What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-04 · 482 added, 584 removed, 109 unchanged (91% of the section changed)

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

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

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

securities laws.

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

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

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

of these words and other similar words.

and Section 21E of the Securities Exchange Act of 1934, as amended (“the “Exchange Act”), that represent our current

expectations and beliefs.

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

of federal and state securities laws.

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

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

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

the negative of these words and other similar words.

All forward-looking statements

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

Securities and Exchange Commission on March 12, 2024.

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

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

We undertake no obligation

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

as required by law.

SEC on March 14, 2025.

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

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

We undertake no obligation to publicly update or revise

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

Overview of Our Business

Our mission is to help people

feel and live better through innovative comfort solutions.

We are an omni-channel company

that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings.

We design and manufacture

a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, duvets, duvet

covers, and other products.

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

technologies and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology underpins many

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

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

and through wholesale retailers.

Our business consists of Purple

Our mission is to deliver

the greatest sleep ever invented.

We began as a digitally-native

vertical brand founded on comfort product innovation with premium offerings, and have since expanded into brick & mortar stores as

a true omni-channel brand.

We offer a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions,

bases, sheets and more.

Our products are the result of decades of innovation and investment in proprietary and patented comfort technologies

and the development of our own manufacturing processes.

Our proprietary Hyper-Elastic Polymer gel technology underpins many of our comfort

products and provides a range of benefits that differentiate our products from our competitors.

Specially engineered to relieve pressure,

maintain an ideal body temperature, and provide instantly adaptive support, Purple’s patented technology has been tested rigorously

within medical and consumer applications for over 30 years.

Originally designed for use in hospital beds and wheelchairs, we adapted this

unique pressure-relieving material for our mattresses, pillows and other cushion products.

We market and sell our products

via our direct-to-consumer channel, which includes Purple.com (our direct-to-consumer e-commerce), Purple showrooms, our customer contact

center and online marketplaces (collectively “DTC”), and our wholesale channel through retail brick-and-mortar and online

wholesale partners.

business consists of Purple Inc.

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 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%.

As the sole managing member of Purple LLC, Purple Inc.,

through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day

business affairs of Purple LLC without the approval of any other member.

At March 31, 2025, Purple Inc.

had a 99.85% economic ownership

interest in Purple LLC while Class B unit holders had the remaining 0.15%.

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.

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.

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

On January 23, 2024, we entered

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

The Lenders agreed

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

Pursuant to the Amended and

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

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

net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) 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

and Restated Credit Agreement, we issued Warrants to the Lenders to purchase 20.0 million shares of our Class A common stock.

Our first quarter 2025 revenue

was down from last year as softness in our e-commerce and wholesale channels continue.

Revenue from our showrooms channel increased for

the second consecutive quarter of year-over-year growth.

Gross margins continue to improve as we realize the benefits from ongoing sourcing

initiatives, production efficiencies and the full integration of our consolidated manufacturing operations.

Operating expenses continue

to decline as we have implemented numerous cost reduction efforts and closely manage our costs with disciplined cost controls.

Earlier this year, we announced the re-launching of our Rejuvenate line in

the second quarter 2025 through our DTC channels, followed by a full wholesale channel roll-out expected to be complete by the third quarter

The new Rejuvenate 2.0 will have a newly innovated grid technology that when stacked with our original GelFlex grid, creates

a unique combination that we believe will continue to differentiate us in the market while driving superior comfort and support for an

even more premium sleep experience.

On May 2, 2025, we

entered into a Second Amendment to Master Retailer Agreement (the “MRA Amendment”) with Mattress Firm, Inc.

(“Mattress Firm”), a business unit of Somnigroup International, Inc.

(“SGI”), which provides that SGI,

through its Mattress Firm stores, will expand its inventory of our products across its national store network from approximately

5,000 mattress slots to a minimum of 12,000 mattress slots.

We expect that this increased retail presence in Mattress Firm stores

will generate approximately $70 million in incremental net revenue beginning in 2026.

Also on May 2, 2025, we entered into an

Amended and Restated Master Vendor Supply and Services Agreement (the “Sherwood Agreement” and together with the MRA

Amendment the “SGI Agreements”) with Tempur Sherwood, LLC, a subsidiary of Tempur Sealy.

