Purple(PRPL) - 2024 Q4 - Annual Report

Part I Business Purple Innovation, Inc. is an omni-channel comfort product company leveraging proprietary Hyper-Elastic Polymer® technology, operating through DTC and wholesale channels, with a 2024 restructuring to consolidate manufacturing - The company's mission is to deliver innovative comfort solutions using its proprietary and patented Hyper-Elastic Polymer gel technology[19][20] - As of December 31, 2024, the company operated 58 Purple showrooms, with plans for future expansion despite a slight decrease from 2023[25] - In August 2024, the company initiated a Restructuring Plan to consolidate mattress production into its Georgia plant, expected to be completed in Q2 2025[49] Revenue Channel Distribution (2022-2024) | Channel | 2024 Net Revenue % | 2023 Net Revenue % | 2022 Net Revenue % | | :--- | :--- | :--- | :--- | | Direct-to-Consumer (DTC) | 58.1% | 58.1% | 57.7% | | Wholesale | 41.9% | 41.9% | 42.3% | Industry and Competition The sleep products industry, marked by e-commerce disruption and consolidation, sees Purple differentiate through its Hyper-Elastic Polymer technology and new mattress collections, including a planned Rejuvenate re-launch in Q2 2025 - The U.S. sleep product industry has undergone significant consolidation and vertical integration[29] - In Q2 2023, Purple launched three mattress collections (Essentials, Restore, Rejuvenate), with a Rejuvenate 2.0 re-launch planned for Q2 2025[30] - Key competitive factors include comfort, product features, logistics, marketing, brand differentiation, innovation pace, and price[33] Competitive Strengths Purple's competitive advantage lies in its proprietary Hyper-Elastic Polymer technology, offering superior comfort benefits, protected by a strong intellectual property portfolio and proprietary manufacturing processes - The company's core differentiator is its proprietary Hyper-Elastic Polymer technology, offering unique benefits in pressure relief, temperature neutrality, responsiveness, and durability[34] - Purple holds hundreds of patents and patent filings covering its products and manufacturing equipment, creating a strong competitive advantage[34] Growth Strategies Purple's growth strategy focuses on balanced omni-channel distribution, vertical integration, pioneering new technologies like DreamLayer grid for Rejuvenate 2.0, product differentiation marketing, and gross margin improvements - The company is pursuing a balanced omni-channel strategy, expanding its presence in wholesale retail partners and its own showrooms[36] - A key focus is pioneering new technologies, such as the new DreamLayer grid, featured in the Rejuvenate 2.0 collection launching in Q2 2025[36] - The company aims to improve gross margins through cost savings from plant consolidation, supplier diversification, and ramping up in-house pillow production[36] Our Products Purple offers a comprehensive comfort product portfolio, including mattresses across three collections featuring patented Gelflex Grid technology, eight pillow models, and complementary items like sheets, protectors, bases, and cushions - The mattress lineup includes three collections (Restore, Rejuvenate, Essentials) launched in 2023, all utilizing patented Gelflex Grid technology and backed by a 100-night trial and 10-year warranty[37] - The company sells eight pillow models, including the new Purple Freeform™ Pillow and Purple DreamLayer™ Pillow[37] - The product ecosystem extends to complementary items like SoftStretch sheets, a waterproof mattress protector, adjustable bases, and seat cushions[37] Human Capital As of March 7, 2025, Purple employed approximately 1,200 people, with a 2025 human resources strategy focused on talent, organizational performance, competitive compensation, and employee recognition - As of March 7, 2025, the company had approximately 1,200 employees across various functions[64] - The 2025 people strategy focuses on talent, organizational performance, competitive pay and benefits, and employee recognition[64] Executive Officers This section lists seven executive officers, including the CEO and CFO, providing detailed biographies outlining their professional experience and tenure with the company Executive Officers | Name | Age | Title | | :--- | :--- | :--- | | Robert T. DeMartini | 63 | Director, Chief Executive Officer | | Todd E. Vogensen | 56 | Chief Financial Officer and Treasurer | | Tricia S. McDermott-Spikes | 53 | Chief Legal Officer and Secretary | | Eric S. Haynor | 61 | Chief Operating Officer | | Jeffrey L. Hutchings | 58 | Chief Innovation Officer | | Jeffery S. Kerby | 56 | Chief of Owned Retail Officer | | John J. Roddy IV | 57 | Chief People Officer | Risk Factors The company