UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number: 001-37523

PURPLE INNOVATION, INC.

(Exact name of registrant as specified in its charter)

Delaware		47-4078206
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4100 NORTH CHAPEL RIDGE ROAD SUITE 200

LEHI, UTAH

84043

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (801) 756-2600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share		PRPL		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 8, 2023, 105,322,607 shares of the registrant’s Class A common stock, $0.0001 par value per share, and 428,280 shares of the registrant’s Class B common stock, $0.0001 par value per share, were outstanding.

PURPLE INNOVATION, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

			Page
Part I.	Financial Information		1
	Item 1.	Financial Statements (Unaudited):	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Stockholders’ Equity	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
	Item 4.	Controls and Procedures	45

Part II.	Other Information		46
	Item 1.	Legal Proceedings	46
	Item 1A.	Risk Factors	46
	Item 5.	Other Information	50
	Item 6.	Exhibits	53
	Signatures		54

In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United States (“U.S.”) dollars.

We have several trademarks registered with the U.S. Patent and Trademark Office (“USPTO”), including EquaPressure^®, WonderGel^® and EquaGel^® (for cushions), and Purple^®, No Pressure^®, Hyper-Elastic Polymer^®, Somnigel^®, Gel Matrix^®, Matrix^®, Gelee^®, Ascent^®, Softstretch^®, Purple Powerbase^®, Sleep Genius^®, Firm and Soft^®, Intellipillow^®, and Intellibed^®(for plasticized elastomeric gel and certain types of products including mattresses, seat cushions, bed linen, mattress foundation and others). Additional registered trademarks include, but are not limited to, Purple Grid^®, Reinventing Comfort^®, Comfort Reinvented^®, TwinCloud^®, Purple Cloud^®, Purple Pillow^®, The Purple Mattress^®, Purple Hybrid^®, Purple Hybrid Premier^®, The Purple Mattress^®, The Purple Plus^®, Gelflex^®and registration of the color purple as a trademark (for mattresses, pillows, and seat cushions). Applications are pending for registration of additional trademarks and some of these listed trademarks for additional classes of goods both in the U.S. and internationally. Our Purple, No Pressure and Hyper-Elastic Polymer trademarks are also registered and have applications pending for various classes of goods in numerous foreign jurisdictions, some of which include Australia, Canada, China, Europe, United Kingdom, Japan and Korea. Certain international trademark applications previously resided with EdiZONE, LLC, which is an entity owned by our founders, and were licensed to Purple LLC and we have taken the necessary steps to have those trademarks assigned to Purple LLC upon registration.

We also have a number of common law trademarks, including Sleep Purple, Live BetterÔ, New DayÔ, RestoreÔ, RestorePlusÔ, RestorePremierÔ, RejuvenateÔ, RejuvenatePlusÔ, RejuvenatePremierÔ, Perfectstay™, TempBalance™, Success Happens Overnight™, Overnight Success™, Harmony™, Purple Harmony Pillow™, Harmony Pillow™, Purple +™, Purple Plus™, Find Comfort™, Dreams On Dreams™, Reinventing Sleep™, Gelflex Grid™, Gelflex Grid Plus™, Purple Ascent™, Purple Squishy™, Purple Powerbase Premier™, Purple Powerbase Plus™, Purple Glove™, Eidertech™, Mattress Max™, WonderGel Original™, WonderGel Extreme™, DoubleGel™, DoubleGel Plus™, DoubleGel Ultra™, Roll n’ Go™, Fold N’ Go™, Purple Bed™, Purple Top™, Purple Pillow™, Portable Purple™, Everywhere Purple™, Simply Purple™, Lite Purple™, Royal Purple™, Double Purple™, Deep Purple™, Ultimate Purple™, Purple Back™, EquaGel Straight Comfort™, EquaGel General™, EquaGel Protector™, and EquaGel Adjustable™.

Many of the common law marks have registrations pending with the USPTO and other international jurisdictions. Solely for convenience, we refer to our trademarks in this Quarterly Report without the ^™ or ^® symbol, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks.

In addition, we maintain copyrights, many of which are registered, to past and present versions of purple.com, onpurple.com, equapressure.com, wondergel.com, marketing content, blogs, logos, graphics, videos and other marketing and promotional materials promoting our products.

We protect and enforce our intellectual property rights, including through litigation as necessary.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for par value)

	June 30, 2023			December 31, 2022
Assets
Current assets:
Cash, cash equivalents and restricted cash	$	26,949		$	41,754
Accounts receivable, net		22,769			34,566
Inventories, net		78,402			73,197
Prepaid expenses		5,669			7,821
Other current assets		3,881			4,117
Total current assets		137,670			161,455
Property and equipment, net		131,493			136,673
Operating lease right-of-use assets		99,858			102,541
Goodwill		5,021			4,897
Intangible assets, net		23,688			26,221
Other long-term assets		2,958			1,546
Total assets	$	400,688		$	433,333

