What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-04-28 compared with 2025-11-04 · 432 added, 631 removed, 26 unchanged (98% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion is

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

The discussion should be read

in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in “Part I.

Financial Statements.” Capitalized terms used in this “Part I.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations” and not otherwise defined shall have the meanings set forth in “Part

Management’s Discussion and Analysis of Financial

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

1 Financial Statements.”

FORWARD-LOOKING

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.

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.

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

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.

of Our Business

mission is to deliver the greatest sleep ever invented.

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.

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.

market and sell our products via our direct-to-consumer channel, which includes Purple.com (our direct-to-consumer e-commerce), Purple

showrooms, our customer contact center and online marketplaces (collectively “DTC”), and our wholesale channel through retail

brick-and-mortar and online wholesale partners.

business consists of Purple Inc.

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 31, 2026.

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.

Our business consists of Purple

and its consolidated subsidiary, Purple LLC.

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

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

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

At 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%.

Developments in Our Business

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.

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

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.

new Rejuvenate 2.0 collection launched in the second quarter 2025 and is available across all of our showroom locations.

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

Momentum remains strong in our showrooms as Rejuvenate 2.0 mattress sales nearly doubled year over year.

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

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.

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

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

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.

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:

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.

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.

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.

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.

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

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.

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.

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

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.

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

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.

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.

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.

Rights Agreements

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.

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.

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.

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.

registration statement filed on May 23, 2025, which registered the Registrable Securities, was declared effective by the SEC on May 30,

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.

Protective Charter Amendment

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.

of Strategic Alternatives

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.

of United States Tariff Policy

continue to actively manage the impact of recent United States tariff policies.

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

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

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,

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

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

the approval of any other member.

At March 31, 2026, 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

We entered 2026 building

on the progress we made in the fourth quarter, and our first quarter reflects continued progress and greater consistency across our

Trends were solid during the quarter, with growth in our showroom and wholesale channels.

The E-commerce channel also

improved sequentially declining 10% in the first quarter year over year compared to down 15% in the prior period year over year,

reflecting more disciplined marketing execution and early signs of improved conversion.

Importantly, we continue to see the benefits of actions taken last year reflected in our operating expense

This progress is a direct result of the changes we’ve made to the business, not a recovery of the broader market,

reinforcing the durability of the model we’ve been building.

Impact of Revenue Presentation for Certain

Product Arrangements

Revenue for certain product

arrangements is presented differently depending on the nature of the underlying manufacturing relationships and the application of ASC

606— Revenue from Contracts with Customers .

Under the guidance, payments to third-party manufacturers, including manufacturers

under common control with certain customers, are evaluated to determine whether they are economically linked to an underlying customer

For certain customer-specific or exclusive product programs where the manufacturer is under common control with the customer,

the Company has concluded that payments to the manufacturer are economically linked to the customer relationship and therefore represent

consideration payable to a customer.

As a result, these payments are recorded as a reduction of revenue, and revenue is presented on a

The Company recorded $4.9 million in consideration paid as a reduction of revenue in the unaudited condensed consolidated statement

of operations for the three months ended March 31, 2026.

This presentation results in reported revenue being lower than the gross amount

billed to the customer.

While the net presentation affects reported revenue, it does not impact gross profit dollars for these arrangements.

The distinction reflects the application of GAAP to different fact patterns rather than a difference in the underlying economics of the

transactions.

Debt Financings

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 the 2025 Lenders’ outstanding principal amount.

The remaining $0.3 million of the Amendment Fee was paid in cash to the

other lenders.

In connection with the Third Amendment, the Loan Parties also agreed to reimburse the 2025 Lenders for certain expenses

in the amount of $0.3 million.

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

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 $1.0 million during the three

months ended March 31, 2026 due to our mitigation efforts which have reduced the overall impact to our initial expectations.

landscape remains fluid, and we are actively evaluating sourcing alternatives and pricing strategies on a case-by-case basis.

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 partially mitigate these impacts through a combination of supply chain repositioning,

vendor collaborations, and selective pricing actions.

Summary – Results of Operations

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.

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.

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.

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.

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.

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.

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.

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.

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.

On March 6, 2026, we filed a lawsuit in the U.S.

Court of International Trade against

Customs and Border Protection (“CBP”), the CBP commissioner, and the United States of America seeking a full refund

of the $5.3 million in tariffs imposed under the International Emergency Economic Powers Act that the Company has paid to the United States

(See Note 13 – Commitments and Contingencies, Legal Proceedings).

Executive Summary – Results of Operations

Net revenues decreased $8.4

million, or 8.1%, to $95.7 million for the three months ended March 31, 2026 compared to $104.2 million for the three months ended March

The drop in revenue was primarily due to a decrease in e-commerce sales and recognized wholesale revenue.

