 2024 compared to $0.6 million for the three months ended September 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.

was primarily due to interest incurred on the Related Party 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 third quarter of 2023 reflected interest

incurred on the 2023 Credit Agreements.

Other Income, Net

Other income increased to

$7.2 million for the three months ended September 30, 2024 compared to $0.2 million for the three months ended September 30, 2023.

increase was due to $7.3 million of proceeds received in July 2024 for the remaining settlement amount due pursuant to a previously filed

business interruption insurance claim.

Change in Fair Value – Warrant Liabilities

5 unchanged sentences

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

At June 30, 2024, the outstanding

At September 30, 2024, the outstanding

Warrants had a fair value of $19.7 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.

During the three months ended September 30, 2024, we recognized a gain of $4.8 million for

the decrease in fair value of the Warrants outstanding at September 30, 2024 as compared to the fair value of the Warrants outstanding

at the end of the second quarter of 2024.

Loss on Extinguishment of Debt

We recorded a $3.1 million

loss on extinguishment of debt in the third quarter of 2023.

In connection with the execution of the 2023 Credit Agreements, the Company

terminated its 2020 Credit Agreement.

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

termination was accounted for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance

costs were recorded as loss on extinguishment of debt.

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.

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

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

Noncontrolling Interest

2 unchanged sentences

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,

to noncontrolling interests was $0.1 million for both the three months ended September 30, 2024 and the three months ended September 30,

Operating Results for the Nine Months Ended

September 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:

Nine Months Ended September 30,

Revenues, net

Cost of revenues:

Cost of revenues

Cost of revenues - restructuring related charges

Total cost of revenues

Operating expenses:

2 unchanged sentences

Research and development

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

3 unchanged sentences

Other income, net

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Total other expense, net

4 unchanged sentences

Revenues, Net

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

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

$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

Net revenues decreased $5.7

million, or 1.6%, to $358.9 million for the nine months ended September 30, 2024 compared to $364.6 million for the nine months ended

September 30, 2023.

From a sales channel perspective, DTC net revenues decreased $10.7 million, or 5.0%, and wholesale net revenues increased

$5.0 million, or 3.3%.

Within DTC, e-commerce net revenues decreased $14.1 million, or 8.7%, while Purple showroom net revenues increased

$3.4 million, or 6.5%.

The decrease in e-commerce net revenues reflected the ongoing impact of deteriorating industry trends that have

led to demand softness for most big-ticket home-related discretionary items.

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 third quarter to 59 at the end of the third quarter

The increase in wholesale channel net revenues was largely driven by the continued positive response of our existing wholesale

partners during the first two quarters of 2024 after transitioning to the new product lineups in 2023.

Total Cost of Revenues

Total cost of revenues decreased $8.2 million, or 3.4%, to $233.0 million

for the nine months ended September 30, 2024 compared to $241.2 million for the nine months ended September 30, 2023.

This decrease was

due to lower sales volume coupled with lower production costs that were largely attributable to supply chain initiatives and operational

efficiency improvements implemented over the last 12 months.

This decrease was offset in part by $12.9 million of restructuring related

charges associated with the Restructuring Plan.

We also experienced non-recurring costs in 2023 associated with the transition to our

new product lineup.

Our gross profit percentage, which increased to 35.1% of net revenues in the first nine months of 2024 from 33.8%

in the first nine months of 2023, reflected improved production effectiveness in 2024 due primarily to supply chain initiatives and manufacturing

efficiencies.

These savings were offset in part by the $12.9 million of restructuring related charges coupled with a shift in revenue

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

We believe the Restructuring Plan

will achieve further operational efficiencies and provide increased gross profits.

We expect to record additional cost of revenues restructuring

related charges in the amount of $5.2 million through the second quarter of 2025.

These charges include certain estimates that are provisional

and include management judgments and assumptions that could change materially as we complete the execution of our plans.

Actual results

may differ from these estimates, and the completion of our plan could result in additional restructuring related charges not reflected.

Marketing and Sales

Marketing and sales expense

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.

decreased $11.6 million, or 8.4%, to $125.8 million for the nine months ended September 30, 2024 compared to $137.4 million for the nine

months ended September 30, 2023.

This decrease primarily reflected a $12.2 million decrease in advertising spending over last year when

we invested heavily to support our new product launch.

As a percentage of net revenues, advertising spend was 12.5% in 2024 compared to

15.7% in 2023.

The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared

to management’s use of expanded marketing efforts in 2023 to support the launch of our new product lineups.

General and Administrative

General and administrative

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.

expense decreased $12.5 million, or 18.5%, to $55.1 million for the nine months ended September 30, 2024 compared to $67.6 million for

the nine months ended September 30, 2023.

This decrease was primarily due to 2023 including $14.2 million of non-recurring legal and professional

costs incurred by the Board’s special committee and a $2.3 million reduction in other professional fees.

These reductions were partially

offset by a $4.3 million increase in compensation expense, which included severance costs associated with the Restructuring Plan.

will be no additional severance cost associated with the Restructuring Plan recorded in general and administrative expense.

Research and Development

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.

Research and development costs

increased $1.6 million, or 17.5%, to $10.6 million for the nine months ended September 30, 2024 compared to $9.0 million for the nine

months ended September 30, 2023.

This increase was primarily due to a loss incurred on the write off of a project coupled with increased

investment in new research and development initiatives.

Restructuring, Impairment and Other Related

August 2024, we initiated a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress

production in our Georgia plant.

The Restructuring Plan also provided for a headcount reduction at our Utah headquarters to drive additional

operating efficiencies.

The $18.9 million of restructuring and impairment charges recorded during the third quarter of 2024 included

$2.4 million of employee-related costs, $0.4 million of accelerated depreciation, $5.1 million related to write-downs of long-lived assets

to be disposed of or equipment in progress that will not be put in service, and $11.0 million of impairment charges which included $2.5

million associated with entering into a sublease for one of the Utah manufacturing facilities to be closed and $8.5 million for the write-off

of and indefinite-lived intangible asset.

We expect to record additional restructuring and other related charges in the amount of $4.7

million through the second quarter of 2025.

These charges include certain estimates that are provisional and include management judgments

and assumptions that could change materially as we complete the execution of our plans.

Actual results may differ from these estimates,

and the completion of our plan could result in additional restructuring, impairment or other related charges not reflected.

Loss on Impairment of Goodwill

We recorded a $6.9

million loss on impairment of goodwill in the third quarter of 2023 as a result of an impairment assessment performed that

determined goodwill was impaired.

An ongoing decline in our market capitalization, along with other qualitative considerations was

determined to be a triggering event for potential goodwill impairment.

The Company, considered as a single reporting unit, estimated

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

Operating Loss

Operating loss decreased $(27.2)

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.

loss decreased $13.0 million, or 13.4%, to $84.5 million for the nine months ended September 30, 2024 compared to $97.5 million for the

nine months ended September 30, 2023.

The smaller operating loss primarily resulted from an increase in gross profit, a decrease in ad

spend, a decrease in general and administrative expense, and 2023 including a loss on impairment of goodwill.

These increases to operating

income were partially offset by restructuring and impairment charges recorded in 2024 related to the Restructuring Plan.

record additional restructuring and other related charges of $9.9 million through the second quarter of 2025.

These charges include certain

estimates that are provisional and include management judgments and assumptions that could change materially as we complete the execution

of our plans.

Actual results may differ from these estimates, and the completion of our plan could result in additional restructuring,

impairment or other related charges not reflected.

Interest Expense

Interest expense totaled $13.0

$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 new $61.0 million loan that was entered into in January 2024 to refinance the term loan and

million for the nine months ended September 30, 2024 compared to $1.1 million for the nine months ended September 30, 2023.

This increase

was primarily due to interest incurred on the Related Party 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 six months of 2023 was lower because

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

Interest expense in the first nine months of 2023 was lower in part

because the term loan associated with the 2020 Credit Agreement was repaid in full in February 2023 and the 2023 Credit Agreements did

not go into effect until August 2023.

Other Income, Net

Other income increased to

$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.

Loss on Extinguishment of Debt

In January 2024, we entered

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

This termination was accounted

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

In 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.

$11.6 million for the nine months ended September 30, 2024 compared to $0.3 million for the nine months ended September 30, 2023.

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

insurance claim and $7.3 million of additional proceeds received in July 2024 for the remaining settlement payment due pursuant to the

same previously filed business interruption claim.

