UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
FOR
THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
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 | ||
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.
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).
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.
| ☑ | 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 ☐
As of May 9, 2022,
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 | 29 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 37 | ||
| Item 4. | Controls and Procedures | 37 | ||
| Part II. | Other Information | 39 | ||
| Item 1. | Legal Proceedings | 39 | ||
| Item 1A. | Risk Factors | 39 | ||
| Item 6. | Exhibits | 40 | ||
| Signatures | 41 | |||
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®, 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 Sleep™, 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™.
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.
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PURPLE INNOVATION, INC.
Condensed Consolidated Balance Sheets
(unaudited – in thousands, except for par value)
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Deferred income taxes | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued sales returns | ||||||||
| Accrued compensation | ||||||||
| Customer prepayments | ||||||||
| Accrued sales tax | ||||||||
| Accrued rebates and allowances | ||||||||
| Operating lease obligations – current portion | ||||||||
| Warrant liabilities | — | |||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Debt, net of current portion | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Warrant liabilities | — | |||||||
| Tax receivable agreement liability, net of current portion | ||||||||
| Other long-term liabilities, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Class A common stock; $ | ||||||||
| Class B common stock; $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
PURPLE INNOVATION, INC.
Condensed Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues, net | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Marketing and sales | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Operating income (loss) | ( | ) | ||||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income (expense), net | ( | ) | ||||||
| Tax receivable agreement benefit | — | |||||||
| Change in fair value – warrant liabilities | ||||||||
| Total other income, net | ||||||||
| Net income (loss) before income taxes | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Net income (loss) attributable to noncontrolling interest | ( | ) | ||||||
| Net income (loss) attributable to Purple Innovation, Inc. | $ | ( | ) | $ | ||||
| Net income (loss) per share: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
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, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||||||
| Issuance of stock upon secondary offering, net of costs | ||||||||||||||||||||||||||||||||||||
| Accrued distributions | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Impact of transactions affecting NCI | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Exchange of stock | ( | ) | ||||||||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||
| Tax receivable agreement liability | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Deferred income taxes | — | — | ||||||||||||||||||||||||||||||||||
| Accrued distributions | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| InnoHold indemnification payment | — | — | ||||||||||||||||||||||||||||||||||
| Impact of transactions affecting NCI | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PURPLE INNOVATION, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited – in thousands)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash interest | ||||||||
| Change in fair value – warrant liabilities | ( | ) | ( | ) | ||||
| Tax receivable agreement benefit | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued sales returns | ( | ) | ( | ) | ||||
| Accrued compensation | ( | ) | ||||||
| Customer prepayments | ( | ) | ||||||
| Accrued rebates and allowances | ( | ) | ( | ) | ||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Other accrued liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Investment in intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments on term loan | ( | ) | ( | ) | ||||
| Payments on revolving line of credit | ( | ) | ||||||
| Payments for debt issuance costs | ( | ) | ||||||
| Proceeds from secondary stock offering | ||||||||
| Payments for secondary stock offering costs | ( | ) | ||||||
| Proceeds from InnoHold indemnification payment | ||||||||
| Tax receivable agreement payments | ( | ) | ( | ) | ||||
| Distributions to members | ( | ) | ||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of the year | ||||||||
| Cash and cash equivalents, end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest, net of amounts capitalized | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Property and equipment included in accounts payable | $ | $ | ||||||
| Non-cash leasehold improvements | $ | $ | ||||||
| Accrued tax distributions | $ | $ | ||||||
| Tax receivable agreement liability | $ | $ | ||||||
| Deferred income taxes | $ | $ | ||||||
| Exercise of warrant liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PURPLE INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization
The Company’s mission is to improve the lives of our consumers by delivering innovative better sleep solutions.
Purple Innovation, Inc. collectively with its subsidiary (the “Company” or “Purple Inc.”) is 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 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.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The
condensed consolidated financial statements include the accounts of Purple Inc. and its controlled subsidiary Purple LLC. All intercompany
balances and transactions have been eliminated in consolidation. As of March 31, 2022, Purple Inc. held approximately
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, 2021. 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 months ended March 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 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 March 31, 2022, Purple Inc. had approximately a
5
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 doubtful accounts, valuation of inventories, sales returns, warranty returns, 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.
Restructuring Charges
In February 2022, because
of lower-than-expected demand and higher labor and overhead costs that adversely affected our results of operations in the fourth quarter
of 2021 which continued into the first quarter of 2022, the Company completed a restructuring of its workforce to improve efficiencies
and realign the Company’s cost structure to focus on quality of earnings in our current core business. As a result of the realignment
and restructuring, the Company reduced employee headcount and incurred severance charges of $
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. This standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022, when the reference rate replacement activity is expected to be completed. The Company plans to apply the guidance in this update to account for any contract modifications that result from changes in the reference rate used. The Company does not expect this guidance to have a material impact on its condensed consolidated financial statements and related disclosures. The interest rates on the Company’s term loan and revolving line of credit were based on LIBOR. In February 2022, the Company entered into an amendment to the 2020 Credit Agreement that changed the interest reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The change to SOFR did not have any impact on the Company’s condensed consolidated financial statements – see Note 10—Debt for discussion of the amendment to the 2020 Credit Agreement.
6
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the impact of this standard on its accounts receivable, cash and cash equivalents, and any other financial assets measured at amortized cost and do not expect that adoption will have a material impact on its consolidated financial statements or related disclosures.
3. Secondary Offering
In March 2022, the Company
completed a secondary offering of
4. 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.
7
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 11 — Warrant Liabilities for more information) are Level 3 instruments and use internal models to estimate fair value using certain significant unobservable inputs which requires determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities generally decrease (increase) 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 increase (decrease) in value if the expected average life or expected volatility were to increase (decrease).
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| (In thousands) | Level | March 31, 2022 | December 31, 2021 | |||||||||
| Sponsor warrants | 3 | $ | $ | |||||||||
The following table summarizes the Company’s total Level 3 liability activity for the three months ended March 31, 2022 and 2021:
| (In thousands) | Sponsor Warrants | |||
| Fair value as of December 31, 2021 | $ | |||
| Fair value of warrants exercised | ||||
| Change in valuation inputs(1) | ( | ) | ||
| Fair value as of March 31, 2022 | $ | |||
| Fair value as of December 31, 2020 | $ | |||
| Fair value of warrants exercised | ( | ) | ||
| Change in valuation inputs(1) | ( | ) | ||
| Fair value as of March 31, 2021 | $ | |||
| (1) |
5. Revenue from Contracts with Customers
The Company markets and sells its products through e-commerce online channels, retail brick-and-mortar wholesale partners, Purple retail showrooms, and third-party online retailers. Revenue is recognized when the Company satisfies its performance obligations. These performance obligations generally relate to delivering products to a customer, subject to the shipping terms of the contract.
8
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Disaggregated Revenue
The Company classifies revenue into two sales categories: Direct-to-Consumer (“DTC”) and Wholesale. The DTC category is comprised of the e-commerce channel that sells directly to consumers who purchase online and through our contact center, and the Purple retail showrooms channel that sells directly to consumers who purchase at a showroom location. The wholesale category includes all product sales to our retail brick and mortar 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 March 31, | ||||||||
| Sales Category | 2022 | 2021 | ||||||
| Direct-to-consumer | $ | $ | ||||||
| Wholesale | ||||||||
| Revenues, net | $ | $ | ||||||
| Three Months Ended March 31, | ||||||||
| Product Type | 2022 | 2021 | ||||||
| Sleep products | $ | $ | ||||||
| Other | ||||||||
| Revenues, net | $ | $ | ||||||
Contract Balances
Payment
for sale of products through the e-commerce online channel, third-party online retailers, Purple 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 $
6. Inventories, Net
Inventories, net consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Inventory obsolescence reserve | ( |
) | ( |
) | ||||
| Inventories, net | $ | $ | ||||||
9
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Equipment | $ | $ | ||||||
| Equipment in progress | ||||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Office equipment | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Equipment
in progress reflects equipment, primarily related to mattress manufacturing, which is being constructed and was not in service at March
31, 2022 or December 31, 2021. Interest capitalized on borrowings during the active construction period of major capital projects totaled
$
8. Leases
The Company leases its manufacturing
and distribution facilities, corporate offices, Purple 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
The following table presents the Company’s lease costs (in thousands):
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating | $ | $ | ||||||
| Variable | ||||||||
| Short-term | ||||||||
| Total lease costs | $ | $ | ||||||
10
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 March 31, 2022 (in thousands):
| 2022 (excluding the three months ended March 31, 2022) (1) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total operating lease payments | ||||
| Less – lease payments representing interest | ( | ) | ||
| Present value of operating lease payments | $ |
| (1) |
As of March 31, 2022 and
December 31, 2021, the weighted-average remaining term of operating leases was
The following table provides supplemental information related to the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in present value of operating lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | ||||||||
9. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Warranty accrual – current portion | $ | $ | ||||||
| Insurance financing | $ | |||||||
| Long-term debt, net of unamortized issuance costs – current portion | ||||||||
| Tax receivable agreement liability – current portion | ||||||||
| Other | ||||||||
| Total other current liabilities | $ | $ | ||||||
11
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. Debt
Debt consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Term loan | $ | $ | ||||||
| Revolving line of credit | ||||||||
| Less: unamortized issuance costs | ( | ) | ( | ) | ||||
| Total debt | ||||||||
| Less: current portion of debt, net of unamortized issuance costs | ( | ) | ( | ) | ||||
| Long-term debt, net | $ | $ | ||||||
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 provides for a $
Pursuant to a Pledge and Security Agreement between Purple LLC, KeyBank and the Company (the “Security Agreement”), the 2020 Credit Agreement is 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 contains a pledge, as security for the Company’s guaranty, of all its ownership interest in Purple LLC. The 2020 Credit Agreement also provides for standard events of default, such as for non-payment and failure to perform or observe covenants, and contains standard indemnifications benefitting the lenders.
The 2020 Credit Agreement includes representations, warranties and certain covenants of Purple LLC and the Company. While any amounts are outstanding under the 2020 Credit Agreement, Purple LLC is 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 is (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) maintain minimum consolidated net leverage and fixed charge coverage ratio thresholds at certain measurement dates (as defined in the 2020 Credit Agreement). Purple LLC is 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 fail to perform their obligations under these and other covenants, or should any event of default occur, the revolving loan commitments under the 2020 Credit Agreement may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately due and payable.
12
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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. This amendment
contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be 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 $
Pursuant
to the first amendment of the 2020 Credit Agreement, the Company incurred fees and expenses of $
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 (“CCM”) and its investment affiliates to acquire
Pursuant to the second amendment
of the 2020 Credit Agreement, the Company incurred fees and expenses of $
In November 2021, the Company
executed a $
13
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Interest expense under the 2020 Credit Agreement totaled $
11. Warrant Liabilities
The
Company issued
During the three months ended
March 31, 2021,
The Company determined the fair value of the sponsor warrants using the Black Scholes model with the following assumptions:
| March 31, 2022 | December 31, 2021 | |||||||
| Trading price of common stock on measurement date | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk free interest rate | % | % | ||||||
| Warrant life in years | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
During
the three months ended March 31, 2022 and 2021, the Company recognized gains of $
12. Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Warranty accrual | $ | $ | ||||||
| Other | ||||||||
| Total | ||||||||
| Less – current portion of warranty accrual | ( | ) | ( | ) | ||||
| Other long-term liabilities, net of current portion | $ | $ | ||||||
14
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Commitments and Contingencies
Warranty Liabilities
The Company provides a limited warranty on most of the products it sells. The estimated warranty costs, which are expensed at the time of sale and included in cost of revenues, are based on the results of product testing, industry and historical trends and warranty claim rates incurred, and are adjusted for any current or expected trends as appropriate. Actual warranty claim costs could differ from these estimates. The Company regularly assesses and adjusts the estimate of accrued warranty claims by updating claims rates for actual trends and projected claim costs. The Company classifies estimated warranty costs expected to be paid beyond a year as a long-term liability.
The Company had the following activity for warranty liabilities (in thousands):
| Three Months Ended March 31, | |||||||||
| 2022 | 2021 | ||||||||
| Balance at beginning of period | $ | $ | |||||||
| Additions charged to expense for current period sales | |||||||||
| Deduction from reserves for current period claims | ( |
) | ( |
) | |||||
| Balance at end of period | $ | $ | |||||||
Required Member Distributions
Prior to the Business Combination
and pursuant to the then applicable First Amended and Restated Limited Liability Company Agreement (the “First Purple LLC Agreement”),
Purple LLC was required to distribute to its members an amount equal to
Subscription Agreement and Preemptive Rights
In
February 2018,
Rights of Securities Holders
The holders of certain warrants exercisable into Class A common stock, including CCP, Blackwell and CDF, were entitled to registration rights pursuant to certain registration rights agreements of the Company as of the Business Combination date. In March 2018, the Company filed a registration statement registering these warrants (and any shares of Class A common stock issuable upon the exercise of the warrants), and certain unregistered shares of Class A common stock. The registration statement was declared effective on April 3, 2018. Under the Registration Rights Agreement dated February 2, 2018 between the Company and CCP, Blackwell, and CDF (the “Coliseum Investors”), the Coliseum Investors have the right to make written demands for up to three registrations of certain warrants and shares of Class A common stock held by them, including in underwritten offerings. In an underwritten offering of such warrants and shares of Class A common stock by the Coliseum Investors, the Company will pay underwriting discounts and commissions and certain expenses incurred by the Coliseum Investors.
On
May 21, 2021,
15
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Purple LLC Class B Unit Exchange Right
On February 2, 2018, in connection with the closing of the Business Combination, the Company entered into an exchange agreement with Purple LLC and InnoHold and Class B Unit holders who become a party thereto (the “Exchange Agreement”), which provides for the exchange of Purple LLC Class B Units (the “Class B Units”) and shares of Class B common stock (together with an equal number of Class B Units, the “Paired Securities”) for, at the Company’s option, either (A) shares of Class A common stock at an initial exchange ratio equal to one Paired Security for one share of Class A common stock or (B) a cash payment equal to the product of the average of the volume-weighted closing price of one share of Class A common stock for the ten trading days immediately prior to the date InnoHold or other Class B Unit holders deliver a notice of exchange multiplied by the number of Paired Securities being exchanged. In December 2018, InnoHold distributed Paired Securities to Terry Pearce and Tony Pearce who agreed to become parties to the Exchange Agreement. In June 2019, InnoHold distributed Paired Securities to certain current and former employees who also agreed to become parties to the exchange agreement. Holders of Class B Units may elect to exchange all or any portion of their Paired Securities as described above by delivering a notice to Purple LLC.
In certain cases, adjustments to the exchange ratio will occur in case of a split, reclassification, recapitalization, subdivision or similar transaction of or relating to the Class B Units or the shares of Class A common stock and Class B common stock or a transaction in which the Class A common stock is exchanged or converted into other securities or property. The exchange ratio will also adjust in certain circumstances when the Company acquires Class B Units other than through an exchange for its shares of Class A common stock.
The right of a holder of Paired Securities to exchange may be limited by the Company if it reasonably determines in good faith that such restrictions are required by applicable law (including securities laws), such exchange would not be permitted under other agreements of such holder with the Company or its subsidiaries, including the Third Purple LLC Agreement, or if such exchange would cause Purple LLC to be treated as a “publicly traded partnership” under applicable tax laws.
The Company and each holder of Paired Securities shall bear its own expense regarding the exchange except that the Company shall be responsible for transfer taxes, stamp taxes and similar duties.
There
were no Paired Securities exchanged for Class A common stock during the three months ended March 31, 2022. During the three months ended
March 31, 2021,
16
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Maintenance of One-to-One Ratios
The Third Purple LLC Agreement includes provisions intended to ensure that the Company at all times maintains a one-to-one ratio between (a) (i) the number of outstanding shares of Class A common stock and (ii) the number of Class A Units owned by the Company (subject to certain exceptions for certain rights to purchase equity securities of the Company under a “poison pill” or similar stockholder rights plan, if any, certain convertible or exchangeable securities issued under the Company’s equity compensation plan and certain equity securities issued pursuant to the Company’s equity compensation plan (other than a stock option plan) that are restricted or have not vested thereunder) and (b) (i) the number of other outstanding equity securities of the Company (including the warrants exercisable for shares of Class A common stock) and (ii) the number of corresponding outstanding equity securities of Purple LLC. These provisions are intended to result in non-controlling interest holders having a voting interest in the Company that is identical to their economic interest in Purple LLC.
Non-Income Related Taxes
The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc., No.17-494, reversed a longstanding precedent that remote sellers are not required to collect state and local sales taxes. The Company cannot predict the effect of these and other attempts to impose sales, income or other taxes on e-commerce. The Company currently collects and reports on sales tax in all states in which it does business. However, the application of existing, new or revised taxes on the Company’s business, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the internet. The application of these taxes on the Company’s business could also create significant increases in internal costs necessary to capture data and collect and remit taxes. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which the Company conducts or will conduct business.
Legal Proceedings
On September 20, 2020, Purple
LLC filed a complaint in the U.S. Court of International Trade seeking to recover approximately $
17
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On
October 13, 2020, Purple LLC filed a lawsuit against Responsive Surface Technology, LLC and its parent company, PatienTech, LLC (collectively
referred to as “ReST”) in the United States District Court for the District of Utah. The lawsuit arises from ReST’s
multiple breaches of its obligations to Purple LLC, including infringing upon Purple LLC’s trademarks, patents, and trade dress,
among other claims. Purple seeks monetary damages, injunctive relief, and declaratory judgment based on certain conduct by ReST (“Case
I”). On October 21, 2020, shortly after the complaint was filed in Case I, ReST filed a retaliatory lawsuit against Purple LLC,
Gary DiCamillo, Adam Gray, Joseph Megibow, Terry Pearce, and Tony Pearce, also in the United States District Court for the District of
Utah (“Case II”). Subsequently, the two cases were consolidated into one. Case II (now combined with Case I) involves many
of the same facts and transactions as Case I. On January 19, 2021, ReST filed a motion to compel arbitration of the claims in Case I.
Purple LLC opposed the motion to compel arbitration, arguing that ReST waived any rights they may have had to arbitration and that all
the claims in both cases should stay in the courts. However, the Court granted ReST’s motion to compel arbitration, and stayed
the proceedings in the United States District Court for the District of Utah. Additionally, the Court ruled that ReST’s claims
against the Purple board members were not subject to arbitration, and the Court stayed ReST’s claims against those individuals.
Pursuant to the Court’s order, Purple filed a demand for arbitration with the American Arbitration Association (the “AAA”)
on September 1, 2021. ReST filed its counterclaim with the AAA on September 21, 2021.The parties have selected an arbitrator and
they have agreed upon a scheduling order. Currently, the parties are in the fact discovery phase of the arbitration and are working
to schedule depositions of key witnesses. The arbitration hearing is set to begin on November 29, 2022 and will continue through
December 9, 2022. Purple LLC seeks over $
On November 19, 2020, Purple LLC sued Advanced Comfort Technologies, Inc., dba Intellibed (“Intellibed”) in the U.S. District Court for the District of Utah for patent infringement, trademark infringement, trade secret misappropriation, and a number of related state law based claims. The principal allegations are that Intellibed has manufactured and sold unauthorized, infringing products under the Sleepy’s brand name owned by third-party Mattress Firm. Purple LLC also requested declaratory relief related to certain assignment terms of a license agreement in which Purple LLC is the licensor and Intellibed is the licensee. On December 14, 2020, Intellibed filed a motion to dismiss Counts I through XI of Purple LLC’s Complaint on the ground that these Counts fail to state a claim upon which relief can be granted. On December 15, 2020, Intellibed filed an Answer to Purple LLC’s complaint and also asserted against Purple LLC a total of eight counterclaims, including a number of declaratory judgment claims, breach of contract, and tortious interference claims. Intellibed’s main allegations are that its use of Purple LLC’s patents, trademark, and trade secrets in connection with Mattress Firm’s Sleepy’s products is authorized under the license agreement. On January 19, 2021, Purple LLC filed a motion to dismiss Intellibed’s fifth, sixth, seventh, and eighth counterclaims on the ground that these counterclaims fail to state a claim upon which relief can be granted. Briefing on Purple LLC’s partial motion to dismiss was completed on March 2, 2021. On January 19, 2021, Purple LLC also filed an Answer to Intellibed’s counterclaims, which were not subject to Purple LLC’s motion to dismiss. On January 27, 2021, Purple LLC filed a First Amended Complaint in response to Intellibed’s initial motion to dismiss. On February 10, 2021, Intellibed filed a motion to dismiss Counts I through XI of Purple LLC’s First Amended Complaint. Briefing on Intellibed’s partial motion to dismiss was completed on March 24, 2021. On September 28, 2021, the District Court dismissed Purple’s complaint without prejudice, and also dismissed ACTI’s counterclaim without prejudice, while the parties pursued dispute-resolution procedures set out in the license agreement. Because the Court found that the license agreement required the parties to follow the contractual dispute-resolution procedures prior to filing a lawsuit, Purple initiated those procedures in accordance with the license agreement and intends to continue to vigorously pursue its claims.
18
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On June 8, 2021, Serta Simmons Bedding, LLC (“SSB”) filed a Complaint against the Company in the Superior Court of Gwinnett County, Georgia, Case No. 21-A-04413-1 (the “Georgia Litigation”). SSB’s Complaint alleges that the Company intentionally interfered with SSB’s business and contractual relations and violated the Georgia Trade Secrets Act by hiring one of SSB’s former employees in the face of an allegedly valid 2015 noncompete agreement. SSB seeks compensatory damages, punitive damages, equitable relief, and attorneys’ fees as a result of the conduct alleged in the Complaint. SSB also initiated arbitration proceedings against its former employee who Purple LLC has agreed to indemnify, subject to certain conditions. On July 12, 2021, the Company filed an Answer to SSB’s Complaint in the Georgia Litigation, denying all allegations of unlawful conduct, and further moved to dismiss the Georgia Litigation on the grounds that Georgia is an inconvenient forum and the parties’ dispute should instead be litigated in Utah. On July 9, 2021, the Company filed its own Complaint in the Fourth Judicial District Court of Salt Lake County, Utah, Case No. 21040011 (the “Utah Litigation”), seeking: (1) a declaratory judgment that the arbitration clause in the former employee’s 2015 noncompete agreement is unenforceable, (2) a declaratory judgment that the restrictive covenants in the former employee’s 2015 noncompete agreement are unenforceable, and (3) an order enjoining arbitration proceedings initiated by SSB and currently pending against the former employee. The Company filed a motion for summary judgment on these claims on August 16, 2021. SSB filed an Answer on August 18, 2021. After attending a mediation, the parties entered in a settlement agreement on December 31, 2021 resolving all claims in the Georgia Litigation and Utah Litigation. The Company did not pay any monetary consideration to SSB in connection with the settlement agreement. On January 12, 2022, pursuant to the terms of the settlement agreement, SSB dismissed the Georgia Litigation without prejudice and the Company dismissed the Utah Litigation without prejudice.
On May 3, 2022, the Company
filed a Complaint against Photon Interactive UK Limited (“Photon”) in the U.S. District Court for the District of Delaware
regarding a Master Professional Services Agreement with Photon dated on or around November 1, 2019. Pursuant to the agreement, Photon
was required to rebuild Purple’s website architecture and checkout process. Purple paid Photon $
The Company is from time to time involved in various other claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount that the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.
14. Related Party Transactions
The Company had various transactions with entities or individuals which are considered related parties.
Coliseum Capital Management, LLC
Immediately following the Business Combination, Adam Gray was appointed to the Company’s Board of Directors (the “Board”). Mr. Gray is a manager of Coliseum Capital, LLC, which is the general partner of CCP and CDF, and he is also a managing partner of Coliseum Capital Management, LLC (“CCM”), which is the investment manager of Blackwell. Mr. Gray has voting and dispositive control over securities held by CCP, CDF and Blackwell which were also Lenders under the Amended and Restated Credit Agreement. See Note 13—Commitments and Contingencies—Subscription Agreement and Preemptive Rights for further discussion.
Purple Founder Entities
TNT Holdings, LLC (herein “TNT Holdings”), EdiZONE, LLC, (herein EdiZONE an entity wholly owned by TNT Holdings) and InnoHold (collectively the “Purple Founder Entities”) were entities under common control with Purple LLC prior to the Business Combination. TNT Holdings and InnoHold are majority owned and controlled by Terry Pearce and Tony Pearce (the “Purple Founders”), who were appointed to the Company’s Board following the Business Combination. InnoHold was a majority shareholder of the Company until it sold a portion of its interests in a secondary public offering in May 2020 and the remainder of its interests in a secondary public offering in September 2020. The Purple Founders also resigned as employees of Purple LLC and retired from the Company’s Board in August 2020.
19
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
TNT
Holdings owned the Alpine facility Purple LLC has been leasing since 2010, and the Purple Founders informed Purple LLC that TNT Holdings
recently transferred ownership to 123E LLC, an entity controlled by the Purple Founders. Effective as of October 31, 2017, Purple LLC
entered into an Amended and Restated Lease Agreement with TNT Holdings. The Company determined that neither TNT Holdings nor 123E LLC
are a VIE as neither the Company nor Purple LLC hold any explicit or implicit variable interest in TNT Holdings or 123E LLC and do not
have a controlling financial interest in TNT Holdings or 123E LLC. Purple LLC incurred $
During
the three months ended March 31, 2021, certain current and former employees of Purple LLC who received distributions of Paired Securities
from InnoHold exchanged
During the three months ended
March 31, 2021, Purple LLC paid InnoHold through withholding payments directly to various states, an aggregate of $
15. Stockholders’ Equity
Class A Common Stock
The
Company has
20
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Class B Common Stock
The
Company has
In
connection with the Business Combination, approximately
Preferred Stock
The
Company has
Sponsor Warrants
There were
21
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
There were no sponsor warrants
exercised during the three months ended March 31, 2022. During the three months ended March 31, 2021,
Noncontrolling Interest
Noncontrolling
interest (“NCI”) is the membership interest in Purple LLC held by holders other than the Company. Upon the close of the Business
Combination, and at December 31, 2018, InnoHold’s and other Class B Unit holders’ combined NCI percentage in Purple LLC was
approximately
16. Income Taxes
At each interim period, the Company estimates its forecasted full-year effective tax rate. That forecasted rate is applied to year-to-date ordinary income or loss to compute the year-to-date income tax provision. In order to compute the annual effective tax rate, the Company estimates its full year ordinary income and total tax provision, including both current and deferred taxes.
For annual periods, the Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Our effective tax rate is primarily impacted by the allocation of income taxes to the noncontrolling interest and the non-taxable nature of the change in fair value of the warrant liability.
The Company’s sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC’s net taxable income and any related tax credits are passed through to its members and are included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company’s effective tax rate differs from the statutory rate. The primary factors impacting expected tax are the change in fair value of the warrant liabilities and remeasurement of deferred taxes primarily as a result of the change in the estimated state tax rate.
22
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Deferred
tax assets at March 31, 2022 totaled $
The
Company currently estimates its annual effective income tax rate to be
For
the three months ended March 31, 2022, the Company has recorded an income benefit of $
In
connection with the Business Combination, the Company entered into a tax receivable agreement with InnoHold, which provides for the payment
by the Company to InnoHold of
As
noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units,
a tax receivable agreement liability may be recorded based on
The
estimation of liability under the tax receivable agreement is by its nature imprecise and subject to significant assumptions regarding
the amount and timing of future taxable income. As a result of the initial merger transaction, the subsequent exchanges of Class B Units
for Class A common stock and changes in estimates relating to the expected tax benefits associated with the liability under the agreement,
the potential future tax receivable agreement liability was $
As of December 31, 2021, the Company estimated $
23
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a “more-likely-than-not” threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude “more-likely-than-not” to be realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of income. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of March 31, 2022, no uncertain tax positions were recognized as liabilities in the condensed consolidated financial statements.
17. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of Class A stock outstanding during each period. Diluted net income (loss) per share reflects the weighted-average number of common shares outstanding during the period used in the basic net income (loss) computation plus the effect of common stock equivalents that are dilutive.
The following table sets forth the calculation of basic and diluted weighted average shares outstanding and earnings (loss) per share for the periods presented (in thousands, except per share amounts):
| Three
Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to Purple Innovation, Inc. – basic | $ | ( | ) | $ | ||||
| Less – dilutive effect of change in fair value – warrant liabilities | — | ( | ) | |||||
| Less – net loss attributed to noncontrolling interest | ( | ) | ||||||
| Net income (loss) attributable to Purple Innovation, Inc. – diluted | $ | ( | ) | $ | ||||
| Denominator: | ||||||||
| Weighted average shares—basic | ||||||||
| Add – dilutive effect of equity awards | — | |||||||
| Add – dilutive effect of warrants | — | |||||||
| Add – dilutive effect of Class B shares | ||||||||
| Weighted average shares—diluted | ||||||||
| Net income (loss) per common share: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
24
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the three months ended
March 31, 2022, the Company excluded
18. Equity Compensation Plans
2017 Equity Incentive Plan
The
Purple Innovation, Inc. 2017 Equity Incentive Plan (the “2017 Incentive Plan”) provides for grants of stock options, stock
appreciation rights, restricted stock units and other stock-based awards. Directors, officers and other employees and subsidiaries and
affiliates, as well as others performing consulting or advisory services for the Company and its subsidiaries, will be eligible for grants
under the 2017 Incentive Plan. As of March 31, 2022, an aggregate of
Employee Stock Options
The Company determined the fair value of the options granted during the three months ended March 31, 2022 using the Black Scholes method with the following assumptions:
| Fair market value | $ | |||
| Exercise price | $ | |||
| Risk free interest rate | % | |||
| Expected term in years | ||||
| Expected volatility | % | |||
| Expected dividend yield |
The following table summarizes the Company’s total stock option activity for the three months ended March 31, 2022:
Options (in thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term in Years | Intrinsic Value | |||||||||||||
| Options outstanding as of January 1, 2022 | $ | $ | ||||||||||||||
| Granted | — | |||||||||||||||
| Exercised | ( | ) | — | |||||||||||||
| Forfeited/cancelled | ( | ) | — | |||||||||||||
| Options outstanding as of March 31, 2022 | $ | $ | ||||||||||||||
25
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Outstanding and exercisable stock options as of March 31, 2022 are as follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Exercise Prices | Number
of Options Outstanding (in thousands) | Weighted Average Remaining Life (Years) | Number
of Options Exercisable (in thousands) | Weighted Average Remaining Life (Years) | Intrinsic Value (in thousands) | |||||||||||||||||
| $ | $ | |||||||||||||||||||||
The following table summarizes the Company’s unvested stock option activity for the three months ended March 31, 2022:
| Options (in thousands) | Weighted
Average Grant Date Fair Value | |||||||
| Nonvested options as of January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested options as of March 31, 2022 | $ | |||||||
The
estimated fair value of Company stock options is amortized over the options vesting period on a straight-line basis. For the three months
ended March 31, 2022 and 2021, the Company recognized stock option expense of $
As
of March 31, 2022, outstanding stock options had $
26
PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Employee Restricted Stock Units
In
March 2022, the Company granted
The following table summarizes the Company’s restricted stock unit activity for the three months ended March 31, 2022:
| Number Outstanding (in thousands) | Weighted Average Grant Date Fair Value | |||||||
| Nonvested restricted stock units as of January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested restricted stock units as of March 31, 2022 | $ | |||||||
The
Company recorded restricted stock unit expense of $
As of March 31, 2022, outstanding
restricted stock units had $
InnoHold Incentive Units
In
January 2017, pursuant to the 2016 Equity Incentive Plan approved by InnoHold and Purple LLC that authorized the issuance of
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PURPLE
INNOVATION, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Aggregate Non-Cash Stock-Based Compensation
The Company has accounted for all stock-based compensation under the provisions of ASC 718 Compensation—Stock Compensation. This standard requires the Company to record a non-cash expense associated with the fair value of stock-based compensation over the requisite service period.