The Sherwood Agreement provides that

Tempur Sherwood, LLC will have the exclusive right to assemble certain product lines that the Company sells to Mattress Firm.

Restructuring Activities

In August 2024, we initiated

the Restructuring Plan to strategically realign our operational focus to achieve efficiencies in our operations that are expected to improve

profitability and provide for reinvesting in technology and marketing initiatives.

The Restructuring Plan includes 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 in the second

quarter of 2025 while consolidation into the Georgia facility was finalized in December 2024.

The reduction in workforce at our Utah headquarters

was completed in August 2024.

During the three months ended March 31, 2025, we recognized $2.9 million in costs relating to the Restructuring

Plan, which included $1.9 million of moving and transition related costs, $0.6 million related to disposal of long-lived assets or equipment

in progress that will not be put in service, $0.2 million in employee related costs, and $0.2 million in accelerated depreciation.

expect to record additional restructuring and other related charges in the amount of $3.0 million in the second quarter of 2025.

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.

addition, we continue to implement additional cost savings measures in 2025 beyond those implemented pursuant to our 2024 Restructuring

Debt Financings

On March 12, 2025, Purple

LLC, Purple Inc.

and Intellibed (collectively, the “Loan Parties”), entered into an Amendment to the Amended and Restated

Credit Agreement (the “2025 Amendment”) with Coliseum Capital Partners (“CCP”) and Blackwell Partners LLC –

Series A (“Blackwell”) (collectively the “2025 Lenders”), which amends the Amended and Restated Credit Agreement.

The Amendment, among other things, provides for an increase in the initial principal amount of the Related Party Loan by $19.0 million

(the “First Incremental Loan”) from an initial Related Party Loan principal amount of $61.0 million to an initial aggregate

principal amount of $80.0 million, and allows the Loan Parties to request one or more additional term loans from CCP, Blackwell and other

lenders (collectively, the “Lenders”) in an initial aggregate principal amount not to exceed $20.0 million on terms to be

agreed to by the parties and subject to the approval of the Required Lenders (as defined in the Amended and Restated Credit Agreement).

The First Incremental Loan will bear interest at the same rate as the Initial Loan, which may be paid in cash or in kind at our option.

The 2025 Amendment also provides

that (i) the First Incremental Loan shall be senior in right of repayment to the Related Party Loan and (ii) in any voluntary or mandatory

prepayment in part or in full of the First Incremental Loan for any reason, the Company will be required to pay an amount equal to the

greater of (i) the Make-Whole Premium (as defined below) and (ii) 2.50% of the aggregate principal amount of the First Incremental Loan

so prepaid, replaced or assigned.

The “Make-Whole Premium” is determined as follows:

on the date of prepayment, the excess

of (A) (x) 100% of the principal amount of such First Incremental Loan, plus (y) the present value at such date of all remaining scheduled

interest payments due on such First Incremental Loan from the prepayment date through the maturity date, assuming that all such interest

accrues at the Make-Whole Premium Rate (as defined in the 2025 Amendment), computed using a discount rate equal to the Treasury Rate as

of such prepayment date plus 50 basis points, over (B) the principal amount of such First Incremental Loan on such prepayment date.

In addition, we also paid (i) an amendment fee equal to 2% of the outstanding

principal and accrued and unpaid interest under the Related Party Loan held by the 2025 Lenders, paid in kind and (ii) a 2% work fee of

the initial aggregate principal amount of the First Incremental Loan paid to the 2025 Lenders, deducted from the proceeds at closing.

Total fees and expenses of $2.1 million were recorded as debt issuance costs in March 2025.

In connection with the 2025

Amendment, we issued to the 2025 Lenders, warrants (the “2025 Warrants”) to purchase 6.2 million shares of our Class A common

stock at a price of $1.50 per share, subject to certain adjustments (see Note 11 – Warrant Liabilities ).

These warrants include

full-ratchet anti-dilution protections, subject to a floor of $0.6979 with respect to adjustments to the exercise price and expire on

March 12, 2035.