From a sales channel

perspective, e-commerce net revenues decreased $4.8 million, or 10.6%, wholesale net revenues decreased $4.5 million or 11.0% and showroom

net revenues increased $0.9 million, or 4.8%.

The decrease in wholesale revenue was due mainly to $4.9 million in payments to a manufacturer

that is under common control with a customer and represents consideration paid to a customer.

Accordingly, these payments are recorded

as a reduction in revenue.

The decreases were partially offset by our showroom net revenue increase of $0.9 million or 4.8%.

in our showrooms channel represents a 7.0% year-over-year increase for all stores that have been open for 13 or more months.

third consecutive quarter of year-over-year growth in the showrooms channel, driven by increased order values through effective upselling

and product bundling.

Gross profit decreased

$5.9 million, or 14.3%, to $35.2 million for the three months ended March 31, 2026 compared to $41.0 million for the three months

ended March 31, 2025.

Our gross profit percentage decreased to 36.8% of net revenues in the first quarter of 2026 from 39.4% in the

first quarter of 2025 due to our strategic investment in Purple Royale floor models to support the Mattress Firm rollout, as well as

modest manufacturing overhead deleverage driven by lower production volumes and less favorable absorption of fixed costs.

Operating expenses decreased $3.5 million, or 6.3% to $52.0 million

for the three months ended March 31, 2026 compared to $55.5 million for the three months ended March 31, 2025.

This decrease was driven

by a $3.3 million decrease in advertising spending, a $2.8 million decrease in employee related expenses and $2.0 million decrease in

restructuring related costs from last year, partially offset by $4.6 million in strategic alternative and other costs.

Total other expense, net increased $9.0 million, or 194.6% to $13.7

million for the three months ended March 31, 2026 compared to $4.6 million for the three months ended March 31, 2025.

The other expense,

net in the first quarter of 2026 consists of interest expense of $8.2 million and a $7.0 million loss on change in fair value of warrants,

partially offset by $1.5 million in other income.

The other expense, net in the first quarter of 2025 consists of interest expense of

$4.8 million, partially offset by $0.2 million in other income and gain on change in fair value of warrants.

Net loss attributable to Purple

was $30.5 million for the three months ended March 31, 2026 compared to a net loss of $19.1 million for the three months ended March

The $11.4 million increase in net loss was primarily due to lower gross margins and the increase in loss from change in fair

value of the warrants, partially offset by reduced operating expenses.

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:

Our Consumer.

Knowing our consumer continues to shape how we show up across all channels.

We have shifted away from promotion-led

messaging toward clearer, benefit driven marketing focused on our differentiated technology and how we deliver better sleep.

Pain, Better Sleep positioning continues to resonate, providing a consistent, consumer-led message that translates across e-commerce,

retail, and wholesale channels.

We are making our differentiation clearer, our content more educational and our local marketing more

effective at converting awareness into foot traffic.

We continue to make changes to our creative approach and how we guide consumers

through the online purchase journey with a more focused and tactical path to identifying the right mattress.

Better Sleep.

Our innovation continues to resonate with consumers, with our premium

products maintaining strong interest in both wholesale and showroom channels.

We saw a strong

initial response to the launch of Purple Royale, our new premium offering developed in partnership

with Mattress Firm.

Additionally, Rejuvenate 2.0 continues to outperform our expectations

with strong demand.

This performance reinforces the strength of our premium positioning and

the resonance of our innovation with consumers.

We are also seeing a positive halo effect

across the portfolio, supporting performance in adjacent categories.

We are focused on elevating

the full consumer journey across both owned and partner channels.

This includes improving

how we present and explain our technology in-store, with greater emphasis on pain relief

and more effective use of demonstrations and digital support.

This is resulting in improved

engagement from retail sales associates, particularly within our wholesale channel, as our

product storytelling continues to resonate.

We have also made changes to our online sales

approach, enhancing live customer care and follow-up to better replicate the in-store experience

in a digital environment, which is helping improve engagement and close rates.

time, we’re enhancing our delivery experience to ensure a more consistent and credible

brand experience from purchase through fulfillment.

These improvements are helping reinforce

our value proposition and support stronger conversion.

with Financial Discipline.

We have taken meaningful steps to resize and simplify the business, and we are seeing those

benefits reflected in our operating efficiency and cost structure.

These actions have created a more stable foundation as we shift

toward growth.

In the first quarter, gross margin came in below our normal 40% baseline, primarily driven by higher levels of floor

model discounts associated with the Purple Royale rollout at Mattress Firm.

We view this as temporary, and as the floor model

transition normalizes, we expect improved contribution from Purple Royale.