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	48,742		$	46,441
Accrued sales returns		4,197			5,107
Accrued compensation		4,190			6,691
Customer prepayments		5,477			4,452
Accrued sales and use tax		1,674			2,978
Accrued rebates and allowances		5,827			9,804
Operating lease obligations – current portion		14,390			13,708
Other current liabilities		7,359			8,130
Total current liabilities		91,856			97,311
Debt		—			23,657
Operating lease obligations, net of current portion		113,549			115,599
Other long-term liabilities, net of current portion		17,717			17,876
Total liabilities		223,122			254,443
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock; $0.0001 par value, 210,000 shares authorized; 105,323 issued and outstanding at June 30, 2023 and 91,380 issued and outstanding at December 31, 2022		11			9
Class B common stock; $0.0001 par value, 90,000 shares authorized; 428 issued and outstanding at June 30, 2023 and 448 issued and outstanding at December 31, 2022		—			—
Additional paid-in capital		589,145			529,466
Accumulated deficit		(412,323	)		(351,514	)
Total stockholders’ equity attributable to Purple Innovation, Inc.		176,833			177,961
Noncontrolling interest		733			929
Total stockholders’ equity		177,566			178,890
Total liabilities and stockholders’ equity	$	400,688		$	433,333

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues, net	$	120,872		$	144,109		$	230,244		$	287,288
Cost of revenues		82,408			95,297			148,557			186,850
Gross profit		38,464			48,812			81,687			100,438
Operating expenses:
Marketing and sales		46,379			40,373			84,552			90,332
General and administrative		26,437			18,779			50,104			36,667
Research and development		2,925			1,748			6,297			3,891
Total operating expenses		75,741			60,900			140,953			130,890
Operating loss		(37,277	)		(12,088	)		(59,266	)		(30,452	)
Other income (expense):
Interest expense		(352	)		(707	)		(554	)		(1,730	)
Other income (expense), net		37			(136	)		110			(119	)
Change in fair value – warrant liabilities		—			346			—			4,274
Loss on extinguishment of debt		—			—			(1,217	)		—
Total other income (expense), net		(315	)		(497	)		(1,661	)		2,425
Net loss before income taxes		(37,592	)		(12,585	)		(60,927	)		(28,027	)
Income tax benefit (expense)		(72	)		4,175			(144	)		5,986
Net loss		(37,664	)		(8,410	)		(61,071	)		(22,041	)
Net loss attributable to noncontrolling interest		(155	)		(70	)		(262	)		(199	)
Net loss attributable to Purple Innovation, Inc.	$	(37,509	)	$	(8,340	)	$	(60,809	)	$	(21,842	)

Net loss per share:
Basic	$	(0.36	)	$	(0.10	)	$	(0.60	)	$	(0.29	)
Diluted	$	(0.36	)	$	(0.10	)	$	(0.60	)	$	(0.29	)

Weighted average common shares outstanding:
Basic		105,079			82,703			101,760			74,924
Diluted		105,079			83,151			101,760			75,372

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited – in thousands)

	Class A				Class B					Additional						Total
	Common Stock				Common Stock					Paid-in			Accumulated			Stockholders’			Noncontrolling			Total
	Shares		Par Value		Shares			Par Value		Capital			Deficit			Equity			Interest			Equity
Balance - December 31, 2022		91,380	$	9		448		$	—	$	529,466		$	(351,514	)	$	177,961		$	929		$	178,890
Net loss		—		—		—			—		—			(23,300	)		(23,300	)		(107	)		(23,407	)
Stock-based compensation		—		—		—			—		1,192			—			1,192			—			1,192
Issuance of stock under equity compensation plans		265		—		—			—		—			—			—			—			—
Issuance of stock upon underwritten offering, net of costs		13,400		2		—			—		57,198			—			57,200			—			57,200
Impact of transactions affecting NCI		—		—		—			—		(103	)		—			(103	)		103			—
Balance – March 31, 2023		105,045	$	11		448		$	—	$	587,753		$	(374,814	)	$	212,950		$	925		$	213,875
Net loss		—		—		—			—		—			(37,509	)		(37,509	)		(155	)		(37,664	)
Stock-based compensation		—		—		—			—		1,661			—			1,661			—			1,661
Exchange of stock		20		—		(20	)		—		—			—			—			—			—
Proportional Representation Preferred Linked Stock redemption fee		—		—		—			—		(105	)		—			(105	)		—			(105	)
Additional costs associated with underwritten public stock offering		—		—		—			—		(201	)		—			(201	)		—			(201	)
Issuance of stock under equity compensation plans		258		—		—			—		—			—			—			—			—
Impact of transactions affecting NCI		—		—		—			—		37			—			37			(37	)		—
Balance – June 30, 2023		105,323	$	11		428		$	—	$	589,145		$	(412,323	)	$	176,833		$	733		$	177,566