On May 2, 2025, the Loan Parties entered into a Second Amendment to

the Amended and Restated Credit Agreement (the “Second 2025 Amendment”) with the 2025 Lenders (as defined in the Second 2025

Amendment), which amends the Amended A&R Credit Agreement.

The Second 2025 Amendment, among other things, provides for a commitment

increase pursuant to Section 2.18 of the Amended A&R Credit Agreement in the initial principal amount of the senior secured term loan

facility by $20.0 million (the “Second Incremental Loan”) from an aggregate principal amount of up to $80.0 million (the “Existing

Loan”) to an initial aggregate principal amount of up to $100.0 million (the “Loan”) and allows the Loan Parties to

request one or more additional term loans from the Lenders in an initial aggregate principal amount not to exceed $20.0 million on terms

to be agreed to by the parties and subject to the approval of the Required Lenders (as defined in the Amended A&R Credit Agreement).

The Second Incremental Loan will bear interest at the same rate as the Existing Loan, which may be paid in cash or in kind at our option.

The Second 2025 Amendment

also provides that (i) the Second Incremental Loan shall be senior in right of repayment to the initial $61.0 million loan under the Amended

and Restated Credit Agreement and pari passu with the First Incremental Loan and (ii) in any voluntary or mandatory prepayment in part

or in full of the Second Incremental Loan for any reason, the Company will be required to pay an amount equal to the greater of (a) the

Make-Whole Premium (as defined below) and (b) 2.5% of the aggregate principal amount of the Second Incremental Loan so prepaid, replaced

The “Make-Whole Premium” is determined as follows:

on the date of prepayment, the excess of (A) (x) 100% of the

principal amount of such Second Incremental Loan, plus (y) the present value at such date of all remaining scheduled interest payments

due on such Second Incremental Loan from the prepayment date through the maturity date, assuming that all such interest accrues at the

Make-Whole Premium Rate (as defined in the Second 2025 Amendment), computed using a discount rate equal to the Treasury Rate as of such

prepayment date plus 50 basis points, over (B) the principal amount of such Second Incremental Loan on such prepayment date.

In addition, we also paid

(i) an amendment fee equal to 0.25% of the outstanding principal and accrued and unpaid interest under the Existing Loan, paid in kind

to the 2025 Lenders, (ii) a work fee equal to 0.1% of the outstanding principal and accrued and unpaid interest under the Existing Loan,

paid in cash to the Required Lenders, (iii) a waiver fee, to induce the Required Lenders to waive certain preemptive and right of first

refusal rights, equal to 0.15% of the outstanding principal and accrued and unpaid interest under the Existing Loan, paid in cash to the

Required Lenders, and (iv) a commitment fee equal to $150,000, paid in cash to the Required Lenders.

In connection with the Second

2025 Amendment, we issued to the 2025 Lenders, warrants (the “2025 Additional Warrants”) to purchase 6.6 million shares of

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

These 2025 Additional Warrants include full-ratchet

anti-dilution protections, subject to a floor of $0.6979 with respect to adjustments to the exercise price and expire on March 12, 2035.

In connection with the 2025

Amendment, we issued to the 2025 Lenders the 2025 Warrants to purchase 6.2 million shares of our Class A common stock.

Each 2025 Warrant

entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per share, subject to adjustment

The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption.

A holder of the Warrants will not have the

right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially

own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise.

contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities.

The liability

for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs.

This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings.

During the 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

with a floor of $0.6979 and expire on March 12, 2025.

The 2025 Warrants contain certain provisions that do not meet the criteria for equity

classification and therefore were recorded as liabilities.

The liability for the 2025 Warrants was recorded at a fair value of $5.4 million

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.

During the three months ended March 31, 2025, we

incurred a loss of $0.2 million due to the increase in the fair value of the 2025 Warrants outstanding at March 31, 2025.

In connection with the Second

2025 Amendment, we issued to the 2025 Lenders the 2025 Additional Warrants to purchase 6.6 million shares of our Class A common stock.

Each 2025 Additional Warrant entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per

share, subject to adjustment with a floor of $0.6979 and expire on March 12, 2035.

In connection with the SGI

Agreement, we issued to SGI, warrants to purchase 8.0 million shares of our Class A common stock at a strike price of $1.50 per share

(the “SGI Warrants”).

