Purple Innovation, Inc.

Good morning, ladies and gentlemen, and welcome to Purple Innovation's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Brendan Frey of ICR. Please go ahead.

Thank you for joining Purple Innovation's third quarter 2020 earnings call. A copy of our earnings press release is available on the investor relations section of Purple's website at www.purple.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Purple Innovation's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting the company's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our third quarter 2020 earnings release, which was furnished to the SEC yesterday on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Today's presentation will include references to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, and adjusted earnings per share. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. With that, I'll turn the call over to Joe Megabeau.

Thank you, and good morning, everyone. With me on the call today is John Legge, our Chief Operating Officer, and Craig Phillips, our Chief Financial Officer. Following our prepared remarks, we'll be happy to take your questions. It was another very strong quarter with demand for the Purple brand at an all-time high. Our teams did a great job capitalizing on our opportunities as we manufactured and sold more mattresses in Q3 than in any quarter in the company's history to deliver record revenue. Our top line performance was driven by incredibly strong gains in our DTC channel, coupled with a resurgence in our wholesale business as our retail partners experienced improved traffic following Q2 store shutdowns and limited operating hours. During the quarter, we also executed key operational, strategic, and financial initiatives in support of our long-term growth strategies. A few of the many key highlights for Q3 compared to Q3 2019 include net revenue increasing 59% to a record $187 million, growth margins expanding 220 basis points, net loss of 1.2 million with adjusted net income of $17.2 million, adjusted EBITDA growing 97% to $30.1 million, and cash increasing 213% to $98 million, even as we made important investments in the business. We also began work on our new 520,000 square foot manufacturing assembly and fulfillment center in Georgia, acquired the rights to an IP licensing agreement signed prior to the formation of PRPL, strengthening our IP portfolio, and signed a new five-year, $100 million senior secured credit facility, including an available $55 million line of credit, creating a more optimal capital structure, and significantly lowered our borrowing costs. I'm also thrilled to report that we just received the J.D. Power Award for highest customer satisfaction with Mattress Online for our second year in a row. Looking at our performance in more detail, DTC revenue increased 98% to $134 million with strong increases over the prior year period in each month of the quarter. We kicked things off with a very successful 4th of July holiday period creating a lot of momentum that carried into August before accelerating during an even stronger Labor Day sale. In terms of product performance, across our DTC channel, we experienced fantastic growth. For mattresses, demand was once again strongest for our hybrid Premier product line, underscoring the progress we have made advancing the premium nature of the Purple products and brand. The combination of product mix and price increases implemented in early July drove a 14% increase in average mattress order value year over year. At the same time, our non-mattress categories posted growth rates greater than 100%. Demand is reaching new heights as we've moved quickly to capitalize on the recent focus on home in both the bedroom and home office, which I suppose are sometimes the same, by upholding our marketing, merchandising, and selling programs for our premium seat cushions, pillows, and sheets. With consumer demand still leaning heavily online alongside reduced channel marketing costs, we shifted our marketing strategy to better reach those new to online customers. We pulled back on more expensive lower funnel channels and are now able to efficiently cast a wider net in both traditional media and digital prospecting. With this larger addressable market, we were able to substantially increase traffic to our site while maintaining healthy conversion rates. This approach once again drove significant growth and meaningful expense leverage. Turning to wholesale, revenue is $53 million, marking a return to growth with an increase of 7% compared with a year ago and up 165% from Q2 this year. Our sales in this channel rebounded strongly from Q2 levels as retail traffic steadily improved and consumers shopping our brick-and-mortar accounts increasingly chose the purple brand. This was evident by the strong sell-through trends we witnessed at both existing accounts and recently launched retailers in the third quarter, especially during the key July 4th and Labor Day sale periods. As we discussed on our last call, the strong demand for our brand and products is outstripping capacity and in Q3 likely reduced our wholesale performance. We were also challenged with both foam and coil supply shortages that reduced production levels below our intrinsic capacities. The addition of MAC7 in June helped alleviate some constraints, but until production at our new facility is up and running and supply shortages are alleviated, our ability to significantly expand with existing customers and add new accounts is constrained. We recently made the decision to allocate a portion of production in order to bring on our first international wholesale relationship. I'm excited to announce that as of yesterday, Purple products are available at Sleep Country, Canada's leading omnichannel mattress and bedding retailer with over 265 doors throughout the country. This includes the launch of an all-new mattress, the Purple Plus, which adds a premium cover that is cool to the touch and even more breathable, along with an advanced new premium comfort foam under the Purple Grid that, along with the high air dissipation supported by the grid, further pulls heat away from the body. It's a great new mattress. And in support of our expected growth in Canada, We have expanded our partnership with Leggett & Platt, who will provide Canadian assembly capacity, augmenting our in-house assembly capacity. We look forward to further expanding our wholesale door count in 2021 once MAX 8 and 9 come online at Purple South. To provide an update of the status of our new facility in Georgia, I'm now going to turn it over to John.