Purple Innovation, Inc. 10-Q

ITEM 2. 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. Item 1. Financial Statements.” Capitalized terms used in this “Part I. Item 2. 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. Item. 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, 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 included in this Quarterly Report are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking statements. We caution and advise readers that these statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the SEC on March 14, 2025, and our Quarterly Reports on Form 10-Q filed with the SEC on May 6, 2025, and July 30, 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 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. 28 Organization Our 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, 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 Operational Developments Our third quarter 2025 revenue increased slightly compared to last year, reflecting the continued execution of our strategic priorities. Wholesale revenue grew 7.9% during the quarter as our Mattress Firm expansion continues, showroom revenue increased 6.5% as we continue to catch up from the second quarter backlog and e-commerce was down 9.8% as we continue to evolve our website experience. Gross profits were up to 42.8% mainly to the reduction in our restructuring costs over last year as we have now completed that plan. We also have realized the benefits of the continued improvement in lowering material costs from ongoing sourcing initiatives and the recent actions to reduce our cost of warranty returns. Operating expenses continue to decline as we have improved advertising efficiency, implemented numerous cost reduction efforts and closely managed our expenses with disciplined cost controls. On May 2, 2025, we entered into the Second Amendment to Master Retailer Agreement with Mattress Firm, a business unit of 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. This rollout is progressing well, with Purple products now being represented in Mattress Firm’s full store network, representing approximately 9,200 slots today, keeping us on pace for the minimum 12,000 slots in 2026. This expansion represents roughly $20 million in incremental revenue this year and we anticipate approximately $70 million next year. In partnership with Mattress Firm, we are developing an exclusive Luxe product for Mattress Firm, scheduled to launch early next year, which will increase our total slot count to the contractual minimum. Also on May 2, 2025, we entered into the Sherwood Agreement 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 we sell to Mattress Firm. The new Rejuvenate 2.0 collection launched in the second quarter 2025 and is available across all of our showroom locations. Our showrooms delivered strong performance during the quarter with net revenue increasing over the same period last year by 6.5% to $22.0 million and year over year comparable sales increasing by 12.0%, reflecting the strength of our premium positioning and value proposition. Momentum remains strong in our showrooms as Rejuvenate 2.0 mattress sales nearly doubled year over year. Since the launch, we have sold more than 3,000 units through our direct channels. In conjunction with the launch of Rejuvenate 2.0, we are expanding with other wholesale partners. For our new Rejuvenate 2.0 collection, slot placement with our other wholesale partners have increased 68% compared to last year. 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 was 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. The Restructuring Plan is now complete. During the three months ended September 30, 2025, we recognized $5.3 million in costs relating to the Restructuring Plan, which related to the write-off of equipment that was determined to have no future use. In addition, we continue to implement additional cost savings measures in 2025 beyond those implemented pursuant to our Restructuring Plan. 29 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 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 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. 30 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. Warrants 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 with a floor of $0.6979 and expire on March 12, 2035. 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. 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. The liability for the 2025 Additional Warrants was recorded at a fair value of $5.4 million on the date of issuance with the offset included in debt issuance costs. 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. The liability for the 2025 Additional Warrants was recorded at a fair value of $6.5 million on the date of issuance with the offset recorded as an asset to be amortized as a reduction of revenue over the life of the SGI Agreement. A holder of the warrants will not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise. The warrant liability is subsequently re-measured to fair value at each reporting date with changes in the fair value included in earnings. During the three and nine months ended September 30, 2025, we incurred a gain of $6.9 million and $11.3 million due to the decrease in the fair value of the warrants outstanding at September 30, 2025. Registration Rights Agreements In connection with the issuance 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 “Third 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. 31 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 the Third 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. 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 statement filed on May 23, 2025, which registered the Registrable Securities, was declared effective by the SEC on May 30, 2025. NOL Rights Plan On June 27, 2024, our Board 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. Pursuant 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. Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage), the rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan. 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, 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 have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including, but not limited to, a merger, sale or other strategic or financial transaction. The Board has formed a special committee of independent directors and we have engaged a financial advisor to support them in evaluating a range of options 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. 32 Impact of United States Tariff Policy We continue to actively manage the 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. Tariffs impacted us by approximately $2.0 million in the third quarter due to our mitigation efforts which have reduced the overall impact to our initial expectations. While future changes in tariffs are difficult to predict, we currently estimate the total cost exposure in 2025 to be less than our previous $10 million estimate, due to a combination of our mitigation efforts and changes to the underlying tariff rates. We have begun shifting sourcing outside of China, and in July, we implemented price increases on select products, including two mattress models. The tariff landscape remains fluid, and we are actively evaluating sourcing alternatives and pricing strategies on a case-by-case basis. We believe 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 increased $0.2 million, or 0.1%, to $118.8 million for the three months ended September 30, 2025, compared to $118.6 million for the three months ended September 30, 2024. The increase reflects the continued execution of our strategic priorities. Wholesale revenue grew 7.9% during the quarter as our Mattress Firm expansion continues, showroom revenue increased 6.5% as we continue to catch up from the second quarter backlog of Rejuvenate 2.0 deliveries and e-commerce was down 9.8% as we continue to evolve our website experience. Gross profit increased $15.7 million, or 44.5%, to $50.9 million for the three months ended September 30, 2025, compared to $35.2 million for the three months ended September 30, 2024. Our gross profit percentage increased to 42.8% of net revenues in the third quarter of 2025 from 29.7% in the third quarter of 2024. The increase in gross profit is due mainly to the completion of our Restructuring Plan, as we had fewer costs this year, continued improvement in lowering material costs, improving operating efficiency and the recent actions to reduce our cost of warranty returns. Operating expenses decreased $19.0 million, or 23.2% to $63.0 million for the three months ended September 30, 2025, compared to $82.0 million for the three months ended September 30, 2024. This decrease was driven by a $13.6 million decrease in restructuring costs and a $6.5 million decrease in employee related expenses, partially offset by $1.0 million decrease in all other operating expenses. Other income (expense), net decreased $7.1 million, or 94.3% to other income (expense), net of $0.4 million for the three months ended September 30, 2025, compared to other income (expense), net of $7.6 million for the three months ended September 30, 2024. The other income (expense), net in the third quarter of 2025 consists of $6.9 million gain on the change in fair value of warrants and $1.7 million in other income, partially offset by interest expense of $8.2 million. The other income (expense), net in the third quarter of 2024 consists of $4.8 million gain on the change in fair value of warrants and all other income, net of $7.2 million due to an insurance claim payment, partially offset by $4.4 million in interest expense. Net loss attributable to Purple Inc. was $11.7 million for the three months ended September 30, 2025 compared to a $39.2 million net loss attributable to Purple Inc. for the three months ended September 30, 2024. The $27.5 million decrease in net loss was primarily due to $26.5 million in lower costs as a result of our Restructuring Plan, $8.1 million in operational efficiency improvements and other cost reduction efforts and $2.1 million in increased gain on fair value of warrant liabilities, partially offset by a $5.4 million reduction in insurance claims and other proceeds received in 2024 and $3.8 million in increased interest expense. 33 Outlook for Growth We believe we are well positioned to grow our business given our new grid innovation, evolved messaging strategy, the Restructuring Plan and other cost saving initiatives. We believe we are entering the fourth quarter with significant momentum that we believe will continue building through the end of the year, with fourth quarter to date revenues up in the low-double digits percentage range versus the same period last year. We are seeing validation of our brand and innovation strategy through the success of Rejuvenate 2.0, which has sold more than twice as many units as our Rejuvenate 1.0 in the prior year through our direct channels, the growing momentum behind our Mattress Firm expansion, which is rolling out across the country, the deepening partnership with Costco as we prepare to launch in 450 clubs for their year-end furniture show and the strong interest from other traditional and non-traditional partners. Our Path to Premium Sleep strategy remains focused on the following three key initiatives to drive sustainable and profitable market share: ● Pioneer new technologies to maintain our competitive advantage. Our strategy focuses on offering a differentiated product that we believe provides unique benefits and higher customer satisfaction, all fueled by our proprietary flexible gel technology. Advancements and innovation in our grid technology have led to a new grid technology marking a significant advancement in our product lineup. We believe that our new DreamLayer grid, stacked with our original grid, creates a unique combination that further differentiates us in the market while driving superior comfort and support for an even more premium sleep experience. This advancement resulted in a refresh of our current Rejuvenate line. The new Rejuvenate 2.0 collection launched in the second quarter 2025 and has been one of the most successful product introductions in our history. In our showrooms, Rejuvenate 2.0 has sold more than twice the number of units, almost doubling net revenue compared to Rejuvenate 1.0 in the same period last year. In addition, we have significantly expanded our distribution of pillows by launching our renowned DreamLayer and Freeform pillows into our wholesale channel. In the second quarter 2025, we also introduced our new Grid Cloud pillow, designed to bring the benefits of our grid technology to a broader audience. We are encouraged by the early performance of this pillow, which is outperforming our expectations and demonstrates the versatility of our proprietary grid technology across new comfort categories. ● Promote our product differentiation to drive sales. We started as a brand built on differentiation. In recent years, the category has relied extensively on discount messaging to attract customers, with less focus on product benefits. As part of our evolved messaging strategy, our efforts are focused on reinforcing the strength of our brand, clearly communicating the “Less Pain, Better Sleep” benefits of our technology and supporting premium positioning across all channels. This campaign continues to perform well and has been expanded across digital and social media platforms. We believe this focus on differentiation will drive stronger engagement, higher conversion and sustained growth across our channels. ● Prioritize gross profit improvements. We believe continued gross margin gains will come from driving cost savings through efficiency gains, supplier diversification efforts, and improved warranty, scrap and yield results from continuous improvements efforts. We have also ramped up in-house pillow production, changed vendors for key mattress components and improved our delivery program to drive cost improvements and better deliveries. We believe our sourcing, manufacturing and consolidation efforts are delivering meaningful structural improvements that position us for sustained profitable growth moving forward. 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 our Quarterly Reports on Form 10-Q filed with the SEC on May 6, 2025, and July 30, 2025. 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. 34 Operating Results for the Three Months Ended September 30, 2025, and 2024 The following table sets forth 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 September 30, 2025 % of Net Revenues 2024 % of Net Revenues Revenues, net $ 118,766 100.0 % $ 118,598 100.0 % Cost of revenues: Cost of revenues 67,915 57.2 70,546 59.5 Cost of revenues - restructuring related charges — 0.0 12,859 10.8 Total cost of revenues 67,915 57.2 83,405 70.3 Gross profit 50,851 42.8 35,193 29.7 Operating expenses: Marketing and sales 40,120 33.8 42,939 36.2 General and administrative 15,200 12.8 17,266 14.6 Research and development 2,367 2.0 2,920 2.5 Restructuring, impairment and other related charges 5,290 4.5 18,881 15.9 Total operating expenses 62,977 53.0 82,006 69.1 Operating loss (12,126 ) (10.2 ) (46,813 ) (39.5 ) Other income (expense): Interest expense (8,203 ) (6.9 ) (4,394 ) (3.7 ) Other income, net 1,742 1.5 7,165 6.0 Change in fair value – warrant liabilities 6,892 5.8 4,795 4.0 Total other income, net 431 0.4 7,566 6.4 Net loss before income taxes (11,695 ) (9.8 ) (39,247 ) (33.1 ) Income tax expense (53 ) — (63 ) (0.0 ) Net loss (11,748 ) (9.9 ) (39,310 ) (33.1 ) Net loss attributable to noncontrolling interest (28 ) — (82 ) (0.0 ) Net loss attributable to Purple Innovation, Inc. $ (11,720 ) (9.9 ) $ (39,228 ) (33.1 ) Revenues, Net Net revenues increased $0.2 million, or 0.1%, to $118.8 million for the three months ended September 30, 2025, compared to $118.6 million for the three months ended September 30, 2024. From a sales channel perspective, wholesale net revenues increased $3.8 million, or 7.9%, showrooms net revenues increased $1.3 million, or 6.5%, and e-commerce net revenues decreased $4.9 million, or 9.8%. Total Cost of Revenues Total cost of revenues decreased $15.5 million, or 18.6%, to $67.9 million for the three months ended September 30, 2025, compared to $83.4 million for the three months ended September 30, 2024. This decrease was due primarily to no restructuring costs incurred in the third quarter of 2025 and lower material costs attributable to supply chain initiatives, partially offset by increased costs due to tariffs. Our gross profit percentage increased to 42.8% of net revenues in the third quarter of 2025 from 29.7% in the third quarter of 2024, due mainly to the completion of our Restructuring Plan, continued improvement in lowering material costs as we realize the benefits from ongoing sourcing initiatives and improving our operating efficiency. 35 Marketing and Sales Marketing and sales expense decreased $2.8 million, or 6.6%, to $40.1 million for the three months ended September 30, 2025, compared to $42.9 million for the three months ended September 30, 2024. This decrease primarily consisted of a $3.0 million decrease in employee related costs due to headcount reductions, a $0.4 million decrease in all other marketing and sales costs, partially offset by a $0.6 million increase in advertising spending. General and Administrative General and administrative expense decreased $2.1 million, or 12.0%, to $15.2 million for the three months ended September 30, 2025, compared to $17.3 million for the three months ended September 30, 2024. This decrease was due to a $3.2 million decrease in employee related costs from headcount reductions, a $0.3 million reduction in professional services mainly from certain consulting services that have been discontinued, partially offset by an increase of $0.7 million in additional strategic alternative spending and $0.7 million increase in all other general and administrative expenses. Research and Development Research and development expense decreased $0.5 million, or 18.9%, to $2.4 million for the three months ended September 30, 2025, compared to $2.9 million for the three months ended September 30, 2024. The decrease is due to a $0.3 million decrease in employee related costs from headcount reductions and $0.2 million decrease in all other product development costs. Restructuring, Impairment and Other Related Charges Restructuring, impairment and other related charges decreased $13.6 million or 72.0%, to $5.3 million for the three months ended September 30, 2025, compared to $18.9 million for the three months ended September 30, 2024. In 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 decrease is due to the completion of the costs of our Restructuring Plan. The $5.3 million of restructuring and impairment charges recorded in operating expense during the third quarter of 2025 included assets that were determined to have no future use and were written off. Operating Loss Operating loss decreased $34.7 million, or 74.1%, to $12.1 million, for the three months ended September 30, 2025, compared to $46.8 million for the three months ended September 30, 2024. This decrease in our operating loss is the result of the completion of the costs of our Restructuring Plan, the benefits realized through our Restructuring Plan, supply chain initiatives, and other cost reduction efforts throughout the Company. Interest Expense Interest expense totaled $8.2 million for the three months ended September 30, 2025, compared to $4.4 million for the three months ended September 30, 2024. This increase was primarily due to additional interest incurred on a higher principal balance on the Related Party Loan as result of the increase in loan funding by $39.0 million and the Company electing the paid-in-kind option on monthly interest over the past 12 months. 36 Change in Fair Value – Warrant Liabilities We have 40.8 million warrants outstanding that contain certain provisions that do 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 September 30, 2025, we recognized a $6.9 million gain related to the decrease in fair value of the warrant liabilities as of September 30, 2025, as compared with the previous measurement date. The decrease is due mainly to the change in the probability and timing of a fundamental transaction. For the three months ended September 30, 2024, we recognized a 4.8 million gain related to the decrease in the fair value of the warrants from the January 2024 issuance date. Income Tax Expense We had a $0.1 million income tax expense for the three months ended September 30, 2025, compared to $0.1 million income tax expense for the three months ended September 30, 2024. The income tax expense amounts in the three months ended September 30, 2025 and 2024 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 negligible for the three months ended September 30, 2025, and 2024. Operating Results for the Nine Months Ended September 30, 2025, and 2024 The following table sets forth 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): Nine Months Ended September 30, 2025 % of Net Revenues 2024 % of Net Revenues Revenues, net $ 328,037 100.0 % $ 358,902 100.0 % Cost of revenues: Cost of revenues 197,462 60.2 220,190 61.4 Cost of revenues - restructuring related charges 995 0.3 12,859 3.6 Total cost of revenues 198,457 60.5 233,049 64.9 Gross profit 129,580 39.5 125,853 35.1 Operating expenses: Marketing and sales 107,362 32.7 125,778 35.0 General and administrative 44,678 13.6 55,111 15.4 Research and development 6,997 2.1 10,572 2.9 Restructuring, impairment and other related charges 11,387 3.5 18,881 5.3 Total operating expenses 170,424 52.0 210,342 58.6 Operating loss (40,844 ) (12.5 ) (84,489 ) (23.5 ) Other income (expense): Interest expense (20,424 ) (6.2 ) (13,029 ) (3.6 ) Other income, net 1,812 0.6 11,612 3.2 Loss on extinguishment of debt — — (3,394 ) (0.9 ) Change in fair value – warrant liabilities 11,319 3.5 (111 ) — Total other expense, net (7,293 ) (2.2 ) (4,922 ) (1.4 ) Net loss before income taxes (48,137 ) (14.7 ) (89,411 ) (24.9 ) Income tax expense (148 ) — (176 ) — Net loss (48,285 ) (14.7 ) (89,587 ) (25.0 ) Net loss attributable to noncontrolling interest (83 ) — (169 ) — Net loss attributable to Purple Innovation, Inc. $ (48,202 ) (14.7 ) $ (89,418 ) (24.9 ) 37 Revenues, Net Net revenues decreased $30.9 million, or 8.6%, to $328.0 million for the nine months ended September 30, 2025, compared to $358.9 million for the nine months ended September 30, 2024. This decrease was primarily driven by the industry-wide demand softness for home-related products, reductions in Wholesale door count in 2024 and softness in the e-commerce channel. From a sales channel perspective, e-commerce net revenues decreased $14.5 million, or 9.8%, showrooms net revenues increased $0.2 million, or 0.3%, and wholesale net revenues decreased $16.4 million, or 10.6%. Total Cost of Revenues Total cost of revenues decreased $34.6 million, or 14.8%, to $198.5 million for the nine months ended September 30, 2025, compared to $233.0 million for the nine months ended September 30, 2024. This decrease was due primarily to reduced sales volumes, lower restructuring costs as we completed our Restructuring Plan, and lower material costs that were largely attributable to supply chain initiatives implemented over the last 12 months. Our gross profit percentage increased to 39.5% of net revenues for the first nine months of 2025 from 35.1% in the first nine months of 2024 due primarily to the completion of our Restructuring Plan, continued improvement in lowering material costs as we realize the benefits from ongoing sourcing initiatives and improving our operating efficiency. Marketing and Sales Marketing and sales expense decreased $18.4 million, or 14.6%, to $107.4 million for the nine months ended September 30, 2025, compared to $125.8 million for the nine months ended September 30, 2024. This decrease was due mainly to $8.0 million decrease in employee related costs due to headcount reductions, a $5.8 million decrease in advertising spending and a $4.6 million decrease in all other marketing and sales costs. General and Administrative General and administrative expense decreased $10.4 million, or 18.9%, to $44.7 million for the nine months ended September 30, 2025, compared to $55.1 million for the nine months ended September 30, 2024. This decrease was primarily due to a $7.2 million decrease in employee related expenses due to headcount reductions, a $4.8 million reduction in professional services mainly from certain consulting services that have been discontinued, and a $0.4 million reduction in all other general and administrative expenses, partially offset by an increase of $1.9 million in additional strategic alternative spending. Research and Development Research and development expense decreased $3.6 million, or 33.8%, to $7.0 million for the nine months ended September 30, 2025, compared to $10.6 million for the nine months ended September 30, 2024. This decrease is due to a $0.9 million decrease in employee expenses due to headcount reductions, a $1.4 million decrease from a loss incurred in 2024 on the write off of a certain project in 2024 and a $1.3 million decrease in other product development costs. Restructuring, Impairment and Other Related Charges Restructuring, impairment and other related charges decreased $7.5 million or 39.7%, to $11.4 million for the nine months ended September 30, 2025, compared to $18.9 million for the nine months ended September 30, 2024. In 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 $5.3 million of restructuring and impairment charges recorded in operating expense during the third quarter of 2025 included assets that were determined to have no future use and were written off. The $11.4 million of restructuring and impairment charges recorded in operating expense during the first nine months of 2025 included $9.5 million incurred related to accelerated depreciation, write-down of long-lived assets and impairment of assets and $2.9 million of employee-related and other cash charges. 38 Operating Loss Operating loss decreased $43.6 million, or 51.7%, to $40.8 million, for the nine months ended September 30, 2025, compared to $84.5 million for the nine months ended September 30, 2024. This decrease in our operating loss is the result of the benefits realized through improved advertising efficiency, the benefits realized through our Restructuring Plan, supply chain initiatives and other cost reduction efforts throughout the Company, partially offset by increased costs due to tariffs, costs related to our manufacturing facility consolidation and the ramp-up costs relating to the Rejuvenate 2.0 launch. Interest Expense Interest expense totaled $20.4 million for the nine months ended September 30, 2025, compared to $13.0 million for the nine months ended September 30, 2024. This increase was primarily due to additional interest incurred on a higher principal balance on the Related Party Loan as a result of the increase in loan funding by $39.0 million and the Company electing the paid-in-kind option on monthly interest over the past 12 months. 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 We have 40.8 million warrants outstanding that contain certain provisions that do 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 nine months ended September 30, 2025, we recognized a $11.3 million gain related to the decrease in fair value of the warrant liabilities. The decrease is due mainly to the change in the probability and timing of a fundamental transaction. For the nine months ended September 30, 2024, we recognized a $0.1 million loss related to the increase in the fair value of the warrants from the January 2024 issuance. Income Tax Expense We had a $0.2 million income tax expense for the nine months ended September 30, 2025, compared to $0.2 million income tax expense for the nine months ended September 30, 2024. The income tax expense amounts in the nine months ended September 30, 2025 and 2024 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 for the nine months ended September 30, 2025, and $0.2 million for the nine months ended September 30, 2024. 39 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 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. 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 $32.4 million and $39.3 million, respectively, as of September 30, 2025, compared to $29.0 million and $25.4 million, respectively, as of December 31, 2024. Cash used for capital expenditures totaled $6.1 million and $6.4 million for the nine months ended September 30, 2025, and 2024, respectively. Our capital expenditures in the first nine months of 2025 have primarily consisted of additional investments made in our manufacturing operations. 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 of business. In connection with our preparation of our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 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. We had cash and cash equivalents of approximately $32.4 million and an accumulated deficit of $622.1 million at September 30, 2025, a net loss of $48.2 million and net cash used in operating and investing activities of $34.1 million for the nine months ended September 30, 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 during 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, including the Related Party Loan due December 31, 2026 (see Note 10 — Debt ). 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 Other material contractual obligations primarily include operating lease payment obligations. See Note 8 - Leases of the unaudited condensed consolidated financial statements for additional information on leases. 40 Cash Flows for the Nine Months Ended September 30, 2025, Compared to the Nine Months Ended September 30, 2024 The following summarizes our cash flows for the nine months ended September 30, 2025, and 2024 as reported in our unaudited condensed consolidated statements of cash flows (in thousands): Nine Months Ended September 30, 2025 2024 Net cash used in operating activities $ (28,030 ) $ (24,611 ) Net cash used in investing activities (6,066 ) (6,381 ) Net cash provided by financing activities 37,443 27,534 Net increase (decrease) in cash 3,347 (3,458 ) Cash, beginning of the period 29,011 26,857 Cash, end of the period $ 32,358 $ 23,399 Cash used in operating activities was $28.0 million and $24.6 million for the nine months ended September 30, 2025, and 2024, respectively. Significant components of the $3.4 million year-over-year increase in cash used in operating activities included a $12.9 million increase in cash used from the changes in operating assets and liabilities and $31.8 million increase in cash used due to a decrease in net noncash adjustments, partially offset by a $41.3 million decrease in net loss. Cash used in investing activities reflected net capital expenditures of $6.1 million and $6.4 million for the nine months ended September 30, 2025, and 2024, respectively. Capital expenditures in the first nine months of 2025 primarily consisted of additional investments made in our manufacturing operations. Cash provided by financing activities was $37.4 million during the nine months ended September 30, 2025, compared to $27.5 million during the nine months ended September 30, 2024. Financing activities during the first nine months of 2025 included $39.0 million of proceeds from the additional financing offset in part by $1.6 million in payments for debt issuance costs. 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 policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in 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 Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K, 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 Exchange Act 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. 41