The SGI Warrants include full-ratchet anti-dilution protections, subject to a floor of $0.6979 with

respect to adjustments to the exercise price and expire on March 12, 2035.

A holder of the warrants will

not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates)

would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise.

Registration Rights Agreements

In connection with the issuance

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

of the 2025 Warrants, on March 12, 2025, we entered into a Second Amended and Restated Registration Rights Agreement (the “2025

Registration Rights Agreement”) with CCP, Blackwell, and Coliseum Capital Co-Invest III, L.P., (the “2025 Holders”),

providing for the registration under the Securities Act of the 2025 Warrants, the shares issuable upon the exercise of the 2025 Warrants,

other warrants held by the 2025 Holders (and shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders

as of such date (the “2025 Registrable Securities”), subject to customary terms and conditions.

In connection with the issuance

of the 2025 Additional Warrants, on May 2, 2025, we entered into a Third Amended and Restated Registration Rights Agreement (the “2025

Amended Registration Rights Agreement”) with the 2025 Holders, providing for the registration under the Securities Act of the 2025

Additional Warrants, the shares issuable upon the exercise of the 2025 Additional Warrants, other warrants held by the 2025 Holders (and

shares issuable upon exercise thereof) and the Class A common stock held by the 2025 Holders as of such date (the “2025 Additional

Registrable Securities”), subject to customary terms and conditions.

In connection with the issuance

of the SGI Warrants, on May 2, 2025, we entered into a Registration Rights Agreement (the “SGI Registration Rights Agreement”

and collectively with the 2025 Registration Rights Agreement and 2025 Amended Registration Rights Agreement, the “Registration Rights

Agreements”) with SGI, providing for the registration under the Securities Act of the SGI Warrants, the shares issuable upon the

exercise of the SGI Warrants, and the Class A common stock held by SGI as of such date (the “SGI Registrable Securities” and

collectively with the 2025 Registrable Securities and 2025 Additional Registrable Securities, the “Registrable Securities”),

subject to customary terms and conditions.

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

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

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

The registration statement filed by

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

The Registration Rights Agreements entitle the investors party thereto

to demand registration of the Registrable Securities and also to piggyback on the registration of Company securities by us and other Company

securityholders.

We will be responsible for the payment of the investors’ expenses in connection with any offering or sale of Registrable

Securities, 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 Agreements

provide that on or prior to May 30, 2025, or July 16, 2025, if Form S-3 is not then available, we will be required to prepare and file

with the SEC pursuant to Rule 415 of the Securities Act a registration statement to register the resale of the Registrable Securities.

NOL Rights Plan

On June 27, 2024, our Board

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

The Board approved the NOL Rights Plan to

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

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

Upon adopting the NOL

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

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

of Directors (“Board”) adopted, and we entered into, a limited-duration stockholder rights agreement (the “NOL Rights

Plan”) with a stated expiration date of June 30, 2025.

Our Board approved the NOL Rights Plan to protect stockholder value by attempting

to safeguard our ability to use our June 30, 2024 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 of our common stock.

Upon adopting

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

to the NOL Rights Plan, our Board authorized and declared a dividend of one right for each outstanding share of common stock to stockholders

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

3 unchanged sentences

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.

The NOL Rights Plan was ratified at a special meeting of our stockholders

on October 15, 2024 (the “Special Meeting”).

On May 6, 2025, the Board accelerated the termination of the NOL Rights Plan

and the NOL Protective Charter Amendment, to May 7, 2025.

NOL Protective Charter Amendment

In connection with the NOL

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

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

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

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

The NOL Protective Charter

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

In connection with the NOL Rights Plan, our Board adopted a NOL Protective

Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of common

stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial

ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial

ownership percentage).

The NOL Protective Charter Amendment was approved by our stockholders at the Special Meeting.

On May 6, 2025,

the Board accelerated the termination of the NOL Rights Plan and the NOL Protective Charter Amendment to May 7, 2025.

Review of Strategic Alternatives

We regularly engage in dialogue

with market participants regarding potential business combinations, partnerships and other strategic alternatives.

Based on certain recent

preliminary inquiries, the Board has formed a special committee of independent directors and we have engaged a financial advisor to support

them in evaluating any indications of interest and exploring other potential strategic alternatives.