	Class A				Class B				Additional						Total
	Common Stock				Common Stock				Paid-in			Accumulated			Stockholders’			Noncontrolling			Total
	Shares		Par Value		Shares		Par Value		Capital			Deficit			Equity			Interest			Equity
Balance - December 31, 2021		66,493	$	7		448	$	—	$	407,591		$	(261,825	)	$	145,773		$	768		$	146,541
Net loss		—		—		—		—		—			(13,502	)		(13,502	)		(129	)		(13,631	)
Stock-based compensation		—		—		—		—		542			—			542			—			542
Exercise of stock options		20		—		—		—		166			—			166			—			166
Issuance of stock under equity compensation plans		25		—		—		—		—			—			—			—			—
Issuance of stock upon underwritten public offering, net of costs		16,100		1		—		—		92,894			—			92,895			—			92,895
Accrued distributions		—		—		—		—		(228	)		—			(228	)		—			(228	)
Impact of transactions affecting NCI		—		—		—		—		(141	)		—			(141	)		141			—
Balance – March 31, 2022		82,638	$	8		448	$	—	$	500,824		$	(275,327	)	$	225,505		$	780		$	226,285
Net loss		—		—		—		—		—			(8,340	)		(8,340	)		(70	)		(8,410	)
Stock-based compensation		—		—		—		—		1,275			—			1,275			—			1,275
Issuance of common stock under equity compensation plans		126		—		—		—		—			—			—			—			—
Additional costs associated with underwritten public stock offering		—		—		—		—		(29	)		—			(29	)		—			(29	)
Impact of transactions affecting NCI		—		—		—		—		(73	)		—			(73	)		73			—
Balance – June 30, 2022		82,764	$	8		448	$	—	$	501,997		$	(283,667	)	$	218,338		$	783		$	219,121

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(61,071	)	$	(22,041	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		12,890			7,583
Non-cash interest		686			360
Loss on extinguishment of debt		1,217			—
Change in fair value – warrant liabilities		—			(4,274	)
Stock-based compensation		2,853			1,817
Deferred income taxes		—			(6,161	)
Changes in operating assets and liabilities:
Accounts receivable		11,467			(6,148	)
Inventories, net		(5,061	)		13,804
Prepaid expenses and other assets		2,952			3,481
Operating leases, net		1,315			4,178
Accounts payable		3,304			(37,027	)
Accrued sales returns		(910	)		(2,005	)
Accrued compensation		(2,709	)		354
Customer prepayments		1,025			(5,722	)
Accrued rebates and allowances		(3,977	)		(2,854	)
Other accrued liabilities		(2,034	)		1,851
Net cash used in operating activities		(38,053	)		(52,804	)

Cash flows from investing activities:
Purchase of property and equipment		(5,443	)		(24,233	)
Investment in intangible assets		(380	)		(1,822	)
Net cash used in investing activities		(5,823	)		(26,055	)

Cash flows from financing activities:
Payments on term loan		(24,656	)		(2,531	)
Payments on revolving line of credit		—			(55,000	)
Payments for debt issuance costs		(2,898	)		(1,242	)
Proceeds from stock offering		60,300			98,210
Payments for public offering costs		(3,301	)		(5,344	)
Proportional Representation Preferred Linked Stock redemption fee		(105	)		—
Tax receivable agreement payments		(269	)		(5,847	)
Proceeds from exercise of stock options		—			166
Net cash provided by financing activities		29,071			28,412

Net decrease in cash, cash equivalents and restricted cash		(14,805	)		(50,447	)
Cash, cash equivalents and restricted cash, beginning of the year		41,754			91,616
Cash, cash equivalents and restricted cash, end of the period	$	26,949		$	41,169

Supplemental disclosures of cash flow information:
Cash paid during the period for interest, net of amounts capitalized	$	(226	)	$	1,345
Cash paid during the period for income taxes	$	281		$	219

Supplemental schedule of non-cash investing and financing activities:
Property and equipment included in accounts payable	$	3,209		$	3,648
Accrued distributions	$	—		$	228

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PURPLE INNOVATION, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization

Purple Innovation, Inc.’s mission is to help people feel and live better through innovative comfort solutions.

Purple Innovation, Inc. collectively with its subsidiary (the “Company” or “Purple Inc.”) is an omni-channel Company that began as a digitally-native vertical brand founded on comfort product innovation with premium offerings. The Company designs and manufactures a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and other products. The Company markets and sells its products through its e-commerce online channels, retail brick-and-mortar wholesale partners, Purple owned retail showrooms, and third-party online retailers.

The Company was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of Global Partnership Acquisition Corp (“GPAC”). On February 2, 2018, the Company consummated a transaction structured similar to a reverse recapitalization (the “Business Combination”) pursuant to which the Company acquired a portion of the equity of Purple Innovation, LLC (“Purple LLC”). At the closing of the Business Combination (the “Closing”), the Company became the sole managing member of Purple LLC, and GPAC was renamed Purple Innovation, Inc.

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.

On August 31, 2022, the Company acquired all the issued and outstanding stock of Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), in which Gelato Merger Sub, Inc., a wholly owned subsidiary of Purple Inc., merged with and into Intellibed, with Intellibed continuing as a wholly owned subsidiary of Purple Inc. On October 3, 2022, Purple Inc. contributed 100% of the membership interest in Intellibed to Purple LLC and Intellibed became a wholly owned subsidiary of Purple LLC. For further discussion see Note 4 — Acquisition.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of Purple Inc., its controlled subsidiary Purple LLC, and Intellibed, Purple LLC’s wholly owned subsidiary, from the date of acquisition. All intercompany balances and transactions have been eliminated in consolidation. As of June 30, 2023, Purple Inc. held 99.6% of the common units of Purple LLC and Purple LLC Class B Unit holders held 0.4% of the common units in Purple LLC.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows of the Company. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 or for any other interim period or other future year.