faces significant operational, financial, and regulatory risks, including indebtedness, funding needs, restructuring plan execution, stockholder influence, competitive pressures, intellectual property protection, and potential NASDAQ delisting Risks Relating to Our Business and Our Operations The company faces operational and financial risks from significant indebtedness, potential funding needs, challenges in its 2024 Restructuring Plan, substantial influence from Coliseum Capital, intense competition, and reliance on key suppliers - The company's indebtedness imposes restrictive covenants and substantial make-whole prepayment obligations, potentially limiting operational flexibility[82][85] - The company has experienced recurring operating losses and negative cash flows of $18.0 million from operations in 2024, potentially requiring additional funding on uncertain terms[86] - Coliseum Capital Management, LLC is the largest stockholder and primary lender, beneficially owning approximately 49.9% of common stock, exerting substantial influence over the company[94][95] - The 2024 Restructuring Plan may not realize intended benefits, could exceed cost estimates, and may lead to loss of experienced employees and productivity[91] Regulatory and Litigation Risks Purple is subject to extensive U.S. regulations, including costly fire retardancy standards and evolving e-commerce sales tax laws, alongside potential litigation risks from product liability, employment, or intellectual property claims - The company's products are subject to numerous regulations, including CPSC fire retardancy standards, requiring costly compliance and risking recalls or fines[128] - The company is subject to complex and evolving e-commerce sales tax laws, with non-compliance potentially resulting in substantial tax liabilities[129] - The company may be involved in legal proceedings, where adverse outcomes or associated publicity could harm its reputation and financial condition[131] Risks Relating to our Intellectual Property The company's success depends on protecting its intellectual property, facing risks from infringement, counterfeiting, and potential claims of infringing others' rights, alongside a license agreement restricting EU sales - The company's competitive position relies on protecting its intellectual property, but faces risks from counterfeiting and infringement, requiring significant enforcement resources[132][133] - The company may face intellectual property infringement claims, potentially leading to costly litigation, injunctions, or product design alterations[134] - A prior license agreement with EdiZONE, LLC grants exclusivity for an earlier technology, potentially preventing certain mattress sales in the European Union[135] Risks Relating to our Common Stock The company's common stock faces risks including potential NASDAQ delisting, high volatility, anti-takeover provisions, and substantial dilution from future equity issuances and warrant exercises - The company's stock risks NASDAQ delisting if it fails to maintain the minimum $1.00 per share bid price[136] - A change of control would trigger an immediate $131.1 million lump-sum payment under the Tax Receivable Agreement, potentially discouraging acquisition[142] - Stockholders may experience substantial dilution from the exercise of 26.2 million outstanding warrants and potential future equity or convertible debt issuances[147][148] Tax Risks Relating to our Structure The company faces significant tax risks, including a $169.0 million Tax Receivable Agreement liability and potential limitations on its $310.7 million NOL carryforwards due to ownership changes, despite protective measures - The Tax Receivable Agreement creates a potential liability of $169.0 million (as of Dec 31, 2024), requiring payment of 80% of certain tax benefits to founders upon profitability[153] - The company's ability to use its approximately $310.7 million in Net Operating Loss (NOL) carryforwards may be limited by an "ownership change" under Section 382[155][156] - The NOL Rights Plan and Protective Charter Amendment, designed to protect NOLs, may have an anti-takeover effect and adversely impact common stock value[162][164] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Cybersecurity Risk Management, Strategy, and Governance The company manages cybersecurity risks through a program led by management and overseen by the Audit Committee, reporting no material breaches in 2024 - The company did not identify any cybersecurity breaches in 2024 that materially affected its business, operations, or financial condition[168] - Cybersecurity oversight is assigned to the Audit Committee of the Board, which receives regular reports from management