If we are unsuccessful in engaging

in a favorable strategic alternative, then our ability to grow our business and compete with larger, including combined, competitors may

be adversely affected.

Impact of United States Tariff Policy

We continue to closely monitor the potential impact of recent United

States tariff policies.

Importantly, all of our mattresses are manufactured in the United States, and about 15% of our cost of goods is

tied to products sourced from overseas.

This limited exposure is primarily concentrated in the textile side of the business, which includes

sheets and mattress covers, but also includes the import of bases and foundations.

Based on current tariff rates, we estimate the potential

annual cost impact to be approximately $10 million.

The tariff landscape remains fluid, and we are actively evaluating sourcing alternatives

and pricing strategies on a case-by-case basis, which we believe will mitigate at least a portion of expected costs increases.

that our vertically integrated model and strong vendor relationships give us the flexibility to remain agile and responsive to changes

in tariff policies, and we believe that we will be able to mitigate these impacts through a combination of supply chain repositioning,

vendor collaborations, and selective pricing actions.

Executive Summary – Results of Operations

Net revenues decreased $15.9

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 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.

million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March

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

From a sales channel perspective,

e-commerce net revenues decreased $4.1 million, or 8.2%, and wholesale net revenues decreased $13.0 million, or 24.2%, respectively.

decrease was partially offset by our showrooms channel net revenue increase of $1.2 million or 7.4%.

The increase in our showrooms channel

represents an 11.0% year-over-year increase for all stores that have been open for 13 or more months.

This is the second consecutive quarter

of year-over-year growth in the showrooms channel, driven by increased order values through effective upselling and product bundling.

Gross profit decreased $0.7 million, or 1.6%, to $41.0 million for the three

months ended March 31, 2025 compared to $41.7 million for the three months ended March 31, 2024.

Our gross profit percentage increased

to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, from improved production effectiveness

due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry

a higher average selling price than sales from our wholesale channels.

During the three months ended March 31, 2025, we incurred $0.9

million in costs associated with the Restructuring Plan.

We expect to record additional cost of revenue restructuring related charges

in the amount of $1.4 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.

Operating expenses decreased

$9.3 million, or 14.4% to $55.5 million for the three months ended March 31, 2025 compared to $64.9 million for the three months ended

March 31, 2024.

This decrease was driven by $4.8 million decrease in employee related expenses, $3.8 million decrease in legal and consulting

fees and $0.8 million decrease in all other operating expenses.

These decreases are the result of our restructuring efforts, the in-sourcing

of certain functions in marketing and finance and other cost reduction efforts.

Other expense, net decreased $22.4 million, or 82.8% to $4.6 million for

the three months ended March 31, 2025 compared to $27.1 million for the three months ended March 31, 2024.

The other expense, net in the

first quarter of 2025 consists of interest expense of $4.8 million, partially offset by $0.1 in other income and gain on change in fair

value of warrants.

The other expense, net in the first quarter of 2024 consists of $23.6 million loss on change in fair value of warrants,

$4.5 million in interest expense, $3.4 million loss on extinguishment of debt, partially offset by $4.4 million in other income.

attributable to Purple Inc.

was $19.1 million for the three months ended March 31, 2025 compared to a net loss of $50.2 million for the

three months ended March 31, 2024.

The $31.1 million decrease in net loss was primarily due to increased gross margin and reduced operating

expenses as we are realizing the benefits from our Restructuring Plan, supply chain initiatives, operational efficiency improvements and

other cost reduction efforts throughout the Company and the decrease in loss from change in fair value of the warrants.

Outlook for Growth

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.

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.

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.

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

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

are difficult to predict, including the risks described in the “Risk Factors” section of this Quarterly Report and in our

Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2024 and elsewhere herein.

Therefore, actual

results may differ materially and adversely from those described above.

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

to changes in the market or our business.

Operating Results for the Three Months Ended September 30, 2024

We believe, given the Restructuring

Plan and our new grid innovation, that we are well positioned to grow our business in this challenging market.

We are focused on the following

three key initiatives to drive sustainable and profitable market share:

new technologies to maintain our competitive advantage.