Variable Interest Entities

Purple LLC is a variable interest entity. The Company determined that it is the primary beneficiary of Purple LLC as it is the sole managing member and has the power to direct the activities most significant to Purple LLC’s economic performance as well as the obligation to absorb losses and receive benefits that are potentially significant. At June 30, 2023, Purple Inc. had a 99.6% economic interest in Purple LLC and consolidated 100% of Purple LLC’s assets, liabilities and results of operations in the Company’s unaudited condensed consolidated financial statements contained herein. The holders of Purple LLC Class B Units (the “Class B Units”) held 0.4% of the economic interest in Purple LLC as of June 30, 2023. For further discussion see Note 16 — Stockholders’ Equity.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to establish accounting policies and to make estimates and judgments that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The Company regularly makes significant estimates and assumptions including, but not limited to, estimates that affect revenue recognition, accounts receivable and allowance for credit losses, valuation of inventories, sales returns, warranty returns, fair value of assets acquired and liabilities assumed in a business combination, warrant liabilities, stock based compensation, the recognition and measurement of loss contingencies, estimates of current and deferred income taxes, deferred income tax valuation allowances, and amounts associated with the Company’s tax receivable agreement with InnoHold, LLC (“InnoHold”). Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results could differ materially from those estimates.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Recent Accounting Pronouncements

Measurement of Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which was further updated and clarified by the FASB through issuance of additional related ASUs. This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on expected credit losses. The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts. These updates are effective for public companies, excluding Smaller Reporting Companies (“SRC”), for annual periods beginning after December 15, 2019, including interim periods therein. The standard is effective for all other entities for annual periods beginning after December 15, 2022, including interim periods therein. The standard is effective for the Company’s interim and annual financial periods beginning January 1, 2023. This standard was adopted utilizing a modified retrospective approach. The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. Underwritten Offering of Class A Common Stock

In February 2023, the Company completed an underwritten offering of 13.4 million shares of Class A common stock at a price of $4.50 per share. The underwriters did not exercise their over-allotment option. The aggregate net proceeds received by the Company from the offering, after deducting offering fees and expenses of $3.3 million, totaled $57.0 million.

4. Acquisition

On August 31, 2022, pursuant to the Merger Agreement, the Company acquired Intellibed, a premium sleep and health wellness company, offering gel-based mattresses scientifically designed for maximum back support, spinal alignment and pressure point relief. The addition of Intellibed increased product offerings to customers, expanded market opportunities, capitalized on synergies of the combined companies, and increased opportunities for innovation. In addition, the acquisition allowed the Company to consolidate ownership of its intellectual property licensed to Intellibed and more fully capitalize on growing demand for products with gel technologies.

The acquisition date fair value of the consideration transferred for Intellibed was $28.3 million, which consisted of the following (in thousands):

Fair value of Class A common stock issued at closing	$	23,069
Fair value of Class A common stock held in escrow		1,467
Fair value of contingent consideration		1,471
Fair value of effective settlement of preexisting relationships		1,672
Transaction expenses paid on behalf of Intellibed		546
Due to seller		75
Fair value of total purchase consideration	$	28,300

The fair value of common stock issued at closing consisted of approximately 8.1 million shares of Class A common stock valued using the acquisition date closing price of $2.86. The fair value of common stock held in escrow consisted of 0.5 million shares of Class A common stock valued using the acquisition date closing price of $2.86. These shares are being held in escrow pending resolution of net working capital adjustments and certain indemnification matters, as described in the Merger Agreement.

Contingent consideration represents the fair value of 1.5 million shares of Class A common stock issuable to Intellibed security holders if the closing price of the Company’s stock does not equal or exceed $5.00 for at least ten trading days over any period of 30 consecutive trading days during the period beginning on the six-month anniversary of the closing date and ending on the 18-month anniversary of the closing date. The contingent shares were valued using a Monte-Carlo simulation model. Because the contingent consideration is payable with a fixed number of shares of the Company’s Class A common stock, it is classified as equity and will not require remeasurement in subsequent periods.

The fair value of effective settlement of preexisting relationships includes $1.4 million related to the fair value of a preexisting legal matter with Intellibed that was effectively settled on the acquisition date and $0.3 million related to the fair value of a preexisting royalty liability owed by Intellibed to the Company that was also effectively settled on the acquisition date. As a result of effectively settling the preexisting legal matter with Intellibed, the Company recorded a gain of $1.4 million as other income (expense), net in the consolidated statement of operations during the third quarter of 2022. As a result of effectively settling the preexisting royalty liability, the Company and Intellibed recorded a corresponding receivable and payable, respectively, for the same $0.3 million amount that was eliminated in consolidation.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The Company recorded the acquisition based on the fair value of the consideration transferred and then allocated the purchase price to the identifiable assets acquired and liabilities assumed based on their respective preliminary estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed required management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and asset lives, among other items. While the Company used its best estimates and assumptions as a part of the purchase price allocation process to accurately value the assets acquired, including intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. Consequently, during the measurement period, which could be up to one year from the acquisition date, the Company may record adjustments to the fair values of the assets acquired and the liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or the liabilities assumed, whichever comes first, any subsequent adjustments will be reflected in the Company’s consolidated statement of operations.

During the second quarter of 2023, the Company updated the preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which required a measurement period adjustment of $0.1 million to increase goodwill. Based upon the purchase price allocation, the following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition as of the date of acquisition, the measurement period adjustments and the as adjusted as of June 30, 2023 (in thousands):

Net tangible assets (liabilities):	At date of acquisition			Measurement period adjustments			As adjusted June 30, 2023
Cash, cash equivalents and restricted cash	$	4,194		$	12		$	4,206
Accounts receivable		5,051			(357	)		4,694
Inventory		4,182			(575	)		3,607
Other current assets		126			200			326
Property and equipment		7,000			—			7,000
Operating lease right-of-use assets		5,491			—			5,491
Other long-term assets		68			—			68
Accounts payable		(2,285	)		(460	)		(2,745	)
Other current liabilities		(2,818	)		545			(2,273	)
Operating lease obligations		(4,373	)		—			(4,373	)
Deferred tax liabilities		(3,868	)		(374	)		(4,242	)
Net tangible assets (liabilities)		12,768			(1,009	)		11,759
Goodwill		6,441			(1,420	)		5,021
Customer relationships		8,476			2,400			10,876
Developed technology		615			29			644
Net assets acquired and liabilities assumed	$	28,300		$	—		$	28,300

Due to the close proximity of the acquisition date to the Company’s first reporting date after the transaction, the Company recorded the assets acquired and liabilities assumed at preliminary estimates of fair value. As a result, the Company had not finalized the determination of the working capital adjustments and the fair values allocated to various assets and liabilities, income tax provision, intangible assets and the residual amount allocated to goodwill. While the final determination of working capital adjustments was still pending at June 30, 2023, the table above reflects measurement period adjustments made to various assets acquired and liabilities assumed based on updated information, and revisions to reflect the final fair value analysis associated with the two intangible assets. The corresponding offsets for these measurement period adjustments was goodwill.

The Company believes the amount of goodwill resulting from the purchase price allocation is primarily attributable to expected synergies from the assembled workforce, an increase in development capabilities, increased offerings to customers, expanded market opportunities, and enhanced opportunities for growth and innovation. Goodwill is not being amortized but instead is tested for impairment at least annually or more frequently if certain indicators of impairment are present. In the event that goodwill becomes impaired, the Company will record an expense for the amount impaired during the quarter in which the determination is made. The goodwill recorded is not deductible for income tax purposes.

The two identified definite lived intangible assets, comprised of customer relationships and developed technology, are being amortized over their estimated useful lives of ten and two years, respectively. The customer relationships intangible asset represents the estimated fair value of the underlying relationships with Intellibed customers, valued utilizing the multi-period excess earnings method. The developed technology intangible represents the fair value of Intellibed industry-specific cloud and mobile software and related technologies, valued using the cost to recreate method.

The cash, cash equivalents and restricted cash balance acquired included $1.7 million of cash deposited by Intellibed in a separate account pursuant to an escrow agreement with the Company that will end on August 31, 2023. The purpose of the escrow cash amount was to cover Intellibed’s estimated state income tax liabilities, sales tax liabilities and related filing expenses that existed prior to the acquisition date. If the actual liabilities are less than estimated, any excess cash will be returned to the previous shareholders of Intellibed. If payments for these items exceed the escrow balance, the Company will be required to pay the excess. The Company recorded the $1.7 million of cash on August 31, 2022 as an acquired restricted cash balance that is included in cash, cash equivalents and restricted cash in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. The Company also recorded on August 31, 2022, an assumed liability totaling $1.3 million for the sales and use tax and state and local income tax liabilities exposure that existed at the date of acquisition and was reflected in other current liabilities in the condensed consolidated balance sheet.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

5. Fair Value Measurements

The Company uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:

Level 1—Quoted market prices in active markets for identical assets or liabilities;

Level 2—Significant other observable inputs (i.e., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. Financial instruments, although not recorded at fair value on a recurring basis include cash and cash equivalents, receivables, accounts payable and the Company’s debt obligations. The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these accounts. The fair value of the Company’s debt instruments is estimated to be face value based on the contractual terms of the debt arrangements and market-based expectations.

The sponsor warrant liabilities (see Note 12 — Warrant Liabilities for more information) are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable inputs which required determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have had a significant impact on fair value. Such inputs included risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities generally decreased (increased) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities generally increased (decreased) in value if the expected average life or expected volatility were to increase (decrease). Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement.

There were no sponsor warrants outstanding on June 30, 2023 and the 1.9 million sponsor warrants outstanding on December 31, 2022 had a negligible fair value. As a result, activity for the six months ended June 30, 2023 was de minimis. The following table summarizes the Company’s total Level 3 liability activity for the six months ended June 30, 2022.

(In thousands)	Sponsor Warrants
Fair value as of December 31, 2021	$	4,343
Fair value of warrants exercised		—
Change in valuation inputs⁽¹⁾		(4,274	)
Fair value as of June 30, 2022	$	69

(1)	Changes in valuation inputs are recognized as the change in fair value – warrant liabilities in the condensed consolidated statement of operations.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

6. Revenue from Contracts with Customers

The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple owned retail showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations under the contract which involves transferring the promised products to the customer, subject to shipping terms.

