Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Annual Report on Form
10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking
statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act and the
Exchange Act. All statements other than statements of historical facts are statements that could be deemed forward-looking statements.
These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and
the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,”
“goals,” “projects,” “intends,” “plans,” “believes,” “momentum,”
“seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,”
variations of such words, and similar expressions are intended to identify such forward-looking statements. 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. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties,
and assumptions that are difficult to predict, including those under “Part I, Item 1A. Risk Factors,” and elsewhere herein.
Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no
obligation to revise or update any forward-looking statements for any reason.
The following discussion is
intended to provide a more comprehensive review of our results of operations and financial condition than can be obtained from reading
our consolidated financial statements alone. This discussion should be read in conjunction with our consolidated financial statements
and the notes thereto included in “Part II Item 8. Financial Statements.”
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.
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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 December 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
Operational Developments
During 2025, we continued
to build on our Path to Premium Sleep strategy. As a result, we exited 2025 with a lower cost structure and improved margins, which we
believe position us to scale as demand improves. We have been realizing efficiencies with our media investments by targeting specific
segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product. We
are concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions, continued mix
shift towards our Restore and Rejuvenate collections, and by driving cost savings through supply chain initiatives and manufacturing efficiency.
We have also delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous
improvements, and our outbound freight costs reflect cost improvements along with improved delivery reliability. While our revenues were
down overall from 2024, we are encouraged by our performance in the second half of 2025 as our fourth quarter 2025 revenue increased 9.1%
compared to last year, reflecting the continued execution of our strategic priorities. Wholesale revenue grew 39.8% in the fourth quarter
compared to last year with our expanded Mattress Firm placements and an expansion with our Costco program, showroom revenue increased
4.5% reflecting the strength of our updated selling model and premium positioning and e-commerce was down 15.3%, reflecting a continuation
of trends from earlier in the year. Gross margin for the fourth quarter was 41.9% as we have realized the benefits of the continued improvement
in lowering material costs from ongoing sourcing initiatives, plant efficiencies, restructuring benefits and actions to reduce our cost
of warranty returns. Operating expenses continue to decline with 2.9% reduction in the fourth quarter 2025 compared to last year as we
have improved 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 (the “MRA Amendment”), 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. With the recent launch of Purple Royale, our exclusive Luxe product for Mattress Firm, we have expanded to all 12,000
committed slots. Also on May 2, 2025, we entered into an Amended and Restated Master Vendor Supply and Services Agreement with Tempur
Sherwood, LLC, a subsidiary of Tempur Sealy (the “Sherwood Agreement,” and together with the MRA Amendment, the “SGI
Agreements”). The Sherwood Agreement provides that Tempur Sherwood, LLC has 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. Momentum remains strong in our showrooms as
Rejuvenate 2.0 mattress sales represented over half of showroom mattress revenue in the fourth quarter 2025. In conjunction with the launch
of Rejuvenate 2.0, our slot placement expanded with our other wholesale partners.
We are also seeing strong
performance with Costco, where our programs provide an important opportunity to introduce Purple to new customers at scale. Our Costco
partnership expanded meaningfully at the beginning of the fourth quarter 2025 to 450 clubs. Early in the period, it performed exceptionally
well, driven by the introduction of unrolled beds on the floor, which allowed Costco members to see and feel our differentiated product.
This in-store presentation drove strong sales outperformance and ultimately led Costco to expand the program. We are also making progress
in alternative channels, including Walmart and Sam’s Club, which are helping us to reach new customers, diversify demand, and drive
incremental volume.
Restructuring Activities
In August 2024, we initiated
the Restructuring Plan to strategically realign our operational focus to achieve efficiencies in our operations to improve profitability
and provide for reinvesting in technology and marketing initiatives. The Restructuring Plan included 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 2025, we recognized $12.4 million in costs relating to the Restructuring
Plan, of which $9.5 million related to the write-off of equipment that was determined to have no future use and $2.9 million in employee-related
and other cash charges.
In addition, we implemented additional cost savings measures in 2025 and
2026 beyond those implemented pursuant to our Restructuring Plan.