Our strategy focuses on offering a differentiated product that

provides unique benefits and higher customer satisfaction, all fueled by our proprietary flexible gel technology.

and innovation in our grid technology has led to a new grid technology marking a significant advancement in our product

Our new DreamLayer grid, stacked with our original grid, creates a unique combination that continues to differentiate

us in the market while driving superior comfort and support for an even more premium sleep experience.

This upgrade will result

in a refresh of our current Rejuvenate line.

The new Rejuvenate 2.0 collection launches in the second quarter 2025 through our

direct-to-consumer channels, followed by a full wholesale roll-out expected to be complete by the third quarter 2025.

addition, we are significantly expanding our distribution of pillows by launching our renowned DreamLayer and Freeform pillows into

our wholesale channel.

our product differentiation to drive sales.

We started as a brand built on differentiation.

years, the category has relied extensively on discount messaging to attract customers, with less focus on product benefits.

goal is to refocus our messaging to lead with our product differentiation.

We intend to effectively articulate the unique qualities

of sleeping on our gel grid layer to be more effective and reach more consumers.

In our selling channels, we expect refocusing our

messaging on promoting our differentiation will drive more and better quality traffic while improving conversion both online and in

stores, and increase our share of retailer sales in our wholesale channel.

gross margin improvements.

We expect continued gross margin gains to come from driving cost savings through plant

consolidation efficiency gains, supplier diversification efforts, and improved scrap and yield results from continuous improvements

We are also ramping up in-house pillow production, changing vendors for key mattress components like coils and mattress

covers and improving our delivery program to drive cost improvements and better deliveries.

These savings will enable us

to reinvest in innovation and marketing to drive growth.

There is no guarantee that we will be able to

effectively execute on these initiatives, which are subject to risks, uncertainties, and assumptions that are difficult to predict, including

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

the SEC on March 14, 2025 and elsewhere herein.

Therefore, actual results may differ materially and adversely from those described above.

In addition, we may, in the future, adapt these focuses in response to changes in the market or our business.

Operating Results for the Three Months Ended March 31, 2025 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 September 30,

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

statements of operations (dollars in thousands):

Three Months Ended March 31,

Revenues, net

8 unchanged sentences

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

3 unchanged sentences

Other income, net

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Change in fair value – warrant liabilities

Total other income (expense), net

5 unchanged sentences

Net revenues decreased $15.9

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.

million, or 13.2%, to $104.2 million for the three months ended March 31, 2025 compared to $120.0 million for the three months ended March

This decrease was primarily driven by the continuing industry-wide demand softness for home-related products.

From a sales channel

perspective, e-commerce net revenues decreased $4.1 million, or 8.2%, showrooms net revenues increased $1.2 million, or 7.4%, and wholesale

net revenues decreased $13.0 million, or 24.2%.

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.

Total cost of revenues decreased

$15.2 million, or 19.4%, to $63.1 million for the three months ended March 31, 2025, compared to $78.3 million for the three months ended

March 31, 2024.

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.

Our gross profit percentage,

increased to 39.4% of net revenues in the first quarter of 2025 from 34.8% in the first quarter of 2024, due to improved production effectiveness

due primarily to supply chain initiatives and manufacturing efficiencies as well as a shift in revenue to our DTC channels, which carry

a higher average selling price than sales from our wholesale channels.

During the three months ended March 31, 2025, we incurred $0.9

million in costs associated with the Restructuring Plan.

We expect to record additional cost of revenue restructuring related charges

in the amount of $1.4 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 $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.

decreased $4.8 million, or 11.7%, to $36.6 million for the three months ended March 31, 2025 compared to $41.5 million for the three months

ended March 31, 2024.

This decrease primarily consisted of a $2.2 million decrease in employee related costs due to headcount reductions,

$1.3 million decrease in wholesale marketing and sales expenses, a $0.9 million decrease in showrooms marketing and sales expenses and

$0.4 million decrease in all other marketing and sales expenses.

Advertising expense remained consistent between the two period at $14.6

million and $14.5 million for the three months ended March 31, 2025 and 2024, respectively.

General and Administrative

General and administrative

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

expense decreased $5.2 million, or 26.6%, to $14.5 million for the three months ended March 31, 2025 compared to $19.7 million for the

three months ended March 31, 2024.