Disaggregated Revenue

The Company classifies revenue into two sales categories: direct-to-consumer (“DTC”) and wholesale. The DTC category is comprised of the Company’s e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple owned retail showrooms channel that sells directly to consumers who purchase at a showroom location. The wholesale channel includes all product sales to our wholesale partners where consumers make purchases at their retail locations or through their online channels. The Company classifies products into two major types: sleep products and other. Sleep products include mattresses, platforms, adjustable bases, mattress protectors, pillows and sheets. Other products include cushions and various other products.

The following tables present the Company’s net revenue disaggregated by sales category and product type (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Sales Category	2023		2022		2023		2022
DTC	$	68,056	$	81,628	$	134,566	$	167,164
Wholesale		52,816		62,481		95,678		120,124
Revenues, net	$	120,872	$	144,109	$	230,244	$	287,288

	Three Months Ended June 30,				Six Months Ended June 30,
Product Type	2023		2022		2023		2022
Sleep products	$	108,296	$	131,738	$	207,131	$	260,704
Other		12,576		12,371		23,113		26,584
Revenues, net	$	120,872	$	144,109	$	230,244	$	287,288

Contract Balances

Payment for sale of products through the e-commerce online channel, third-party online retailers, Purple owned retail showrooms and contact center is collected at point of sale in advance of shipping the products. Amounts received for unshipped products are recorded as customer prepayments. Customer prepayments totaled $5.5 million and $4.5 million at June 30, 2023 and December 31, 2022, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized all revenue that was deferred in customer prepayments at December 31, 2023 and 2022, respectively.

7. Inventories, Net

Inventories, net consisted of the following (in thousands):

	June 30,			December 31,
	2023			2022
Raw materials	$	27,496		$	31,803
Work-in-process		6,834			2,261
Finished goods		45,596			40,476
Inventory obsolescence reserve		(1,524	)		(1,343	)
Inventories, net	$	78,402		$	73,197

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

8. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

	June 30,			December 31,
	2023			2022
Equipment	$	71,409		$	66,533
Equipment in progress		15,953			19,099
Leasehold improvements		57,969			56,114
Furniture and fixtures		26,939			26,290
Office equipment		3,884			4,393
Total property and equipment		176,154			172,429
Accumulated depreciation		(44,661	)		(35,756	)
Property and equipment, net	$	131,493		$	136,673

Equipment in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at June 30, 2023 or December 31, 2022. Interest capitalized on borrowings during the active construction period of major capital projects totaled $0.1 million and $0.5 million during the three and six months ended June 30, 2023, respectively and totaled $0.2 million and $0.4 million during the three and six months ended June 30, 2022, respectively. Depreciation expense was $4.9 million and $9.7 million during the three and six months ended June 30, 2023, respectively, and totaled $3.6 million and $7.1 million during the three and six months ended June 30, 2022, respectively.

9. Leases

The Company leases its manufacturing and distribution facilities, corporate offices, Purple owned retail showrooms and certain equipment under non-cancelable operating leases with various expiration dates through 2036. The Company’s office and manufacturing leases provide for initial lease terms up to 16 years, while Purple owned retail showrooms have initial lease terms of up to ten years. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s discretion. Any lease renewal options are included in the lease term if exercise is reasonably certain at lease commencement. The Company also leases vehicles and other equipment under both operating and finance leases with initial lease terms of three to five years. The right-of-use asset balances for finance leases, which totaled $0.9 million and $1.0 million at June 30, 2023 and December 31, 2022, respectively, were included with operating lease right-of-use assets on the condensed consolidated balance sheets.

The following table presents the Company’s lease costs (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating	$	4,620	$	3,690	$	9,505	$	6,838
Variable		1,204		409		2,177		1,123
Short-term		—		—		—		11
Total lease costs	$	5,824	$	4,099	$	11,682	$	7,972

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The table below reconciles the undiscounted cash flows for each of the first five years and total remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet at June 30, 2023 (in thousands):

2023 (excluding the six months ended June 30, 2023)^(a)	$	9,760
2024		20,779
2025		20,378
2026		19,173
2027		19,384
Thereafter		71,049
Total operating lease payments		160,523
Less – lease payments representing interest		(32,584	)
Present value of operating lease payments	$	127,939

(a)

Amount consists of $10.5 million of undiscounted cash flows offset by $0.8 million of tenant improvement allowances which are expected to be fully utilized in fiscal 2023.

As of June 30, 2023 and December 31, 2022, the weighted-average remaining term of operating leases was 8.4 years and 8.8 years, respectively, and the weighted-average discount rate of operating leases was 5.56% and 5.51%, respectively.

The following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2023 and 2022 (in thousands):

	Six Months Ended June 30,
	2023		2022
Cash paid for amounts included in present value of operating lease liabilities ^(b)	$	6,691	$	3,425
Right-of-use assets obtained in exchange for operating lease liabilities		3,518		25,029

(b)	Operating cash flows paid for operating leases are included within the change in other assets and liabilities within the Condensed Consolidated Statement of Cash Flows offset by non-cash right-of-use asset amortization and lease liability accretion.

10. Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

	June 30,		December 31,
	2023		2022
Warranty accrual – current portion	$	4,624	$	4,985
Insurance financing		1,086		1,010
Accrued sales tax liability assumed in acquisition		398		753
Accrued property taxes		408		28
Tax receivable agreement liability – current portion		—		269
Other		843		1,085
Total other current liabilities	$	7,359	$	8,130

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

11. Debt

Debt consisted of the following (in thousands):

	June 30,		December 31,
	2023		2022
Term loan	$	—	$	24,656
Less: unamortized debt issuance costs		—		(999	)
Total debt	$	—	$	23,657

Term Loan and Revolving Line of Credit

On September 3, 2020, Purple LLC entered into a financing arrangement with KeyBank National Association and a group of financial institutions (the “2020 Credit Agreement”). The 2020 Credit Agreement provided for a $45.0 million term loan and a $55.0 million revolving line of credit. The term loan was to be repaid in accordance with a five-year amortization schedule or prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility had a term of five years and carried the same interest provisions as the term debt. A commitment fee was due quarterly based on the applicable margin applied to the unused total revolving commitment. (See Note 21—Subsequent Events for information on the new asset-based lending arrangement entered into by the Company on August 7, 2023).

Pursuant to a Pledge and Security Agreement between Purple LLC, KeyBank and the Company (the “Security Agreement”), the 2020 Credit Agreement was secured by a perfected first-priority security interest in the assets of Purple LLC and the Company, including a security interest in all intellectual property. Also, the Company agreed to an unconditional guaranty of the payment of all obligations and liabilities of Purple LLC under the 2020 Credit Agreement. The Security Agreement contained a pledge, as security for the Company’s guaranty, of all its ownership interest in Purple LLC. The 2020 Credit Agreement also provided for standard events of default, such as for non-payment and failure to perform or observe covenants, and contained standard indemnifications benefitting the lenders.

The 2020 Credit Agreement included representations, warranties and certain covenants of Purple LLC and the Company. Under the 2020 Credit Agreement, Purple LLC was subject to several affirmative and negative covenants, including covenants regarding dispositions of property, investments, forming or acquiring subsidiaries, business combinations or acquisitions, incurrence of additional indebtedness, and transactions with affiliates, among other customary covenants, subject to certain exceptions. In particular, Purple LLC was (i) subject to annual capital expenditure limits that can be adjusted based on the Company achieving certain net leverage ratio thresholds as provided in the 2020 Credit Agreement, (ii) restricted from incurring additional debt up to certain amounts, subject to limited exceptions, as set forth in the 2020 Credit Agreement, and (iii) required to maintain minimum consolidated net leverage and fixed charge coverage ratio thresholds at certain measurement dates (as defined in the 2020 Credit Agreement). Purple LLC was also restricted from paying dividends or making other distributions or payments on its capital stock, subject to limited exceptions. If the Company or Purple LLC failed to perform their obligations under these and other covenants, or if any event of default had occurred, the revolving loan commitments under the 2020 Credit Agreement could have been terminated and any outstanding borrowings, together with accrued interest, could have been declared immediately due and payable.

The Company’s operating and financial results for the year ended December 31, 2021 did not satisfy the financial and performance covenants required under the 2020 Credit Agreement. On February 28, 2022, prior to the covenant compliance certification date, the Company entered into the first amendment of the 2020 Credit Agreement to avoid a breach of these covenants and potential default. Pursuant to this amendment, the Company incurred fees and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance sheet and made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 – Debt. This amendment contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio were not tested for the fiscal quarters ended December 31, 2021, March 31, 2022 and June 30, 2022. Other modifications in the amendment included revised leverage ratio and fixed charge coverage definitions and thresholds, the addition of minimum liquidity requirements with mandatory prepayments of the revolving loan if cash exceeded $25.0 million, new weekly and monthly reporting requirements, limits on the amount of capital expenditures, the addition of a lease incurrence test for opening additional showrooms, and additional negative covenants during a covenant amendment period that extends into 2023 until certain conditions are met. In addition, the interest rate on any outstanding borrowings under the 2020 Credit Agreement was changed from LIBOR with a floor of 0.5% plus an applicable margin (historically at 3.0%) to an initial rate of SOFR with a floor of 0.5% plus an applicable margin of 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met. If the Company did not meet this threshold, the interest rate would have increased to SOFR with a floor of 0.5% plus 9.00%. Once the Company achieved a consolidated leverage ratio that was below 3.00 to 1.00, the interest rate would have been based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

On March 23, 2022, the Company entered into a second amendment to the 2020 Credit Agreement. This amendment modified the 2020 Credit Agreement to allow Coliseum Capital Management, LLC, on behalf of its funds, managed accounts and its investment affiliates (individually “CCM” and collectively “Coliseum”) to acquire 35% or more of the combined voting power of all equity interests of the Company entitled to vote for the election of members of the Company’s board of directors (“Board”) without constituting an event of default. Coliseum is considered a related party of the Company in that Adam Gray, a member of our board of directors, serves as a managing partner of Coliseum. Pursuant to the second amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $0.4 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The Company accounted for this amendment as a modification of existing debt in accordance with ASC 470 – Debt. For further discussion see Note 15—Related Party Transactions—Coliseum Capital Management, LLC.

On May 13, 2022 and September 9, 2022, the Company entered into third and fourth amendments, respectively, to the 2020 Credit Agreement. These amendments modified the permitted leases schedule to reflect a change in showroom locations and a new lease for an innovation building. The amendments did not meet the criteria for a modification of existing debt and minimal costs were recorded as general and administrative expense in the condensed consolidated statement of operations.