on risk management, strategy, and incidents[172] - Management, led by the Chief Technology Officer and Senior Director of Cybersecurity, is responsible for the cybersecurity risk management program, including external expert engagement and third-party risk oversight[169][170] Properties As part of its 2024 Restructuring Plan, Purple is consolidating manufacturing into its 844,000 sq. ft. Georgia facility, while maintaining leased innovation, corporate, and distribution centers, and 58 showrooms across the U.S - The company is consolidating mattress production into its 844,000 sq. ft. Georgia manufacturing facility, closing two Utah facilities as part of its Restructuring Plan[173] - As of December 31, 2024, the company leased 58 Purple showrooms, with significant concentrations in California and Texas[173] - The company leases its corporate headquarters in Lehi, Utah (30,000 sq. ft.) and an innovation center in Draper, Utah (61,000 sq. ft.)[173] Legal Proceedings The company is involved in multiple legal proceedings, including founder lawsuits, a settled marketing class action, and ongoing class actions related to wage claims, website accessibility, and its NOL Rights Plan - The company is engaged in multiple lawsuits with its founders over employment agreements, tax distributions, and a lease termination[458][459][461] - A class action lawsuit alleging unlawful marketing and pricing practices was settled in July 2024[460] - The company is defending against ongoing class action lawsuits related to California employee wage claims, website accessibility, and its NOL Rights Plan[462][526][527] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Purple's Class A Common Stock trades on NASDAQ under "PRPL", has not paid dividends, and has significantly underperformed market indices over five years, with recent unregistered warrant issuances to lenders - The company's Class A Common Stock is listed on NASDAQ under the symbol "PRPL"[178] - The company has never paid cash dividends on its common stock and does not anticipate declaring any in the foreseeable future[179] - In January 2024 and March 2025, the company issued unregistered warrants to purchase 20.0 million and 6.2 million shares to its lenders in connection with debt financing[182] Comparative 5-Year Cumulative Total Return | | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | 12/31/23 | 12/31/24 | |---|---|---|---|---|---|---| | Purple Innovation, Inc. | $100.00 | $378.19 | $152.35 | $54.99 | $11.83 | $8.96 | | S&P 500 Home Furnishings Index | $100.00 | $96.04 | $109.06 | $61.16 | $61.96 | $71.32 | | The NASDAQ Stock Market (U.S.) Index | $100.00 | $143.64 | $174.36 | $116.65 | $167.30 | $215.22 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, net revenues decreased to $487.9 million, but gross margin improved to 37.1%, and net loss narrowed to $97.9 million, driven by restructuring, debt refinancing, and strategic growth initiatives Recent Developments in Our Business Recent developments include the August 2024 Restructuring Plan incurring $36.4 million in charges, debt refinancing with $61.0 million term loan and warrant issuances, and the Board's formation of a special committee to explore strategic alternatives - In August 2024, the company initiated a Restructuring Plan, resulting in $36.4 million of charges in 2024, with an additional $4.6 million expected through Q2 2025[191] - On January 23, 2024, the company borrowed $61.0 million under an Amended and Restated Credit Agreement, with an additional $19.0 million borrowed on March 12, 2025[193][195] - In connection with debt financings, the company issued warrants to purchase 20.0 million shares in January 2024 and 6.2 million shares in March 2025[196][197] - The Board has formed a special committee of independent directors to evaluate indications of interest and explore potential strategic alternatives[201] Results of Operations (2024 vs. 2023) In 2024, net revenues decreased by 4.4% to $487.9 million, while gross profit increased to $181.1 million (37.1% margin), and net loss narrowed to $97.9 million, driven by operational efficiencies and reduced expenses Consolidated Results of Operations (2024 vs. 2023) | Metric | 2024 (in millions) | 2023 (in millions) | Change % | | :--- | :--- | :--- | :--- | | Revenues, net | $487.9 | $510.5 | -4.4% | | Gross profit | $181.1 | $171.8 | +5.4% | | Gross Margin % | 37.1% | 33.7% | +3.4 pts | | Operating loss | $(92.2) | $(113.7) | -18.9% | | Net loss attributable to Purple Inc. | $(97.9) | $(120.8) | -19.0% | - DTC net revenues decreased by $13.0 million (4.4%), and wholesale net revenues decreased by $9.6 million (4.5%) in 2024 compared to 2023[220] - Marketing and sales expense decreased by $11.1 