This decrease was due to a $2.3 million decrease in employee related costs due to headcount reductions,

$1.7 million decrease in consulting fees, $0.8 million reduction in legal fees and $0.4 million decrease in all other general and administrative

Research and Development

Research and development costs

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.

Research and development expense

decreased $1.2 million, or 33.1%, to $2.5 million for the three months ended March 31, 2025 compared to $3.7 million for the three months

ended March 31, 2024.

This decrease is the result of a $0.3 million decrease in employee related costs due to headcount reductions and

a $0.9 million decrease in other product development expenses as we focused on specific product development projects.

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

In August 2024, we initiated

a Restructuring Plan to permanently close our two Utah manufacturing facilities and consolidate mattress production in our Georgia

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

The $2.0 million of restructuring and impairment charges recorded during the first quarter of 2025 included $1.2 million of moving and

transition related costs, $0.6 million related to disposal of long-lived assets or equipment in progress that will not be put in service,

and $0.2 million in employee related costs.

We expect to record additional restructuring and other related charges in the amount of $1.6

million in the second quarter of 2025 related to continued moving and transition costs.

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.

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

related charges not reflected.

Operating Loss

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.

Operating loss decreased $8.7

million, or 37.4%, to $14.5 million, for the three months ended March 31, 2025 compared to $23.1 million for the three months ended March

This decrease in our operating loss is the result of the benefits realized through our Restructuring Plan, supply chain initiatives,

operational efficiency improvements and other cost reduction efforts throughout the Company.

Interest Expense

Interest expense totaled $4.8

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 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.

million for the three months ended March 31, 2025 compared to $4.5 million for the three months ended March 31, 2024.

This increase was

primarily due to additional interest incurred on a higher principal balance on the Related Party Loan as the Company elected the paid-in-kind

option on monthly interest over the past 12 months.

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

Other income decreased to

$0.1 million for the three months ended March 31, 2025 compared to $4.4 million for the three months ended March 31, 2024.

This decrease

was mainly due to $4.2 million of proceeds received in January 2024 for a partial settlement amount pursuant to a previously filed

business interruption insurance 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.

This liability is re-measured to fair

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

At September 30, 2024, the outstanding

Warrants had a fair value of $19.7 million.

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.

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 relating to the 2023 credit agreements were recorded

as loss on extinguishment of debt in the first quarter of 2024.

Change in Fair Value – Warrant Liabilities

In March 2025 and January

2024, in connection with the loans, we issued 6.2 million and 20.0 million warrants, respectively, to the various lenders.

These Warrants

contained certain provisions that did not meet the criteria for equity classification and therefore are recorded as liabilities with a

re-measurement of fair value at each reporting date.

For the three months ended March 31, 2025, we recognized a negligible gain related

to the net decrease in fair value of the warrant liability comprised of a decrease in fair value of $0.3 million for the warrants issued

in 2024 partially offset by an increase in fair value of $0.2 million from the March 2025 issuance date for the warrants issued in March

For the three months ended March 31, 2024, we recognized a $23.6 million loss related to the increase in the fair value of the warrants

from the January 2024 issuance date.

Income Tax (Expense) Benefit

We had income tax expense

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.

We had a de minimis income

tax expense for the three months ended March 31, 2025 compared to $0.1 million income tax expense for the three months ended March 31,

The income tax expense amounts in both the first quarter of 2025 and 2024 were related to various state taxes.

Noncontrolling Interest

2 unchanged sentences

Net loss attributed

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:

Marketing and sales

General and administrative

Research and development

Restructuring, impairment and other related charges

Loss on impairment of goodwill

Total operating expenses

Operating loss

Other income (expense):

Interest expense

Other income, net

Change in fair value – warrant liabilities

Loss on extinguishment of debt

Total other expense, net

Net loss before income taxes

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

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 $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 $12.5 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 $1.6 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

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

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 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

$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.

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 $0.2 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 $0.2 million

and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively.

to noncontrolling interests was negligible for the three months ended March 31, 2025 and $0.1 million for the three months ended March

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 $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.

are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to various loan agreements.

Principal uses of funds consist of capital expenditures, working capital needs and operating lease payment obligations.