On July 14, 2022, the Company received consent under the 2020 Credit Agreement that allowed the Company’s acquisition of Intellibed to constitute a permitted acquisition under the 2020 Credit Agreement. The Company incurred fees and expenses of $0.3 million that were recorded as general and administrative expense in the condensed consolidated statement of operations.

In December 2022, the Company made a $15.0 million prepayment against the outstanding term loan balance without payment of a premium or penalty.

On February 17, 2023, the Company entered into a fifth amendment to the 2020 Credit Agreement. As a condition of entering into the amendment, the Company repaid the $24.7 million outstanding balance on the term loan plus accrued interest. The amendment provided that the maximum leverage ratio covenant would not be tested for the first and second quarters of 2023, revised the ratio to 4.50x for the third quarter of 2023, and revised the ratio to 3.00x for all quarters thereafter. In addition, the minimum fixed charge coverage ratio covenant was not to be tested for the first and second quarters of 2023, was revised to 1.50x for the third and fourth quarters of 2023, and was revised to 2.00x for all quarters thereafter. The amendment also revised the lease incurrence test, which allowed the Company to incur ten new showroom leases for stores that would open in 2023 and six new leases for stores that would open in 2024. Moreover, beginning in the fourth quarter of 2023, we would have been allowed to begin entering into new leases for stores that would open in 2024, subject to leverage ratio requirements. The leverage ratio was to be less than 2.50x to sign leases, with up to a maximum of six new leases per quarter, increasing to eight new leases per quarter if the leverage ratio is less than 2.00x. The amendment further provided certain minimum consolidated EBITDA covenants for the first and second quarters of 2023 based on total unrestricted cash and unused revolver availability. The amendment also modified the definition of consolidated EBITDA to allow for nonrecurring / one-time and non-cash expenses and certain other expenses that are cash capped. In addition, for purposes of the definition of consolidated EBITDA, annual non-recurring and unusual out-of-pocket legal expenses were capped at $5.0 million for 2023 and $2.0 million per year thereafter. Moreover, the amendment (i) reduced the amount available under the revolving line of credit to $50.0 million, (ii) provided that the maturity date of the 2020 Credit Agreement would spring forward to June 30, 2024 if consolidated EBITDA was not greater than $15.0 million for 2023, (iii) reduced limits on maximum growth capital expenditures to $32.0 million for 2023 and $35.0 million for 2024 and 2025, and (iv) revised the current minimum liquidity covenant of $25.0 million to provide that it would increase to $30.0 million for each three-month period following the applicable fiscal quarter if the leverage ratio was greater than 3.00x for any fiscal quarter ending on or after the third quarter of 2023. Pursuant to this amendment, the Company incurred fees and expenses of $2.9 million that were recorded as debt issuance costs in the condensed consolidated balance sheet. The amendment was accounted for as an extinguishment of debt and $1.2 million of unamortized debt issuance costs related to the term loan were recorded as loss on extinguishment of debt in the condensed consolidated statement of operations.

On April 26, 2023, the Company received consent under the 2020 Credit Agreement that allowed the Company’s redemption of Proportional Representation Preferred Linked Stock (“PRPLS”) issued by the Company on February 24, 2023, in an aggregate amount not to exceed $0.2 million as agreed by the Company in an April 19, 2023 Cooperation Agreement (the “Cooperation Agreement”) entered into with Coliseum in connection with a complaint filed by Coliseum against the Company, and a waiver of any possible default related to entering into that Cooperation Agreement prior to receiving such consent. (See Note 15—Related Party Transactions—Coliseum Capital Management, LLC for information regarding the complaint previously filed by Coliseum, for information regarding events leading up to the Company’s issuance of the PRPLS, and for information regarding terms of the Cooperation Agreement and redemption of the PRPLS.)

On May 10, 2023, the Company entered into a sixth amendment to the 2020 Credit Agreement. This amendment clarified an ambiguity identified in the first sentence of Section 7.07(d), as amended by the fifth amendment, which provided that Minimum Consolidated EBITDA as of each of March 31, 2023 and June 30, 2023 pertained to Consolidated EBITDA for each such fiscal quarter rather than Consolidated EBITDA for the trailing twelve-month period.

PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Interest expense under the 2020 Credit Agreement totaled $0.5 million and $1.1 million for the three and six months ended June 30, 2023, respectively, and totaled $0.9 million and $2.0 million for the three and six months ended June 30, 2022, respectively.

12. Warrant Liabilities

The Company issued 12.8 million sponsor warrants pursuant to a private placement conducted simultaneously with its initial public offering. Each of these warrants entitled the registered holder to purchase one-half of one share of the Company’s Class A common stock at a price of $5.75 per half share ($11.50 per full share), subject to adjustment pursuant to the terms of the warrant agreement. These sponsor warrants contained certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for these warrants was recorded at fair value on the date of the Business Combination and subsequently re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings.

Unexercised sponsor warrants totaling 1.9 million expired in February 2023 and were cancelled pursuant to the terms of the warrant agreement. These sponsor warran

SEC Form 10-Q filed by Purple Innovation Inc.