We’ve seen similar dynamics during prior transitions and would expect a comparable normalization as floor

model activity moderates.

At the same time, we are making continued progress in our underlying cost structure, particularly across

sourcing, operations, and fulfillment, supported by ongoing productivity initiatives and supply chain optimization efforts.

also actively managing a more dynamic cost environment, including tariff dynamics and rising input costs.

Our mitigation efforts are

well underway, including diversifying our supplier base, expanding multi-sourcing, and selectively in-sourcing key components, such

as pillows, where we see both cost and quality benefits.

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 31, 2026 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.

Results for the Three Months Ended September 30, 2025, and 2024

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):

Months Ended September 30,

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

Operating Results for the Three Months Ended March 31, 2026 and

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 March 31,

Revenues, net

1 unchanged sentence

Cost of revenues

of revenues - restructuring related charges

Cost of revenues - restructuring related charges

Total cost of revenues

3 unchanged sentences

Research and development

Restructuring,

impairment and other related charges

operating expenses

Restructuring, impairment and other related charges

Total operating expenses

Operating loss

2 unchanged sentences

Other income, net

in fair value – warrant liabilities

Total other income,

Change in fair value – warrant liabilities

Total other expense, net

Net loss before income taxes

loss attributable to noncontrolling interest

Net loss attributable

to Purple Innovation, Inc.

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%.

Cost of Revenues

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.

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.

and Administrative

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.

and Development

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.

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

expense totaled $8.2 million for the three months ended September 30, 2025, compared to $4.4 million for the three months ended September

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.

in Fair Value – Warrant Liabilities

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.

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

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.

Results for the Nine Months Ended September 30, 2025, and 2024

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):

Months Ended September 30,

Income tax expense

Net loss attributable to noncontrolling interest

Net loss attributable to Purple Innovation, Inc.

Revenues, Net

Cost of revenues:

Cost of revenues

of revenues - restructuring related charges

Net revenues decreased $8.4

million, or 8.1%, to $95.7 million for the three months ended March 31, 2026 compared to $104.2 million for the three months ended March

This decrease was primarily driven by our e-commerce and wholesale recognized revenue.

From a sales channel perspective, e-commerce

net revenues decreased $4.8 million, or 10.6%, wholesale net revenue decreased $4.5 million or 11.0% and showroom net revenues increased

$0.9 million, or 4.8%.

The decrease in wholesale revenue was due mainly to $4.9 million in payments to a manufacturer that is under common

control with a customer and represents consideration paid to a customer.

Accordingly, these payments are recorded as a reduction in revenue.

Total Cost of Revenues

Operating expenses:

and administrative

and development

Restructuring,

impairment and other related charges

Total operating expenses

Total cost of revenues

decreased $2.6 million, or 4.1%, to $60.5 million for the three months ended March 31, 2026, compared to $63.1 million for the three

months ended March 31, 2025.

This decrease was due primarily to $4.9 million in costs associated with a manufacturer that is

affiliated with a customer recorded as reduction of revenue.

This decrease was partially offset by less favorable absorption of

fixed costs from lower production volumes.

Our gross profit percentage decreased to 36.8% of net revenues in the first quarter of

2026 from 39.4% in the first quarter of 2025, due to our strategic investment in Purple Royale floor models to support the Mattress

Firm rollout, as well as modest manufacturing overhead deleverage driven by lower production volumes and less favorable absorption

of fixed costs.

Marketing and Sales

Marketing and sales expense decreased $5.1 million, or 13.8%, to $31.6

million for the three months ended March 31, 2026 compared to $36.6 million for the three months ended March 31, 2025.

This decrease primarily

consisted of a $3.3 million decrease in advertising spend, a $1.3 million decrease in employee related expenses due to head count reductions

and $0.2 million decrease in all other marketing and sales expenses.

General and Administrative

General and administrative expense increased $3.5 million, or 24.5%,

to $18.0 million for the three months ended March 31, 2026 compared to $14.5 million for the three months ended March 31, 2025.

This increase

was due to a $4.3 million increase in strategic alternative costs and an increase of $0.7 million in all other general and administrative

costs, partially offset by a $1.4 million decrease in employee related costs due to headcount reductions.

Research and Development

Research and development expense was flat to prior year at $2.4 million

for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Restructuring, Impairment and Other Related

There were no restructuring,

impairment and other related charges for the three months ended March 31, 2026 as all restructuring activities were completed in 2025.

We incurred $2.0 million of restructuring, impairment and other related charges during the three months ended March 31, 2025.

Operating Loss

Other income (expense):

on extinguishment of debt

in fair value – warrant liabilities

Total other expense,

before income taxes

loss attributable to noncontrolling interest

loss attributable to Purple Innovation, Inc.