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.

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.

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.

At September 30, 2024, the

Warrants had a fair value of $19.7 million.

During the nine months ended September 30, 2024, we recognized a loss of $0.1 million for

the increase in fair value of the Warrants outstanding at September 30, 2024 as compared to the fair value of the Warrants on the date

Loss on Extinguishment of Debt

Loss on extinguishment of

debt totaled $3.4 million for the nine months ended September 30, 2024 compared to $4.3 million for the nine months ended September 30,

In January 2024, we entered into the Amended and Restated Credit Agreement that terminated and paid off our 2023 Credit Agreements.

This termination was accounted for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs were recorded as loss

on extinguishment of debt in 2024.

In February 2023, we accounted for an amendment to the 2020 Credit Agreement as an extinguishment of

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

In connection with the

execution of the 2023 Credit Agreements in August 2023, the Company terminated its 2020 Credit Agreement.

While the Company had no outstanding

borrowings under the 2020 Credit Agreement at that time, the termination was accounted for as an extinguishment of debt during the third

quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt.

Income Tax (Expense) Benefit

We had income tax expense

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,

of $0.2 million for the nine months ended September 30, 2024 compared to income tax expense of $0.2 million for the nine months ended

September 30, 2023.

The income tax expense amounts in both 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 $0.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

We calculate net income or loss attributable to noncontrolling interests

on a quarterly basis using their weighted average ownership percentage.

Net loss attributed to noncontrolling interests was $0.2 million

and $0.4 million for the nine months ended September 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, 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.

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

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

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

pursue work-out options or other protective measures.

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

from subordinated lenders or equity capital.

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

us or at all.

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

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, 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 $28.7 million, respectively, as of September 30, 2024 compared to $26.9

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

Cash used for capital expenditures totaled $6.4 million and $9.4 million

for the nine months ended September 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,

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 on terms requested by us to the extent agreed to by the Lenders at their discretion, will

be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12 months.

in August 2024, we announced our Restructuring Plan.

We believe consolidation of our manufacturing footprint is an important step to advance

our grid innovation and build momentum to achieve positive operating cash flow and market share growth over the long term.

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.

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

to retain all of our employees.

In addition, we may be forced to restructure our obligations to creditors, pursue work-out options

or other protective measures.

We may also need to seek additional funding sources including new debt from subordinated lenders or equity

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

Our ability to raise

additional debt financing would require the consent of the Lenders.

Other Contractual Obligations

Other material contractual obligations primarily include operating

lease payment obligations.

See Note 8 - 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

Other material contractual

obligations primarily include operating lease payment obligations.

See Note 9 - Leases of the condensed consolidated financial

statements for additional information on leases.

Cash Flows for the Nine Months Ended September

30, 2024 Compared to the Nine Months Ended September 30, 2023

The following summarizes our

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

Nine Months Ended

September 30,

Net cash used in operating activities

1 unchanged sentence

Net cash provided by financing activities

Net increase in cash

Net decrease in cash

Cash, beginning of the period

Cash, end of the period

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 operating activities was $24.6 million and $55.8 million

for the nine months ended September 30, 2024 and 2023, respectively.

Significant components of the year-over-year change in cash used

in operating activities included a $13.3 million decrease in net loss, $29.1 million of noncash restructuring, impairment and other

related charges, and $7.0 million of paid-in-kind interest, offset in part by a $17.1 million fluctuation in accounts payable due to timing

of vendor payments.

Cash used in investing activities

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

reflected capital expenditures of $6.4 million and $9.4 million for the nine months ended September 30, 2024 and 2023, respectively.

expenditures in the first nine 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 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

activities was $27.5 million during the nine months ended September 30, 2024 compared to $50.8 million during the nine months ended September

Financing activities during the first nine 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 Estimates

We discuss our critical accounting

1 unchanged sentence

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

1 unchanged sentence

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

and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant

to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such

material with, or furnish it to, the SEC.

The inclusion of our website address in this report does not include or incorporate by reference

into this report any information on our website.

We also use the Investor

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

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

calls and webcasts.

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

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

furnish it to, the SEC.

The inclusion of our website address in this report does not include or incorporate by reference into this report

any information on our website.

We also use the Investor Relations

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

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

and webcasts.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis