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 March 31, 2021

☐ 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)		(IRS Employer Identification No.)

4100 NORTH CHAPEL RIDGE ROAD, SUITE 200

LEHI, UTAH 84043

(Address of principal executive offices, including zip code)

(801) 756-2600

(Registrant’s telephone number, including area code)

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ 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 þ
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 þ

As of May 14, 2021, 66,302,767 shares of the registrant’s Class A common stock, $0.0001 par value per share, and 448,279 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 Income	2
		Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	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	28
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
	Item 4.	Controls and Procedures	35

Part II.	Other Information		36
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 6.	Exhibits	38
	Signatures		39

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, including EquaPressure®, WonderGel® and EquaGel® (for cushions), and Purple®, No Pressure®, Hyper-Elastic Polymer®, Somnigel®, and Gel Matrix® (for plasticized elastomeric gel and certain types of products including mattresses, seat cushions, bed linen, mattress foundation and others). Additional registered trademarks include Purple Grid®, The Purple Mattress®, Purple Hybrid®, and Purple Hybrid Premier®. 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 Harmony™, Purple Harmony Pillow™, Harmony Pillow™, Purple +™, Purple Plus™, Find Comfort™, Dreams On Dreams™, Reinventing Comfort™, Gelflex™, Ascent™, Purple Ascent™, Comfort Reinvented™, Softstretch™, Purple Powerbase™, 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™.

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PURPLE INNOVATION, INC.

Condensed Consolidated Balance Sheets

(unaudited – in thousands, except for par value)

	March 31, 2021			December 31, 2020

Assets
Current assets:
Cash and cash equivalents	$	103,815		$	122,955
Accounts receivable, net		41,618			29,111
Inventories, net		63,282			65,726
Prepaid inventory		1,337			826
Other current assets		7,772			10,453
Total current assets		217,824			229,071
Property and equipment, net		73,831			61,486
Operating lease right-of-use assets		52,972			41,408
Intangible assets, net		10,251			9,945
Deferred income taxes		210,380			211,244
Other long-term assets		1,510			1,578
Total assets	$	566,768		$	554,732

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	60,269		$	69,594
Accrued sales returns		8,280			8,428
Accrued compensation		9,774			14,209
Customer prepayments		7,901			6,253
Accrued sales tax		3,930			6,015
Accrued rebates and allowances		5,564			10,891
Operating lease obligations – current portion		3,632			3,235
Other current liabilities		15,318			13,583
Total current liabilities		114,668			132,208
Debt, net of current portion		40,906			41,410
Operating lease obligations, net of current portion		60,948			48,936
Warrant liabilities		19,415			92,708
Tax receivable agreement liability, net of current portion		166,029			165,426
Other long-term liabilities, net of current portion		7,261			6,503
Total liabilities		409,227			487,191
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A common stock; $0.0001 par value, 210,000 shares authorized; 66,303 issued and outstanding at March 31, 2021 and 63,914 issued and outstanding at December 31, 2020		7			6
Class B common stock; $0.0001 par value, 90,000 shares authorized; 448 issued and outstanding at March 31, 2021 and 536 issued and outstanding at December 31, 2020		—			—
Additional paid-in capital		401,842			333,047
Accumulated deficit		(245,032	)		(265,856	)
Total stockholders’ equity		156,817			67,197
Noncontrolling interest		724			344
Total stockholders’ equity		157,541			67,541
Total liabilities and stockholders’ equity	$	566,768		$	554,732

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

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Income

(unaudited – in thousands, except per share amounts)

	Three Months Ended March 31,
	2021			2020

Revenues, net	$	186,429		$	122,375
Cost of revenues		98,905			69,193
Gross profit		87,524			53,182
Operating expenses:
Marketing and sales		54,368			36,684
General and administrative		14,526			7,548
Research and development		1,723			1,445
Total operating expenses		70,617			45,677
Operating income		16,907			7,505
Other income (expense):
Interest expense		(570	)		(1,389	)
Other income (expense), net		(68	)		90
Tax receivable agreement income (expense)		174			(122	)
Change in fair value – warrant liabilities		9,147			21,633
Total other income, net		8,683			20,212
Net income before income taxes		25,590			27,717
Income tax benefit (expense)		(4,651	)		284
Net income		20,939			28,001
Net income attributable to noncontrolling interest		115			11,166
Net income attributable to Purple Innovation, Inc.	$	20,824		$	16,835

Net income per share:
Basic	$	0.32		$	0.74
Diluted	$	0.17		$	0.43
Weighted average common shares outstanding:
Basic		64,592			22,675
Diluted		68,372			25,327

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

PURPLE INNOVATION, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(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, 2020		63,914	$	6		536		$	—	$	333,047		$	(265,856	)	$	67,197		$	344	$	67,541
Net income		—		—		—			—		—			20,824			20,824			115		20,939
Stock-based compensation		—		—		—			—		479			—			479			—		479
Exchange of stock		88		—		(88	)		—		—			—			—			—		—
Exercise of warrants		2,291		1		—			—		64,261			—			64,262			—		64,262
Exercise of stock options		10		—		—			—		83			—			83			—		83
Tax receivable agreement liability		—		—		—			—		(777	)		—			(777	)		—		(777	)
Deferred income taxes		—		—		—			—		971			—			971			—		971
Accrued distributions		—		—		—			—		(99	)		—			(99	)		—		(99	)
Innohold indemnification payment		—		—		—			—		4,142			—			4,142			—		4,142
Impact of transactions affecting NCI		—		—		—			—		(265	)		—			(265	)		265		—
Balance – March 31, 2021		66,303	$	7		448		$	—	$	401,842		$	(245,032	)	$	156,817		$	724	$	157,541

	Class A				Class B					Additional						Total
	Common Stock				Common Stock					Paid-in			Accumulated			Stockholders’			Noncontrolling			Total
	Shares		Par Value		Shares			Par Value		Capital			Deficit			Deficit			Interest			Deficit

Balance – December 31, 2019		22,494	$	2		31,394		$	3	$	2,822		$	(28,989	)	$	(26,162	)	$	(2,378	)	$	(28,540	)
Net income		—		—		—			—		—			16,835			16,835			11,166			28,001
Stock-based compensation		3		—		—			—		250			—			250			—			250
Exchange of stock		1,124		—		(1,124	)		—		—			—			—			—			—
Exercise of warrants		1		—		—			—		17			—			17			—			17
Tax Receivable Agreement Liability		—		—		—			—		(221	)		—			(221	)		—			(221	)
Accrued distributions		—		—		—			—		(196	)		—			(196	)		—			(196	)
Impact of transactions affecting NCI		—		—		—			—		120			—			120			(120	)		—
Balance – March 31, 2020		23,622	$	2		30,270		$	3	$	2,792		$	(12,154	)	$	(9,357	)	$	8,668		$	(689	)

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)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	20,939		$	28,001
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,549			1,778
Non-cash interest		129			1,375
Change in fair value – warrant liabilities		(9,147	)		(21,633	)
Tax receivable agreement (income) expense		(174	)		122
Stock-based compensation		479			250
Non-cash lease expense		953			682
Deferred income taxes		1,835			—
Changes in operating assets and liabilities:
Accounts receivable		(12,507	)		5,422
Inventories		2,444			5,516
Prepaid inventory and other assets		2,109			(2,399	)
Accounts payable		(10,408	)		(13,217	)
Accrued sales returns		(148	)		(534	)
Accrued compensation		(4,435	)		(801	)
Customer prepayments		1,648			(2,720	)
Accrued rebates and allowances		(5,327	)		(2,172	)
Operating lease obligations		(

SEC Form 10-Q filed by Purple Innovation, Inc.