The following table summarizes the aggregate non-cash stock-based compensation recognized in the statement of operations for stock awards, employee stock options and employee restricted stock units (in thousands):
| Three
Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of revenues | $ | $ | ||||||
| Marketing and sales | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total non-cash stock-based compensation | $ | $ | ||||||
19. Employee Retirement Plan
In
July 2018 the Company established a 401(k) plan that qualifies as a deferred compensation arrangement under Section 401 of the IRS
Code. All eligible employees over the age of 18 and with 4 months’ service are eligible to participate in the plan.
20. Subsequent Events
In March 2022, the Company granted
to the Company’s chief executive officer in conjunction with his full-time appointment to the position
In April 2022, the Company
completed a restructuring of its workforce to balance production and improve efficiencies. As a result of the realignment and restructuring,
the Company reduced employee headcount and incurred severance costs of $
On April 29, 2022, Eric Haynor
signed an offer letter to become the chief operating officer of the Company, effective June 6, 2022. Prior to joining the Company, Mr.
Haynor, age 58, was with Ecolab, Inc. from 2005 to present, most recently as the Senior Vice President of Global Industrial Supply Chain
since 2019. In connection with his employment, the Company agreed to grant to Mr. Haynor, effective as of his start date, a one-time equity
grant valued at $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to provide a more comprehensive review of the operating results and financial condition of Purple Innovation, Inc. than can be obtained from reading the Unaudited Condensed Consolidated Financial Statements alone. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “project,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words.
All forward-looking statements included in this Quarterly Report are made only as of the date thereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking statements.
We caution and advise readers that these statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those included in the “Risk Factors” section of this Quarterly Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and investors are cautioned not to place undue reliance on any such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Overview of Our Business
Our mission is to improve the lives of our consumers by delivering innovative better sleep solutions.
We are a digitally-native vertical brand founded on comfort product innovation with premium offerings. We design and manufacture a variety of innovative, branded and premium comfort products, including mattresses, pillows, cushions, frames, sheets, and other products. Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology, Hyper-Elastic Polymer, underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products. We market and sell our products directly to consumers through our e-commerce and Purple retail showroom channels and through our retail brick-and-mortar wholesale partner channel.
Organization
Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. Purple Inc. was incorporated in Delaware on May 19, 2015 as a special purpose acquisition company under the name of GPAC. On February 2, 2018, Purple Inc. consummated a transaction structured similar to a reverse recapitalization pursuant to which Purple Inc. acquired an equity interest in Purple LLC and became its sole managing member. As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. At March 31, 2022, Purple Inc. had a 99% economic interest in Purple LLC while other Class B Unit holders had the remaining 1%.
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Recent Developments in Our Business
Equity Financing
In March 2022, the Company completed a secondary offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares of the over-allotment option that the underwriters exercised in full. The underwriter purchased the Class A common stock from the Company at a price of $5.65 per share, except that any shares sold by the underwriter to Coliseum Capital Partners, L.P. and Blackwell Partners LLC – Series A, up to an aggregate of 29.81% of the shares of Class A common stock pursuant to the offering, were purchased from the Company by the underwriter at a price of $6.10 per share. The aggregate gross proceeds received by the Company from the secondary offering, including the exercise of the over-allotment, was $93.1 million. After deducting offering expenses of $0.2 million, aggregate net proceeds totaled $92.9 million.
Debt Financing
On September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit. In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the full amount available under the line. The initial borrowing rate of 3.50% for both the term loan and revolving line of credit was based on LIBOR plus 3.00%.
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. This amendment contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be 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 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met. If it is not met, then the interest rate goes to SOFR with a floor of 0.5% plus 9.00%. Once the consolidated leverage ratio goes below 3.00 to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio. Pursuant to the first amendment of the 2020 Credit Agreement, the Company made a $2.5 million payment on the term loan to cover the four quarterly principal payments due in 2022 and incurred fees and expenses of $0.8 million that were recorded as debt issuance costs in the condensed consolidated balance sheet.
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 CCM and its investment affiliates 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 without constituting an event of default. CCM is considered a related party of the Company in that Adam Gray, a member of the board of directors, serves as a managing partner of CCM. 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.
On March 31, 2022, the Company used a portion of the net proceeds from the secondary offering to repay in full the $55.0 million of principal outstanding on the revolving line of credit.
Operational Developments
The COVID-19 pandemic has impacted many aspects of our operations, directly and indirectly, including disruption of our employees, consumer behavior, distribution and logistics, our suppliers, and the market overall. The scope and nature of these impacts continue to evolve. Because of the COVID-19 pandemic, we took precautionary measures recommended by the appropriate national and state health agencies to manage our resources and mitigate the adverse impact of the pandemic, which was intended to help minimize the risk to our Company, employees, customers, and the communities in which we operate. Soon after the pandemic began, we also experienced an increase in demand in our e-commerce channel, and in 2020 and 2021 the Company built production capability to match actual and anticipated demand growth. Now, on the tail-end of the pandemic, we are experiencing a pull-back in growth that has left us with excess operational capacity in facilities, equipment, and personnel. In the first quarter, we began to rebalance production and fulfillment operations in our different facilities and take other actions to lower costs.
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We are closely monitoring the impacts of COVID-19 and general economic conditions on global supply chain, manufacturing, and logistics operations. As inflationary pressures increase, we anticipate that our production and operating costs will similarly increase. In addition, COVID-19 and other events, including port closures or labor shortages, have resulted in the continuation or worsening of manufacturing and shipping costs, delays and constraints. While most of our domestic suppliers have been able to continue operations and provide necessary materials when needed, we have experienced some constraints from certain suppliers, with respect to both the availability and cost of materials. In addition, as experienced in other industries, in order to remain competitive in hiring the labor necessary to maintain our production levels, we have had to increase wages and other compensation. These increases in materials and labor costs have resulted in higher cost of goods sold and lower margins. We believe that shipping, material and labor costs will continue to remain at elevated levels or increase further in the foreseeable future.
While we invested in growing our manufacturing capacity and expanding our showroom presence in 2021, post-pandemic demand has shifted away from e-commerce and back towards retail brick-and-mortar. Our showrooms are performing in-line with our targeted unit economics. As a result, we are continuing our investment into new showrooms. Also, at the end of the first quarter, our products are sold through approximately 3,100 wholesale doors, having added 600 net new doors so far in 2022. To capitalize on the current trend, and while expanding into new doors, our focus is primarily on improving our sales in the retail locations where are products currently are being sold.
In February 2022, because of lower-than-expected demand and elevated labor and overhead costs that adversely affected our results of operations in the fourth quarter of 2021 which continued into the first quarter of 2022, we completed a restructuring of our workforce to improve efficiencies and realign the Company’s cost structure to focus on quality of earnings in our current core business. As a result of the realignment and restructuring, we reduced employee headcount and incurred severance costs of $1.2 million in the first quarter of 2022. In April 2022, we incurred an additional $0.8 million in severance costs associated with a separate workforce restructuring to balance production and improve efficiencies.
In early 2022, to offset the impact of higher raw material, labor and freight costs on our gross margins, we increased prices and initiated several other projects to improve efficiencies and reduce costs. In response to these impacts, we deferred new product launches in 2022. Also in 2022, we are continuing to invest in showroom expansion and effectively respond to consumers returning to brick and mortar buying by growing wholesale partner doors and initiating a greater emphasis on improving the sales productivity of our existing wholesale partners. After several years of hyper growth and increased investments to support current and future expansion, we are now building the framework for strong operational maturity and accountability as we focus on right-sizing our operations, improving our execution, and refining our strategies to drive profitable growth in the current market environment.
Outlook for Growth
To support our plans for future growth, we are focusing on the following opportunities:
| ● | Develop and execute on strategies to meaningfully expand our wholesale presence. | |
| ● | Build premium brand position to grow market share of the premium mattress category. | |
| ● | Refine and enhance marketing strategies to reach a broader audience, increase customer engagement and reduce dependency on price promotions as a means of driving sales. |
| ● | Strengthen research and development disciplines and go-to-market processes in order to expand our current categories and position our business to eventually expand to adjacent categories. | |
| ● | Manage production labor and capacity utilization to promote efficient use of our manufacturing facilities as we grow into our production footprint. | |
| ● | Manage input costs, operating efficiencies, and pricing to offset gross margin erosion and exit the year with gross margins close to 40%. |
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There is no guarantee that we will be able to effectively execute on these opportunities, which are subject to risks, uncertainties, and assumptions that are difficult to predict, including the risks described under “Risk Factors” and elsewhere herein. Therefore, actual results may differ materially and adversely from those described above. In addition, we may, in the future, adapt these focuses in response to changes in the market or our business.
Operating Results for the Three Months Ended March 31, 2022 and 2021
The following table sets forth for the periods indicated, our results of operations and the percentage of total revenue represented in our condensed consolidated statements of operations:
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | % of Net Revenues | 2021 | % of Net Revenues | |||||||||||||
| Revenues, net | $ | 143,179 | 100.0 | % | $ | 186,429 | 100.0 | % | ||||||||
| Cost of revenues | 91,553 | 63.9 | 98,905 | 53.1 | ||||||||||||
| Gross profit | 51,626 | 36.1 | 87,524 | 46.9 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Marketing and sales | 49,959 | 34.9 | 54,368 | 29.2 | ||||||||||||
| General and administrative | 17,888 | 12.5 | 14,526 | 7.8 | ||||||||||||
| Research and development | 2,143 | 1.5 | 1,723 | 0.9 | ||||||||||||
| Total operating expenses | 69,990 | 48.9 | 70,617 | 37.9 | ||||||||||||
| Operating income (loss) | (18,364 | ) | (12.8 | ) | 16,907 | 9.1 | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (1,023 | ) | (0.7 | ) | (570 | ) | (0.3 | ) | ||||||||
| Other income (expense), net | 17 | — | (68 | ) | — | |||||||||||
| Tax receivable agreement benefit | — | — | 174 | 0.1 | ||||||||||||
| Change in fair value – warrant liabilities | 3,928 | 2.7 | 9,147 | 4.9 | ||||||||||||
| Total other income, net | 2,922 | 2.0 | 8,683 | 4.7 | ||||||||||||
| Net income (loss) before income taxes | (15,442 | ) | (10.8 | ) | 25,590 | 13.7 | ||||||||||
| Income tax (expense) benefit | 1,811 | 1.3 | (4,651 | ) | (2.5 | ) | ||||||||||
| Net income (loss) | (13,631 | ) | (9.5 | ) | 20,939 | 11.2 | ||||||||||
| Net income (loss) attributable to noncontrolling interest | (129 | ) | (0.1 | ) | 115 | 0.1 | ||||||||||
| Net income (loss) attributable to Purple Innovation, Inc. | $ | (13,502 | ) | (9.4 | ) | $ | 20,824 | 11.2 | ||||||||
Revenues, Net
Net revenues decreased $43.3 million, or 23.2%, to $143.2 million for the three months ended March 31, 2022 compared to $186.4 million for the three months ended March 31, 2021. The decline in net revenues reflected a $37.6 million decrease in mattress sales, a $5.3 million decrease in other sleep product sales and a $0.4 million decrease in other product sales. The decrease in mattress sales was primarily due to higher net revenues in the prior year created by the pull forward of demand driven by the effects of COVID and economic stimulus in the first quarter of 2021, coupled with the pullback in discretionary consumer spending in early 2022. The decline in net revenues from a sales channel perspective consisted of DTC net revenues decreasing $39.4 million, or 31.5% and wholesale net revenues decreasing $3.9 million, or 6.3%. Within DTC, e-commerce net revenues decreased $46.3 million, or 38.6%, and were partially offset by Purple retail showroom net revenues growing $7.0 million, or 138.2%. The larger-than-expected decrease in e-commerce net revenues was primarily due to a return to more normalized consumption patterns after two years of COVID-driven demand coupled with customers shifting back to brick and mortar buying. Wholesale net revenues comprised 40.3% of net revenues in the first quarter of 2022 compared to 33.0% in the first quarter of 2021. The higher proportion of wholesale net revenues was primarily due to the impact of lower-than-expected e-commerce sales. The growth in our showroom business from 2.7% of net revenues in the first quarter of 2021 to 8.4% in the first quarter of 2022 resulted primarily from the opening of 25 new showrooms over the past 12 months combined with the impact of a lower-than-expected decrease in e-commerce sales.
Cost of Revenues
Cost of revenues decreased $7.4 million, or 7.4%, to $91.6 million for the three months ended March 31, 2022 compared to $98.9 million for the three months ended March 31, 2021. This decrease, which was primarily due to the corresponding decrease in sales volume, reflected a $17.4 million decrease in direct material and other costs offset in part by a $10.1 million increase in labor and overhead costs. Our gross profit percentage, which decreased to 36.1% of net revenues in the first quarter of 2022 from 46.9% in the first quarter of 2021, was adversely impacted by the elevated level of our labor and overhead costs coupled with a larger than expected reduction in higher margin e-commerce sales. We expect gross margins to improve in the near term based on the full effect of first quarter price increases, the impact of recent reductions in our production workforce and the continued implementation of manufacturing and supply chain efficiencies.
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Marketing and Sales
Marketing and sales expense decreased $4.4 million, or 8.1%, to $50.0 million for the three months ended March 31, 2022 compared to $54.4 million for the three months ended March 31, 2021. This decrease reflected a $15.6 million decline in advertising spending as management focused on improving marketing efficiency. This decrease was offset in part by a $5.0 million increase in wholesale marketing and sales costs related to enhancements in our wholesale marketing operations, a $4.8 million increase in showroom-related marketing associated with our continued showroom expansion, and a $1.4 million increase in other marketing costs. Marketing and sales expense as a percentage of net revenues was 34.9% in the first quarter of 2022 compared to 29.2% in the first quarter of 2021. This increase was primarily due to a larger-than-expected decrease in net revenues.
General and Administrative
General and administrative expense increased $3.4 million, or 23.1%, to $17.9 million for the three months ended March 31, 2022 compared to $14.5 million for the three months ended March 31, 2021. This increase was primarily due to a $2.1 million increase in payroll costs related to workforce additions since the end of the prior year first quarter, a $0.7 million increase in legal and professional fees associated primarily with executive search costs, and a $0.5 million increase in other expenses.
Research and Development
Research and development costs increased $0.4 million, or 24.4%, to $2.1 million for the three months ended March 31, 2022 from $1.7 million for the three months ended March 31, 2021. This increase was primarily due to an increase in payroll costs related to planned increases in our research and development workforce.
Operating Income (Loss)
Operating income (loss) decreased $35.3 million to an operating loss of $18.4 million for the three months ended March 31, 2022 compared to operating income of $16.9 million for the three months ended March 31, 2021. This decrease was primarily due to the decrease in gross profit.
Interest Expense
Interest expense totaled $1.0 million for the three months ended March 31, 2022 compared to $0.6 million for the three months ended March 31, 2021. The $0.5 million increase was primarily due to interest expense of $0.6 million incurred on the $55.0 million revolving line of credit that was drawn down by the Company in November 2021. This increase was offset in part by $0.2 million of interest capitalized during the first quarter of 2022.
Change in Fair Value – Warrant Liabilities
There were 12.8 million sponsor warrants issued pursuant to a private placement conducted simultaneously with the Company’s initial public offering. We have accounted for these warrants as liabilities and recorded them at fair value on the date of the transaction and subsequently re-measured them to fair value at each reporting date with changes in fair value included in earnings. The 1.9 million sponsor warrants outstanding at both March 31, 2022 and 2021 had fair values of $0.4 million and $19.4 million, respectively. The decrease in fair value was primarily due to the Company’s Class A stock price, one of the primary assumptions used to re-measure the warrant liability, declining from $31.65 at March 31, 2021 to $5.85 at March 31, 2022. During the three months ended March 31, 2022 and 2021, we recognized gains of $3.9 million and $9.1 million, respectively, in our condensed consolidated statements of operations related to decreases in the fair value of the warrants outstanding at the end of the respective periods.
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Income Tax (Expense) Benefit
We had an income tax benefit of $1.8 million for the three months ended March 31, 2022 compared to income tax expense of $4.7 million for the three months ended March 31, 2021. The income tax benefit in the first quarter of 2022 was primarily the result of the Company having a net loss before income taxes of $15.4 million for the three months ended March 31, 2022.
Noncontrolling Interest
The Company calculates net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.1 million in the first quarter of 2022 compared to net income of $0.1 million in the first quarter of 2021.
Liquidity and Capital Resources
Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our credit facilities and proceeds received from secondary offerings of our equity capital. Principal uses of funds consist of payments of principal and interest on our debt facilities, capital expenditures and working capital needs as well as other contractual obligations described below. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations. Our cash and working capital positions were $62.7 million and $98.9 million, respectively, as of March 31, 2022 compared to $91.6 million and $87.5 million, respectively, as of December 31, 2021. Cash used for capital expenditures increased from $12.4 million in the first quarter of 2021 to $13.1 million in the first quarter of 2022. Our capital expenditures in the first quarter of 2022 primarily consisted of leasehold improvements and furniture and fixtures associated with the opening of new Purple retail showrooms during the first quarter of 2022.
In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, use the liquidity we have available under our revolving line of credit and postpone or discontinue our growth strategies. In such event, this could result in slower growth or no growth, and we may run the risk of losing key suppliers, we may not be able to timely satisfy customer orders, and we may not be able to retain all of our employees. In addition, we may be forced to restructure our obligations to current creditors, pursue work-out options or seek additional funding sources including new debt or equity capital. Our ability to obtain additional debt or alternative capital on acceptable terms or at all is subject to a variety of uncertainties, including instability in the credit and financial markets resulting from macroeconomic factors and approval from the lenders under the 2020 Credit Agreement. Adequate financing may not be available or, if offered, may only be available on unfavorable terms. The restrictive covenants in the 2020 Credit Agreement, as amended, may make it difficult to obtain additional capital on terms that are favorable to us and to execute on our growth strategies, including the acquisition of other businesses or technologies. There is no assurance we would be able to obtain the capital we could potentially require. As a result, there can be no assurance that we will be able to fund our future operations or growth strategies. In addition, future equity or debt financings may require us to also issue warrants or other equity securities that are likely to be dilutive to our existing stockholders. Newly issued securities may include preferences or superior voting rights or, as described above, may be combined with the issuance of warrants or other derivative securities, which each may have additional dilutive effects. Furthermore, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. If we cannot raise additional funds on favorable terms or at all, we may not be able to carry out all or parts of our long-term growth strategy, maintain our growth and competitiveness or continue in business.
Based on our current projections, we believe our cash on hand, amounts available under our revolving line of credit, and expected cash to be generated from e-commerce, wholesale, and Purple retail store channels will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months.
Secondary Offering
In March 2022, the Company completed a secondary offering of 16.1 million shares of Class A common stock, which included the additional 2.1 million shares of the over-allotment option that the underwriters exercised in full. The underwriter purchased the Class A common stock from the Company at a price of $5.65 per share, except that any shares sold by the underwriter to Coliseum Capital Partners, L.P. and Blackwell Partners LLC – Series A, up to an aggregate of 29.81% of the shares of Class A common stock pursuant to the offering, were purchased from the Company by the underwriter at a price of $6.10 per share. The aggregate gross proceeds received by the Company from the secondary offering, including the exercise of the over-allotment, was $93.1 million. After deducting offering expenses of $0.2 million, aggregate net proceeds totaled $92.9 million.
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Debt
On September 3, 2020, Purple LLC entered into the 2020 Credit Agreement that provided for a $45.0 million term loan and a $55.0 million revolving line of credit. The term loan will be repaid in accordance with a five-year amortization schedule and may be prepaid in whole or in part at any time without premium or penalty, subject to reimbursement of certain costs. The revolving credit facility has a term of five years and carries the same interest provisions as the term debt. A commitment fee is due quarterly based on the applicable margin applied to the unused total revolving commitment. In November 2021, the Company executed a $55.0 million draw on its revolving line of credit, which represented the full amount available under the line. The initial borrowing rate of 3.50% for both the term loan and revolving line of credit was based on LIBOR plus 3.00%.
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. This amendment contained a covenant waiver period such that the net leverage ratio and fixed charge coverage ratio would not be 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 4.75%, for a total rate of 5.25% as long as the applicable liquidity threshold is met. If it is not met, then the interest rate goes to SOFR with a floor of 0.5% plus 9.00%. Once the consolidated leverage ratio goes below 3.00 to 1.00, the interest rate will be based on SOFR with a floor of 0.5% plus a 3.00% to 3.75% margin depending on the consolidated leverage ratio.
Pursuant to the first amendment of the 2020 Credit Agreement, 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.
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 CCM and its investment affiliates 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 without constituting an event of default. CCM is considered a related party of the Company in that Adam Gray, a member of the board of directors, serves as a managing partner of CCM.
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.
On March 31, 2022, the Company used a portion of the net proceeds from the secondary offering to repay in full the $55.0 million of principal outstanding on the revolving line of credit.
Tax Receivable Agreement
We are required to make certain payments to InnoHold under the tax receivable agreement, which may have a material adverse effect on our liquidity and capital resources. We are currently unable to determine the total future amount of these payments due to the unpredictable nature of several factors, including the timing of future exchanges, the market price of shares of Class A common stock at the time of the exchanges, the extent to which such exchanges are taxable and the amount and timing of future taxable income sufficient to utilize tax attributes that give rise to the payments under the agreement. As of March 31, 2022 and December 31, 2021, the tax receivable agreement liability reflected in the Company’s consolidated balance sheet was $162.2 million and $168.1 million, respectively. This decrease was due to a $5.8 million payment that was made during the first quarter of 2022.
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Other Contractual Obligations
In addition to the material contractual obligations discussed above, other material contractual obligations primarily include operating lease payments obligations. See Note 8 of the condensed consolidated financial statements for additional information.
Cash Flows for the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
The following summarizes our cash flows for the three months ended March 31, 2022 and 2021 as reported in our condensed consolidated statements of cash flows (in thousands):
| Three
Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (44,281 | ) | $ | (9,391 | ) | ||
| Net cash used in investing activities | (13,078 | ) | (12,354 | ) | ||||
| Net cash provided by financing activities | 28,441 | 2,605 | ||||||
| Net decrease in cash | (28,918 | ) | (19,140 | ) | ||||
| Cash, beginning of the period | 91,616 | 122,955 | ||||||
| Cash, end of the period | $ | 62,698 | $ | 103,815 | ||||
Cash used in operating activities totaled $44.3 million for the three months ended March 31, 2022 compared to $9.4 million for the three months ended March 31, 2021. The decrease in cash flows from operations primarily resulted from a $29.6 million decrease in cash provided by operating income which was mainly driven by a decline in gross margin. The decrease in cash provided by operations was further impacted by a $7.3 million decrease in operating cash flows related to net changes in period-over-period fluctuations related to working capital items, offset in part by an increase in cash associated with changes in period-over-period fluctuations in other long-term liabilities.
Cash used in investing activities reflected capital expenditures of $13.1 million for the three months ended March 31, 2022 compared to $12.4 million for the three months ended March 31, 2021. Capital expenditures in the first quarter of 2022 primarily consisted of investments in leasehold improvements and furniture and fixtures related to the opening of new Purple retail showrooms during the first quarter of 2022.
Cash provided by financing activities was $28.4 million during the three months ended March 31, 2022 compared to $2.6 million during the three months ended March 31, 2021. Financing activities in the first quarter of 2022 included $92.9 million of net proceeds received from the secondary stock offering, offset in part by a $55.0 million revolving line of credit payment, a $5.8 million payment on the tax receivable agreement, and $3.8 million in other debt related payments.
Critical Accounting Policies
We discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed March 1, 2022. There were no significant changes in our critical accounting policies since the end of fiscal 2021.
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Off-Balance-Sheet Arrangements
As of March 31, 2022, we were not involved in any unconsolidated special purpose entity transactions and did not have any off-balance-sheet financing. Also, there was no balance outstanding on our $55.0 million revolving credit facility as of March 31, 2022.
Seasonality and Cyclicality
We believe that sales of our products are typically subject to seasonality corresponding to different periods of the consumer spending cycle, holidays and other seasonal factors. Our sales may also vary with the performance of the broader economy consistent with the market.
Available Information
Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We also use the Investor Relations portion of our website, investors.purple.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on the outstanding borrowings under our 2020 Credit Agreement. Our term loan and revolving line of credit both bear interest at variable rates, which exposes us to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. As of March 31, 2022, we had $39.7 million of variable rate debt outstanding under our term loan. We had no borrowings outstanding under our revolving line of credit as of March 31, 2022. An increase of 100 basis points in the effective interest rate on our outstanding debt at March 31, 2022 would result in an increase in interest expense of approximately $0.4 million over the next 12 months. We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Interim Chief Financial Officer (“CFO” and together with the CEO, the “Certifying Officers”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
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Based upon this evaluation, and the above criteria, our CEO and CFO concluded that due to the previously reported material weakness described below, the Company’s disclosure controls and procedures were not effective as of March 31, 2022.
Previously Reported Material Weakness in Internal Control
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
As previously reported, we determined a material weakness existed relating to ineffective information technology general controls (“ITGCs”) in the areas of user access and segregation of duties related to certain information technology (“IT”) systems that support the Company’s financial reporting processes. We believe that these control deficiencies were a result of turnover of critical IT leadership; insufficient training of IT personnel; and inadequate risk-assessment processes to identify and assess user access in certain IT systems that could impact internal controls over financial reporting. As a result, we determined that we did not have effective controls to prevent or detect a material financial statement misstatement on a timely basis.
In response to this material weakness, management, with oversight of the Audit Committee of the Board of Directors, has identified and is in the process of implementing steps to remediate the material weakness. The Company has allocated resources to remediate user access related control and segregation of duties deficiencies. Our remediation efforts also include providing training to personnel associated with reviewing IT user access. In addition, we continue to engage consultants to advise us on making further improvements to our ITGCs. Although we intend to complete the remediation process as promptly as possible, we cannot at this time estimate how long it will take to remediate this material weakness. Until this material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.
The material weakness did not result in any identified misstatements in our condensed consolidated financial statements, and there were no changes to previously issued financial results. However, because the material weakness creates a reasonable possibility that a material misstatement to our condensed consolidated financial statements would not be prevented or detected on a timely basis, the Company’s management concluded that at March 31, 2022, the Company’s internal control over financial reporting was ineffective.
(b) Changes in Internal Controls Over Financial Reporting.
Other than the remediation efforts related to the design and implementation of sufficient controls and processes around ITGCs, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. Please refer to Note 13 — Commitments and Contingencies to the condensed consolidated financial statements contained in this report for certain information regarding our legal proceedings.
ITEM 1A. RISK FACTORS to be updated
Except as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.The disclosure of risks identified below does not imply that the risk has not already materialized.
We are required to make certain prepayments to any revolving loans and thereafter may not be able to draw upon our revolving line of credit.
Under the 2020 Credit Agreement, as amended, if the aggregate amount of cash and cash equivalents we hold exceeds $25.0 million, we are required to prepay an amount equal to the lesser of (i) the outstanding revolving loans and (ii) the amount of cash and cash equivalents in excess of $25.0 million. In addition, we are prohibited from making additional borrowings under the revolver if after giving effect to any borrowing, and any transactions to be consummated therewith, the aggregate amount of cash and cash equivalents exceeds $25.0 million. As a result of these two restrictions, our ability to accumulate cash in excess of $25.0 million is limited. If for any reason we are unable to borrow on our revolving credit facility, we would be limited in available cash to pay expenses and meet our obligations, which lack of liquidity could impair our relationships with suppliers and vendors, delay our growth plans or prevent us from taking actions in our best interest or even continue in business.
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Class A Stock as to distributions and in liquidation, which could negatively affect the value of our Class A Stock.
In the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured notes, preferred stock, hybrid securities or securities convertible into or exchangeable for equity securities. For example, in March 2022 we completed a public offering of shares of Class A Stock. In the event of our liquidation, our lenders and holders of our debt would receive distributions of our available assets before distributions to holders of our Class A Stock, and holders of securities senior to the Class A Stock would receive distributions of our available assets before distributions to the holders of our Class A Stock. Because our decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
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ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
| * | Filed herewith. |
| + | Indicates management contract or compensatory plan. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PURPLE INNOVATION, INC. | ||
| Date: May 10, 2022 | By: | /s/ Robert T. DeMartini |
| Robert T. DeMartini | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 10, 2022 | By: | /s/ Bennett L. Nussbaum |
| Bennett L. Nussbaum | ||
| Interim Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Date: May 10, 2022 | By: | /s/ George T. Ulrich |
| George T. Ulrich | ||
| VP Accounting and Financial Reporting | ||
| (Principal Accounting Officer) |
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