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%.

Cost of Revenues

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.

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

and Administrative

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.

and Development

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,

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.

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.

expense totaled $20.4 million for the nine months ended September 30, 2025, compared to $13.0 million for the nine months ended September

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.

on Extinguishment of Debt

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

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.

in Fair Value – Warrant Liabilities

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.

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

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.

and Capital Resources

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

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

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

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.

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.

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.

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.

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.

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.

Contractual Obligations

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.

Flows for the Nine Months Ended September 30, 2025, Compared to the Nine Months Ended September 30, 2024

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):

September 30,

Net cash used in operating activities

Operating loss increased $2.4

million, or 16.3%, to $16.8 million, for the three months ended March 31, 2026 compared to $14.5 million for the three months ended March

This increase in our operating loss is the result of a lower gross profit percent and increases in strategic alternative costs,

partially offset by reduced advertising spend and lower headcount costs.

Interest Expense

Interest expense totaled $8.2

million for the three months ended March 31, 2026 compared to $4.8 million for the three months ended March 31, 2025.

This increase was

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

option on monthly interest over the past 12 months.

Other Income, Net

Other income increased to

$1.5 million for the three months ended March 31, 2026 compared to $0.1 million for the three months ended March 31, 2025.

This increase

was mainly due to $1.3 million received for sublease rent payments on facilities we are no longer using and have subleased to other parties.

Change in Fair Value – Warrant Liabilities

Our Warrants contain certain

provisions that did not meet the criteria for equity classification and therefore are recorded as liabilities with a re-measurement of

fair value at each reporting date.

We incurred a $7.0 million loss on the change in fair value of our warrant liabilities for the three

months ended March 31, 2026 related to the increase in fair value from the previous reporting date.

For the three months ended March 31,

2025, we recognized a negligible gain related to the net decrease in fair value of the warrant liability.

Income Tax (Expense) Benefit

We had a de minimis income

tax expense for the three months ended March 31, 2026 and 2025.

The income tax expense amounts in both the first quarter of 2026 and 2025

were related to various state taxes.

Noncontrolling Interest

We calculate net 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 March 31, 2026 and 2025.

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 $25.0 million

and $22.4 million, respectively, as of March 31, 2026 compared to $24.3 million and $35.2 million, respectively, as of December 31, 2025.

Cash used for capital expenditures was $2.0 million and $2.1 million for the three months ended March 31, 2026 and 2025.

Our capital expenditures

in 2026 have primarily consisted of additional investments made in our manufacturing operations and showroom facilities.

Additional details

regarding our current debt are described above in Note 10 - Debt .

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.

had cash and cash equivalents of approximately $25.0 million and an accumulated deficit of $655.8 million at March 31,

We incurred a net loss of $30.5 million and net cash provided by operating activities and net cash used in investing activities

was $3.0 million and $2.0 million, respectively, for the three months ended March 31, 2026.

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.

described below, we have implemented plans that we believe will both increase our revenues from the sales of our products and 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

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.

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

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.

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.

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.

Cash Flows for the Three Months Ended March

31, 2026 Compared to the Three Months Ended March 31, 2025

The following summarizes our

cash flows for the three months ended March 31, 2026 and 2025 as reported in our unaudited condensed consolidated statements of cash flows (in

Three Months Ended

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by

financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

1 unchanged sentence

Cash, end of the period

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.

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.

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.

Accounting Estimates

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.

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.

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.

Cash provided by operating activities was $3.0 million for the three

months ended March 31, 2026 compared to cash used in operating activities was $23.1 million for the three months ended March 31, 2025.

The $26.1 million increase in year-over-year cash provided by operating activities included a $28.5 million increase in cash provided

from the changes in operating assets and liabilities and an $8.8 million increase in non-cash cash adjustments, partially offset by a

$11.4 million increase in net loss.

Cash used in investing activities

reflected net capital expenditures of $2.0 million and $2.1 million for the three months ended March 31, 2026 and 2025, respectively.

Capital expenditures in the first three months of 2026 primarily consisted of additional investments made in our manufacturing operations.

Cash used in investing activities

was $0.3 million for the three months ended March 31, 2026 compared to cash provided in investing activities of $17.8 million during the

three months ended March 31, 2025.

Cash used in financing activities for 2026 consist of amendment fess paid in cash to certain lenders

for the Third Amendment.

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

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

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 2025 Annual Report on Form 10-K filed with the SEC on March 31, 2026.

There have been no significant changes in our critical accounting

policies since the end of fiscal 2025.

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

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

on our website.

We also use the Investor Relations

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

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

and webcasts.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis