Purple Innovation, Inc.

Good morning, ladies and gentlemen. Welcome to the Purple Innovation First Quarter 2021 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 First Quarter 2021 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 first quarter 2021 earnings release, which was furnished to the SEC today on Form 8 , 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. As you saw from our earnings release issued earlier this morning, 2021 is off to a very good start. First quarter revenue and adjusted EBITDA were up significantly on a year-over-year basis and both meaningfully exceeded our expectations. Given our recent performance, we are pleased to be raising full year guidance, which Craig will walk through momentarily. The year began with strong demand in our digital channel, and as the quarter progressed, we experienced a sharp acceleration in our wholesale business. The product and marketing strategies we are executing, which showcase the premium nature of the Purple brand and our differentiated comfort technologies, along with our recent capacity expansion, combined with improving traffic at brick and mortar retail, and the impact on consumer spending from government stimulus all contributed to our outperformance. A few of the financial highlights from Q1 include net revenue increasing 52% to $186 million, gross margins improving 340 basis points, operating income increasing 125% to $16.9 million, and adjusted EBITDA more than doubling to $22.8 million. Looking at our performance in more detail, I'll begin with our DTC business. DTC revenue increased 54.8% to $125 million. We kicked the post-holiday selling season off with a strong first week of January and carried that momentum into February before accelerating during an even stronger President's Day. Momentum remained high through the rest of the quarter, and we saw a peak when the March stimulus payments were received. Our average order value with a mattress increased 6% year over year, driven by a combination of product mix and pricing increases. Moving on to our purple brand showrooms, they continue to grow in size and importance to the DTC business. We entered Q1 with nine showrooms, compared with only four in the year-ago period. We signed several new leases during the quarter, three of which opened in April, and we remain on track to add between 20 and 25 this year. All locations are performing very well with our older showrooms now exceeding pre-pandemic sales volume. And as to our newest locations, they have scaled faster than any of our original locations. We recently introduced a new store design that looks amazing with elevated presentation and an opportunity to tell the full brand and technology story across our complete assortment. Looking at our product performance, our innovative mattresses continue to lead our business And within mattress, demand continues to be strongest for our hybrid premier product line, underscoring the progress we have made advancing the consumer recognition of the premium benefits of the Purple products. As to our non-mattress products, our disruptive pillows had a banner year and were up nearly double in Q1 over the same period last year, helped in part by the success we have experienced launching Harmony with our wholesale partners. Seat cushions nearly doubled from the prior year as we capitalized on the momentum that started early in the pandemic and have continued to learn and improve our product merchandising and marketing. We launched a new adjustable base that we're really excited about and is already seeing triple the attach rate that our previous model received, reflecting the right mix of style, functionality, ease of shipment, and price point. Our other bedding products also experienced substantial growth similar to pillows and seat cushions in the first quarter. We are very pleased with our progress in driving non-mattress products, led with pillows and seat cushions, as standalone products, and continue to sell the majority to new-to-file Purple customers who have not yet purchased a mattress. We remain bullish on the CRM opportunities this is creating. And as to engaging new customers, on April 1st, we launched the Purple Squishy, our miniature sample mattress and pillow, as an actual purchasable product. each one shipped in its own adorable matchbox container, and in unit volume, we are selling at similar levels as pillows or seat cushions. Not surprising to our brand, we have seen fan videos with more than 10 million views in total featuring the new Squishy. Which brings us to marketing. Our brand evolution continues to make progress as we continue to focus on the differentiation of our product with clear benefits at the center of the campaigns. We have also seen significant performance from both testimonial formats and a focus on Made in USA, which is a genuine source of pride for us. Although we are early in our capabilities, we are seeing meaningful improvement in CRM and repeat customers as we continue to increase the size of our database and find effective ways to directly engage, led by both our maturing email capabilities and success with direct mailers. This has resulted