In accordance

with the terms of our various agreements, we have elected to pay interest in kind on our loans to reduce cash obligations.

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 $21.6 million and $29.8 million,

respectively, as of March 31, 2025 compared to $29.0 million and $25.4 million, respectively, as of December 31, 2024.

Cash used for capital

expenditures totaled $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively.

Our capital expenditures

in the first quarter of 2025 have primarily consisted of additional investments made in our manufacturing operations and showrooms facilities.

Additional details about our loan agreements are described above under “ Recent Developments in our Business – Debt Financing.

Our financial statements have been prepared on a going concern basis

of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course

In connection with our preparation of our unaudited condensed consolidated financial statements for the three months ended

March 31, 2025, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial

doubt as to our ability to continue as a going concern within one year after the date of the issuance of such financial statements.

had cash and cash equivalents of approximately $21.6 million and an accumulated

deficit of $593.0 million at March 31, 2025, a net loss of $19.1 million and net cash used in operating and investing activities

of $25.2 million for the three months ended March 31, 2025.

We entered into the 2025 Amendment and the Second 2025 Amendment, pursuant

to which we received an aggregate of $39.0 million in additional term loan proceeds from the 2025 Lenders.

We have also taken a

number of other actions to increase cash flow.

In August 2024, we implemented the Restructuring Plan to consolidate manufacturing

operations to create efficiencies and cost savings.

We have realized and plan to continue to realize direct material cost savings

through supply chain initiatives and supplier diversification efforts.

We have taken additional cost-saving initiatives in the first

quarter of 2025 to maintain liquidity to support our operations and strategies.

Additionally, we entered into an agreement with

Mattress Firm, a business unit of SGI to expand its inventory of our products across SGI’s national store network from

approximately 5,000 mattress slots to a minimum of 12,000 mattress slots.

Accordingly, we concluded

that we will have sufficient liquidity to fund our operations for at least one year from the date of this Quarterly Report on Form 10-Q.

Although we currently expect

our sources of capital to be sufficient to meet our near-term liquidity needs, there can be no assurance that such sources will be sufficient

to satisfy our liquidity requirements in the future.

If we cannot generate or obtain needed funds, we might be forced to make substantial

reductions in our operating and capital expenses or pursue restructuring plans, which could adversely affect our business operations and

ability to execute our current business strategy.

Other Contractual Obligations

1 unchanged sentence

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

See Note 8 - Leases of the unaudited condensed consolidated

financial statements for additional information on leases.

Cash Flows for the Three Months Ended March

31, 2025 Compared to the Three Months Ended March 31, 2024

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,

cash flows for the three months ended March 31, 2025 and 2024 as reported in our unaudited condensed consolidated statements of cash flows (in

Three Months Ended

Net cash used in operating activities

1 unchanged sentence

Net cash provided by financing activities

Net decrease in cash

Net increase (decrease) in cash

Cash, beginning of the period

Cash, end of the period

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 operating activities

was $23.1 million and $16.8 million for the three months ended March 31, 2025 and 2024, respectively.

Significant components of the year-over-year

change in cash used in operating activities included a $11.0 million increase in cash used in the changes in operating assets, and liabilities

partially offset by a $31.1 million decrease in net loss and a $26.4 million decrease of net noncash adjustments.

Cash used in investing activities

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

reflected net capital expenditures of $2.1 million and $3.1 million for the three months ended March 31, 2025 and 2024, respectively.

Capital expenditures in the first three months of 2025 primarily consisted of additional investments made in our manufacturing operations.

Cash provided by financing

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.

activities was $17.8 million during the three months ended March 31, 2025 compared to $27.5 million during the three months ended March

Financing activities during the first three months of 2025 included $19.0 million of proceeds from the additional financing

offset in part by $1.2 million in payments for debt issuance costs.

Financing activities during the first three 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

1 unchanged sentence

policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in

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

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

the end of fiscal 2023.

our 2024 Annual Report on Form 10-K filed with the SEC on March 14, 2025.

There have been no significant changes in our critical accounting

policies since the end of fiscal 2024.

Available Information

2 unchanged sentences

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.

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

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

4 unchanged sentences

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