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Debt Financings
On January 23, 2024, Purple
LLC, Purple Inc. and Intellibed entered into the Amended and Restated Credit Agreement, which amended and restated the then existing term
loan agreement (“Term Loan Agreement”), with the Lenders and Delaware Trust Company, as administrative agent. 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 (the “Related Party Loan”) that was used to repay
the $25.0 million of term loans outstanding, the $5.0 million of revolving debt 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. Interest on the new loan is payable each month and, under the Third Amendment executed in March
2026 (see below), the principal outstanding matures and is due on April 30, 2027. To reduce cash obligations, we have elected for interest
to be capitalized and added to the principal amount of the loan. 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 previously outstanding term loans and revolving credit facility were paid in full and the respective related
agreements (collectively, the “2023 Credit Agreement”) were terminated.
On March 12, 2025, the Loan Parties, entered into the 2025 Amendment with
CCP and Blackwell, which amends the Amended and Restated Credit Agreement. The 2025 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 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, the 2025 Warrants to purchase 6.2 million shares of our Common Stock at a price of $1.50 per
share, subject to certain adjustments (see Note 11 – Warrant Liabilities ). The 2025 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 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
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.
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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.
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 $0.2 million, 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 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.
On March 24, 2026, the Loan
Parties entered into the Third Amendment with the Lenders, which revised the maturity date under the Amended A&R Credit Agreement
from December 31, 2026, to April 30, 2027 and waived certain requirements and events of default relating to the going concern qualification
in our December 31, 2025 financial statements. In connection with the Third Amendment, the Loan Parties agreed to pay to the Lenders an
amendment fee in the aggregate amount of $1.6 million, equal to 1.25% pro rata based on each Lender’s outstanding principal amount
(the “Amendment Fee”). Of the Amendment Fee, approximately $1.3 million is payable-in-kind by adding such amount to such Coliseum
Lenders’ outstanding principal amount. The remaining $0.3 million of the Amendment Fee was paid in cash. In connection with the
Third Amendment, the Loan Parties also agreed to reimburse the Coliseum Lenders for certain expenses in the amount of $0.3 million.
The Company has elected to
have interest paid-in-kind and added to the principal amount of the Term Loan Agreement, the First Incremental Loan and the Second Incremental
Loan.
Warrants
In connection with the Amended
and Restated Credit Agreement, we issued to the Lenders the 2024 Warrants to purchase 20.0 million shares of our Class A Stock. Each 2024
Warrant entitles the registered holder to purchase one share of our Class A Stock at a price of $1.50 per share, subject to adjustment.
The 2024 Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. A holder of the 2024 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 Stock outstanding immediately after giving effect to such exercise. The 2024
Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities.
The liability for the 2024 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 subsequently re-measured to fair value at each reporting date or exercise date with changes in
the fair value included in earnings. During 2024, we recognized a gain of $3.5 million in our consolidated statement of operations for
a decrease in the fair value of the 2024 Warrants outstanding at December 31, 2024.
In connection with the 2025 Amendment, we issued to the 2025 Lenders the
2025 Warrants to purchase 6.2 million shares of our Common Stock. Each 2025 Warrant entitles the registered holder to purchase one share
of our 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 Common Stock. Each 2025 Additional Warrant entitles the registered
holder to purchase one share of our 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, the SGI Warrants to purchase 8.0 million shares of our Common Stock at a strike price of $1.50 per share.
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.
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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 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 2025, we recognized a gain
of $17.2 million in our consolidated statement of operations for a decrease in the fair value of the warrants outstanding at December
31, 2025.
Registration Rights Agreements
In connection with the issuance of the Warrants, we entered into the Registration
Rights Agreement with holders of the Warrants (the “Holders”), providing for the registration of Registrable Securities (as
defined in the Registration Rights Agreement), 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.
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 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 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 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
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.
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NOL Rights Plan
On June 27, 2024, our 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.
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 $9.1 million in 2025 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 2026 to be $7.7 million. We
have shifted sourcing outside of China, and in July 2025, 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.
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Executive Summary – Results of Operations
Net revenues decreased $19.2
million, or 3.9%, to $468.7 million in 2025 compared to $487.9 million in 2024. This decrease was primarily driven by the industry-wide
demand softness for home-related products and softness in the e-commerce channel, partially offset by growth in our Mattress Firm and
Costco programs. From a sales channel perspective in 2025, DTC net revenues decreased $22.3 million, or 7.9%, and wholesale net revenues
increased $3.2 million, or 1.6%, as compared to 2024. Within DTC in 2025, e-commerce net revenues decreased $23.4 million, or 11.4%, while
Purple showroom net revenues increased $1.1 million, or 1.5%, as compared to 2024. The growth in our wholesale revenues was due primarily
to our agreement with Mattress Firm as we expanded the number of stores and slots and the expansion of our Costco program. Purple showroom
increase in revenues was primarily due to an increase in average selling prices related to both strategic price adjustments and a sizeable
shift in product mix to our higher priced Rejuvenate products.
Gross profit increased $7.4 million, or 4.1%, to $188.6 million in 2025
compared to $181.1 million in 2024 and our gross profit percentage improved to 40.2% in 2025 from 37.1% in 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, improved operating efficiency and the recent actions to reduce our cost of warranty returns.
Operating expenses decreased
$41.7 million, or 15.3% to $231.6 million in 2025 compared to $273.3 million in 2024. This decrease was driven by a $24.5 million decrease
in restructuring, professional fees and other costs related to our restructuring and other cost reduction efforts, a $15.2 million decrease
in employee related expenses and a $9.1 million decrease in advertising spend, partially offset by $7.1 million increase in strategic
alternative costs.
Other expense, net increased
by $2.4 million, or 41.4% to $8.3 million in 2025 compared to $5.9 million in 2024. This increase was due primarily to an $11.3 million
increase in interest expense associated primarily with the Related Party Loan, a reduction of $11.6 million in other income related to
two insurance payments received in 2024 for full settlement of a previously filed business interruption claim, partially offset by an
increase of $13.7 million in the gain on the change in fair value of the warrant liabilities and a $6.8 million reduction in all other
expenses.
Net loss attributable to Purple
Inc. was $51.4 million in 2025 compared to a net loss of $97.9 million in 2024. The $46.5 million improvement in net loss was primarily
due to a $41.7 million decrease in operating expenses and a $7.4 million increase in gross profit, partially offset by a $2.6 million
increase in all other expenses and offsets.
Our accompanying audited
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
liabilities in the normal course of business. Our audited consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary
should we be unable to continue as a going concern.
The recurring losses, working capital deficiency, the need for capital
to fund our operations and the amount of cash reserves are factors that raise substantial doubt about our ability to continue as a going
concern for the twelve-month period from the date the audited consolidated financial statements are made available. See Note
2 – Liquidity and Going Concern to our audited consolidated financial statements for the year ended December 31,
2025, included elsewhere in this Annual Report for additional information on our assessment.
We have taken decisive
actions over the last year to build a more durable business that we believe is positioned for consistent, profitable growth. The
fruits of these efforts are demonstrated by the strength of our recent results. We have also extended our debt maturities to April
2027, demonstrating the support of our lenders and providing additional runway and financial flexibility. Successful execution of
our Path to Premium Sleep strategy and cost savings initiatives in 2025 resulted in strong revenue growth, margin expansion, and
profitability levels we haven’t seen since 2021, and we believe we have a clear plan in place to build on this momentum in the
year ahead. We anticipate that these factors will continue to support further improvements in our business, including
strengthening long-term liquidity. From this strong foundation, we expect to continue to deliver results.
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Outlook for Growth
The
way we think about the business today is fundamentally different than a year ago. Last year was about reshaping the business for a tougher
market – right sizing our cost structure, strengthening the foundation and restoring profitability. Now, we are focused on growth
with our strategic focus areas that build on what is already working and how we are running our business. We believe we are well positioned
to grow our business given our new grid innovation, evolved messaging strategy, our new cost structure and other cost saving initiatives.
Our Path to Premium Sleep strategy remains focused on the following three priorities to drive growth:
●
Knowing Our Customer. Over the past year, we’ve sharpened our focus on understanding who our customers are, what matters most to them, and how they make their purchase decisions across the channels. Our Less Pain, Better Sleep positioning continues to resonate, providing a consistent, consumer-led message that translates across ecommerce, retail, and wholesale channels. Importantly, we are focused on reaching our customers with the right message, in the right place, at the right point in their decision journey. We also saw strong results from the “Sleep Easy” co-marketing campaign with Mattress Firm which drove sales conversion and improved awareness scores.
● Delivering Better Sleep. Innovation
remains at the core of Purple’s differentiation, and we believe our Rejuvenate 2.0 collection continues to validate that approach.
Performance exceeded our expectations in 2025, with strong traction across both showrooms and wholesale as retail partners expanded Rejuvenate
2.0 placement on their floors. We also continued development work on Purple Royale, a new premium offering developed in close partnership
with Mattress Firm. We continue to focus on delivering a differentiated end-to-end customer experience, anchored by compelling
in-store presentations across our corporate stores and wholesale partners. We are also continuing to strengthen
white glove delivery services and service execution to ensure that Purple shows up consistently and credibly wherever the customer chooses
to engage. This focus is strengthening the brand and improving conversion by reinforcing the value of our technology across
channels.
● Executing
with Financial Discipline. Last year, our focus was on right sizing the business so we could operate profitably at
the current scale. We are increasingly focused on driving growth from a stronger foundation of lower cost structure
and improved margins. In owned retail, we plan to open seven new stores this year following the closure of four underperforming
stores last year, reflecting a disciplined approach to fleet optimization. Gross margin improvement remains a key focus, and
we continue to see the benefits of the actions we’ve taken to simplify the business and improve efficiency across sourcing, operations,
fulfillment, and quality improvements. Mix has become an increasingly important tailwind, led by the growth of Rejuvenate 2.0. The shift
toward higher-ticket products combined with strong attachment rates for adjustable smart bases and pillows, is driving higher average
transaction values and incremental profit dollars. As a result, the operating discipline we put in place over the past year is now showing
up in our margins and profitability.
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 under “Part I, Item 1A. Risk Factors” and elsewhere herein. Therefore, actual results
may differ materially and adversely from those described above. In addition, we may, in the future, adapt these focuses in response to
changes in the market or our business.
37
Critical Accounting Policies and Estimates
In connection with the preparation
of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”),
we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets,
liabilities, sales, expenses and the related disclosures. Predicting future events is inherently an imprecise activity and as such requires
the use of judgment. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that
management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews
the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly
and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could
differ from our assumptions and estimates, and such differences could be material.
Management believes the accounting
estimates discussed below are the most critical because they require management’s most difficult, subjective or complex judgments,
resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
Our revenue recognition accounting
methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the amount and
timing of future sales returns, uncollectible accounts and variable consideration. Our estimates of the amount and timing of sales returns,
uncollectible accounts and variable consideration are based primarily on historical trends, product return rates and current contract
terms. Accrued sales returns decreased from $6.5 million at December 31, 2024 to $4.5 million as of December 31, 2025. Our allowance for
credit losses decreased from $1.1 million at December 31, 2024 to $0.4 million as of December 31, 2025. We do not believe there is a reasonable
likelihood that there will be any material changes in our accounting methodology, future estimates or assumptions used to measure our
estimated liability for sales returns and exchanges, our allowance for credit losses or variable consideration. However, if actual results
are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
Accrued Warranty Liabilities
We provide a limited warranty
on most of the products we sell. Our warranty liability assessment methodology includes estimates in both our DTC and wholesale channels.
The estimated warranty costs associated with products sold through DTC channels are expensed at the time of sale and included in cost
of revenues. The estimated warranty costs associated with products sold through the wholesale channel are recorded at the time of sale
and included as an offset to net revenues. Estimates for DTC warranty costs are based primarily on historical warranty claims, estimated
warranty costs and the estimated warranty claim rate. Estimates for wholesale warranty costs are based primarily on the historical warranty
claim amounts and the estimated warranty claim rate. We regularly assess and may adjust the estimate of accrued warranty claims for any
current or expected trends and changes in projected claim costs. We expect the estimated warranty liability to continue to increase as
we have not yet reached the full 10 years of history on our 10-year mattress warranty. We classify as non-current those estimated warranty
costs expected to be paid out in greater than one year. As of December 31, 2025, the current and non-current portions of
our warranty liabilities were $7.1 million and $19.6 million, respectively, compared to $6.1 million and $26.1 million, respectively,
at December 31, 2024. We do not believe there is a reasonable likelihood that a material change in the estimates or assumptions we use
to calculate our warranty liability will occur. However, if actual results are not consistent with our estimates or assumptions, we may
be exposed to losses or gains that could be material.
Results of Operations
A discussion regarding our
financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024 is presented
below. A separate discussion regarding our financial condition and results of operations for the year ended December 31, 2024 compared
to the year ended December 31, 2023 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December
31, 2024, filed with the SEC on March 14, 2025.
38
Results of Operations for the Year Ended December
31, 2025 compared to the year ended December 31, 2024
The following table sets forth
for the periods indicated, our results of operations and the percentage of total net revenues represented by each line item in our consolidated
statements of operations:
Years Ended December 31,
2025
% of
Net Revenues
2024
% of
Net Revenues
Revenues, net
$ 468,725
100.0 %
$ 487,877
100.0 %
Cost of revenues:
Cost of revenues
279,171
59.6
291,303
59.7
Cost of revenues - restructuring related charges
995
0.2
15,442
3.2
Total cost of revenues
280,166
59.8
306,745
62.9
Gross profit
188,559
40.2
181,132
37.1
Operating expenses:
Marketing and sales
147,040
31.4
171,263
35.1
General and administrative
63,557
13.6
69,117
14.2
Research and development
9,604
2.0
12,962
2.7
Restructuring, impairment and other related charges
11,387
2.4
19,973
4.1
Total operating expenses
231,588
49.4
273,315
56.0
Operating loss
(43,029 )
(9.2 )
(92,183 )
(18.9 )
Other income (expense):
Interest expense
(28,766 )
(6.1 )
(17,510 )
(3.6 )
Other income (expense), net
3,289
0.7
11,548
2.4
Loss on extinguishment of debt
—
—
(3,394 )
(0.7 )
Change in fair value – warrant liabilities
17,202
3.7
3,504
0.7
Total other income (expense), net
(8,275 )
(1.8 )
(5,852 )
(1.2 )
Net loss before income taxes
(51,304 )
(10.9 )
(98,035 )
(20.1 )
Income tax expense
(207 )
—
(63 )
—
Net loss
(51,511 )
(11.0 )
(98,098 )
(20.1 )
Net loss attributable to noncontrolling interest
(97 )
—
(201 )
—
Net loss attributable to Purple Innovation, Inc.
$ (51,414 )
(11.0 )
$ (97,897 )
(20.1 )
39
Revenues, Net
Net revenues decreased $19.2
million, or 3.9%, to $468.7 million in 2025 compared to $487.9 million in 2024. This decrease was primarily driven by the industry-wide
demand softness for home-related products and softness in the e-commerce channel, partially offset by growth in our Mattress Firm and
Costco programs. From a sales channel perspective in 2025, DTC net revenues decreased $22.3 million, or 7.9%, and wholesale net revenues
increased $3.2 million, or 1.6%, as compared to 2024. The growth in our wholesale revenues was due primarily to our agreement with Mattress
Firm as we expanded the number of stores and slots and expansion of our Costco program, partially offset by the decrease in wholesale
door count in 2024. Within DTC in 2025, e-commerce net revenues decreased $23.4 million, or 11.4%, while Purple showroom net revenues
increased $1.1 million, or 1.5%, as compared to 2024.
Cost of Revenues
Total cost of revenues decreased
$26.6 million, or 8.7%, to $280.2 million in 2025 compared to $306.7 million in 2024. Approximately $12.2 million of the decrease was
due to lower sales volume and $14.4 million was due to lower costs associated with the Restructuring Plan. Our gross profit percentage,
which increased to 40.2% of net revenues in 2025 from 37.1% in 2024, was due primarily to the completion of our Restructuring Plan and
improvement in lowering material costs and increased operating efficiency, partially offset by our wholesale revenue mix.
Marketing and Sales
Marketing and sales expense
decreased $24.2 million, or 14.1%, to $147.0 million in 2025 compared to $171.3 million in 2024. This decrease was primarily due to a
$9.1 million decrease in advertising spend, $7.5 million decrease in employee related expenses due to headcount reductions, and a $7.6
million reduction in all other marketing and sales costs. As a percentage of net revenues, advertising spend was 12.0% in 2025 compared
to 13.4% in 2024.
General and Administrative
General and administrative
expense decreased $5.6 million, or 8.0%, to $63.6 million in 2025 compared to $69.1 million in 2024. This decrease was primarily due to
$7.1 million decrease in employee related expenses due to headcount reductions and a $5.6 million reduction of legal, professional and
other costs, partially offset by a $7.1 million increase in strategic alternative costs.
Research and Development
Research and development costs
decreased $3.4 million, or 25.9%, to $9.6 million in 2025 compared to $13.0 million in 2024. This decrease is due to a $0.7 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 $8.6 million or 43.0%, to $11.4 million in 2025 compared to $20.0 million in 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 reduction from 2024 is due to the completion of the Restructuring Plan in 2025 and the timing of when the various expenses
were recorded. The $11.4 million of restructuring and impairment charges recorded in operating expense during 2025 included $9.2 million
incurred related to accelerated depreciation, write-down of long-lived assets and impairment of assets and $2.2 million of employee-related
and other cash charges.
40
Operating Loss
Operating loss decreased $49.2
million, or 53.3%, to $43.0 million in 2025 compared to $92.2 million in 2024. This decrease in our operating loss is the result of the
benefits realized through reduced advertising spending, 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 $28.8
million in 2025 compared to $17.5 million in 2024. This $11.3 million 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 as well as the increased amortization from additional debt issuance
costs.
Other Income (Expense), Net
Other income was $3.3 million in 2025 compared to $11.5 million in
2024. Other income in 2024 was primarily comprised of two payments totaling $11.6 million received in full settlement of a previously
filed business interruption claim. Other income in 2025 consisted of $2.5 million in sub-lease rental income and other income of $0.8
million.
Loss on Extinguishment of Debt
Loss on extinguishment of
debt totaled $3.4 million in 2024. In January 2024, we entered into the Amended and Restated Credit Agreement that terminated and paid
off the outstanding borrowings under our 2023 Credit Agreement. 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.
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 2025, we recognized a $17.2 million gain related to the decrease in fair
value of the warrant liabilities. The decrease is due mainly to the change in the stock price and the probability and timing of a fundamental
transaction. For 2024, we recognized a $3.5 million gain due to the decrease 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 2025, compared to $0.1 million income tax expense for 2024. The income tax expense amounts in 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 of approximately
0.2%. Net loss attributed to noncontrolling interests was $0.1 million and $0.2 million for 2025 and 2024, respectively.
41
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, operating lease payment obligations and investing in innovation.
In accordance with the terms of our various loan 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 $24.3 million
and $35.2 million, respectively, as of December 31, 2025 compared to $29.0 million and $25.4 million, respectively, as of December 31,
2024. Cash used for capital expenditures increased from $7.2 million in 2024 to $8.1 million in 2025. Our capital expenditures in 2025
have primarily consisted of additional investments made in our manufacturing operations and showroom facilities. Additional details regarding
our current debt 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 the preparation of the consolidated financial
statements for the year ended December 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.
We
had cash and cash equivalents of approximately $24.3 million and an accumulated deficit of $625.3 million at December 31, 2025.
We incurred a net loss of $51.4 million and net cash used in operating and investing activities was $33.8 million and $8.3
million, respectively, for the year ended December 31, 2025. We have a history of recurring net losses and cash used in operations,
an accumulated deficit, and requiring additional capital to fund our operations.
The funds we have on hand
and any follow-on capital, if needed, will be used to fund our operations and invest in the business to expand sales and marketing efforts,
as well as to invest in innovation. As described below, we have implemented plans to both increase our revenues from the sales of our
products and to achieve cost savings within the next year, sufficient to generate positive operating cash flow levels. However, we may
be adversely impacted by uncertain market conditions and there can be no assurance that we will be successful in this regard. If such
plans are not successful, we may need to raise additional capital in order to support operations and business initiatives. Access to additional
capital is uncertain and not within our control. Accordingly, there is substantial doubt about our ability to continue as a going concern.
We have taken a number of
actions to increase cash flow and support our operations and strategies. In August 2024, we implemented the Restructuring Plan (as defined
below) to consolidate manufacturing operations resulting in cost savings. We have realized and plan to continue to realize direct material
cost savings by concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions,
continued mix shift towards the Restore and Rejuvenate collections, and 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 outbound freight costs reflect cost improvements along with improved delivery reliability.
We have been successful in subleasing the two manufacturing facilities that were vacated as part of the Restructuring Plan. We have also
taken additional cost-saving initiatives in 2025 and the beginning of 2026 to reduce headcount and streamline responsibilities and reporting
structure. Further, our plans include additional actions intended to improve liquidity and reduce costs, including planned optimization
of advertising spend, limiting the number of new store openings, efforts to mitigate tariff impacts by managing the country of origin,
and other cost-saving initiatives. As disclosed above under “ Recent Developments in our Business – Debt Financing, ”
we have elected to have interest paid-in-kind and added to the principal amount of the loans under the Amended and Restated Credit Agreement.
On March 24, 2026, we executed the Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”) with
the Lenders to extend the maturity date of the Amended and Restated Credit Agreement from December 31, 2026 to April 30, 2027. We are
currently evaluating potential strategic alternatives and opportunities to achieve additional liquidity through one or more future debt
refinancings.
Additionally, in May 2025,
we entered into an agreement with Mattress Firm, Inc. (“Mattress Firm”), a business unit of Somnigroup International, Inc.
(“SGI”) to expand its inventory of the Company’s products across SGI’s national store network from approximately
5,000 mattress slots to a minimum of 12,000 mattress slots (see Note 13 — Commitments and Contingencies, SGI Commercial Arrangements).
We are now represented in Mattress Firm’s full store network and with the recent launch of Purple Royale, the exclusive Luxe
product for Mattress Firm, we have expanded to all 12,000 committed slots. We have also expanded into more Costco clubs in the fourth
quarter of 2025.
42
The accompanying audited
consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
Other Contractual Obligations
Other material contractual obligations primarily include operating
lease payment obligations. Refer to Note 7 of our consolidated financial statements for additional information on leases.
Cash Flows for the year ended December 31, 2025 compared to the
year ended December 31, 2024
The following summarizes our
cash flows for the years ended December 31, 2025 and 2024 as reported in our consolidated statements of cash flows (in thousands):
Years Ended
December 31,
2025
2024
Net cash used in operating activities
$ (33,830 )
$ (17,850 )
Net cash used in investing activities
(8,279 )
(7,530 )
Net cash provided by financing activities
37,443
27,534
Net increase (decrease) in cash
(4,666 )
2,154
Cash, beginning of the period
29,011
26,857
Cash, end of the period
$ 24,345
$ 29,011
Net cash used in operating
activities was $33.8 million in 2025 compared to $17.9 million in 2024. Operating activities in 2025 reflected a net loss of $51.5 million
and a working capital decrease of $24.2 million, offset in part by non-cash adjustments of $41.9 million. The non-cash adjustments primarily
consisted of paid-in-kind and non-cash interest of $29.2 million, depreciation and amortization totaling $24.1 million and other non-cash
items totaling $5.8 million, partially offset by $17.2 million on the gain on the change in fair value of the warrant liabilities. The
working capital decrease was primarily comprised of a $8.2 million increase in accounts receivable and a $10.5 million increase in accrued
warranty and other liabilities and $5.5 million net decrease from changes in all other operating assets and liabilities. Operating activities
in 2024 reflected a net loss of $98.1 million offset in part by non-cash adjustments of $75.9 million and working capital changes of $4.3
million. The non-cash adjustments primarily consisted of depreciation and amortization totaling $35.4 million, restructuring, impairment
and other related charges of $20.2 million, paid in kind and non-cash interest of $16.9 million, and losses on the extinguishment of debt
of $3.4 million. The working capital changes were primarily comprised of a $4.7 million decrease in accounts receivable and a $6.0 million
decrease in inventories, offset in part by a $6.4 million increase in accounts payable.
Net cash used in investing activities was $8.3 million in 2025 compared
to $7.5 million in 2024. Capital expenditures of $8.1 million and $7.2 million in 2025 and 2024, respectively, consisted primarily of
additional investments made to our manufacturing operations and showroom facilities.
Net cash provided by financing
activities totaled $37.4 million in 2025 compared to $27.5 million in 2024. Financing activities in 2025 included $39.0 million of proceeds
received from two amendments to the Related Party Loan, offset in part by $1.6 million in payments on debt issuance costs associated with
entering into the two amendments. Financing activities in 2024 included $61.0 million of proceeds received from the Related Party Loan,
offset in part by a $25.0 million payment to pay off the term loan from the 2023 Credit Agreement, $5.0 million in repayments against
the revolving debt outstanding from the 2023 Credit Agreement, and $3.5 million in payments on debt issuance costs associated with entering
into the Amended and Restated Credit Agreement.
Recent Accounting Pronouncements
For a description of accounting
standards recently issued or adopted, including the respective dates of adoption and expected effects on our results of operations and
financial condition, refer to Note 2 of our consolidated financial statements included in this Annual Report on Form 10-K.
43