in an increase of repeat orders of approximately 75% versus the same period last year. From a promotional activity perspective, we leaned heavily into President's Day, a typically large mattress holiday, and also played on the aspect of sleep related to daylight savings, both of which were successful campaigns. Finally, for product and marketing, I'm thrilled to report on a recent announcement of our partnerships with Dr. Michael Bruce as our new chief sleep advisor and first advisory board member. Dr. Bruce will be overseeing academic research regarding the efficacy of our products as well as assisting in research on new product development we have underway. As Dr. Bruce stated, our hyper-elastic polymer is like nothing he has seen in all his years as a sleep researcher and clinician. We look forward to his help with formally demonstrating and documenting what we and our customers have known for years. Switching now to wholesale, our wholesale revenue increased 48% to $62 million, our best performance to date, and continued evidence of our ability to compete side by side with traditional players. As I mentioned earlier, the pace of wholesale sales picked up as we moved through the quarter, with sell-throughs strongest in March. Our performance in existing doors, same-store sales, has returned to pre-pandemic levels consistent with Q1 last year, with most growth then coming from new doors added. Also encouraging is that newer accounts, such as Love and Furniture, have been meeting expectations, and Fleet Country in Canada is starting to reopen with only 40% of locations closed as of this month. In addition to our strong brand and product momentum, our wholesale performance also benefited from some external factors. Specifically, store traffic has continued to improve as more of the U.S. gets vaccinated, shifting a portion of the volume online gained during the pandemic back to physical retail. More stores are open compared with recent quarters, especially in Canada. And similar to DTC, we have seen spikes in wholesale sell-through correlated with government stimulus checks. And as of mid-March, we are starting to see easier comparisons due to store closures last year. The strong momentum in wholesale has carried over into the second quarter so far. In Q2, we are seeing higher sell-through at existing doors and anticipate that trend going forward as we lean into merchandising and advertising strategies and have therefore adjusted the number of new doors we plan to add in 2021. We previously expected to add over 1,500 doors in 2021. However, by refocusing our resources onto maximizing existing door productivity first, we now expect to open between 800 to 900 total doors in 2021, which both achieves our stated net revenue goals and creates even more opportunity for the future. Moving on to production, as I stated last quarter, we anticipate 2021 being our first year where we've deliberately built excess manufacturing capacity, and we are well underway in this regard. Purple South in McDonough, Georgia, is in production, making Purple Grid, assembling mattresses, as well as making both seat cushions and pillows. MAX 8, the first machine at Purple South, has been in full production mode since February. In May, we brought MAX 9 online, and MAX 10 and MAX 11 are on schedule and will follow later this year. These four machines are expected to increase our mattress output by over 65% by the end of 2021, which will further expand as we bring out MAX 12 and 13 next year, And with our current capacity, we are already producing record levels of mattresses in April. We are also completing our work on our entirely new next generation Max machine, which is already able to make Purple Grid in limited capacity, and which we anticipate coming online in Purple South later this year as well. We are very pleased with the start to our mattress, pillow, and seat cushion manufacturing, assembly, and fulfillment activities in Georgia. In order to provide us with greater flexibility around our future plans for this location, which could include additional production for a fast-growing pillow and seat cushion business, potential space for additional mattress max machines, and regional expansion of our customer care operations, we recently took the opportunity to amend our lease and increase the size of the facility by an additional approximately 300,000 square feet. This expansion will allow us to take advantage of economies of scale as we increase our presence on the East Coast which along with our facilities in Utah provide us with a great foundation to meet the growing demand for our brand and products, drive efficiencies in our cost structure, and better serve our consumers and wholesale customers. We also continue to invest in quality and operational improvements in all of our max machines and assembly lines and have recently introduced significant advancements in semi-autonomous raw materials feeds, mattress assembly, and fulfillment. These efforts continue to lower our labor costs per unit and increase our overall capacity. I'll now turn it over to Craig, who will review the financials and our outlook in more detail.