million (6.1%) in 2024, primarily due to a $7.2 million reduction in advertising spend[222] - General and administrative expense decreased by $15.3 million (18.2%), mainly due to $11.3 million of non-recurring legal and professional costs incurred in 2023[223] Liquidity and Capital Resources As of December 31, 2024, cash and cash equivalents were $29.0 million; management concluded sufficient liquidity for at least one year, supported by recent financing and cost-saving initiatives despite a $97.9 million net loss Key Liquidity Metrics (as of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $29.0 million | $26.9 million | | Working capital | $25.4 million | $30.8 million | - The company concluded it has sufficient liquidity for at least one year from the report's issuance date, supported by recent financing and cost-saving measures[234][236] - In March 2025, the company received an additional $19.0 million in term loan proceeds to bolster its liquidity position[234] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from its $70.7 million variable-rate debt, where a 100 basis point increase would raise annual interest expense by approximately $0.7 million - The company is exposed to interest rate risk from its $70.7 million variable-rate debt as of December 31, 2024[244] - A 100 basis point increase in interest rates would result in an approximate $0.7 million increase in annual interest expense[244] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2024, including the auditor's report, balance sheets, statements of operations, equity, cash flows, and notes - This section includes the full set of audited consolidated financial statements and related notes for the fiscal years ended December 31, 2024, 2023, and 2022[246][247] - The independent auditor, BDO USA, P.C., issued an opinion that the financial statements present fairly the company's financial position and results of operations[292] - The auditor's report identified the estimation of accrued warranty liabilities as a critical audit matter due to subjective judgment in determining future claim rates and costs[298] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2024, having remediated a previously reported material weakness related to wholesale contracts and warranty obligations - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[251] - A previously reported material weakness concerning wholesale customer contracts and warranty liabilities was remediated as of June 30, 2024[256][257] - There were no material changes in internal control over financial reporting during the fourth quarter of 2024[258] Other Information This section details post-fiscal year-end events, including special incentive equity grants, amended bonus payments with accelerated vesting upon change of control, and the departure of the Chief Marketing Officer - On March 12, 2025, the Board approved special incentive bonus equity grants of restricted stock units to senior leadership[261] - On March 12, 2025, special recognition bonus payments for senior leadership and the CEO were amended to accelerate vesting upon a change in control[263][265] - Chief Marketing Officer Keira Krausz departed the company on March 11, 2025[266] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company's operations - Not applicable Part III Directors, Executive Officers and Corporate Governance Information for this item, except executive officers detailed in Part I, is incorporated by reference from the company's definitive proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement[270] Executive Compensation Information required for this item is incorporated by reference from the company's definitive proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement[271] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item is incorporated by reference from the company's definitive proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement[272] Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's definitive proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement[273] Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's definitive proxy statement - Information required by this item is incorporated by reference from the company's definitive proxy statement[274] Part IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including consolidated financial statements and a detailed index of various exhibits - This item provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[277][279] Form 10-K Summary This item indicates that a summary of the Form 10-K is provided, though its content is not detailed in the table of contents - This item is listed in the Table of Contents, but no content is provided under this heading in the document body[287]