Purple Innovation, Inc.

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 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 second quarter 2023 earnings release, which was furnished to the SEC today on Form 8K, 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 reference 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 Rob DiMartini, Purple Innovation's Chief Executive Officer. Rob?

Thank you, Brendan, and thank you and good afternoon, everyone. With me on the call today is Bennett Nussbaum, Purple's Chief Financial Officer. Since taking the helm of Purple 18 months ago, our focus has been building the right team and implementing the systems and process that will allow Purple to successfully compete and grow the premium segment of the nearly $20 billion US mattress industry. The entire organization has been driving towards the largest, most innovative product launch in the history of the company and launching a compelling and effective new marketing campaign. The introduction of 11 new products, including multiple firmness options, three new luxury tier offerings, and advanced smart bases began on May 15th. Since the launch, there have been several positive signals that our path to premium sleep strategy is the right course for the future of the company, which I'll speak to throughout this call. We introduced the Restore and Rejuvenate product lines and the Sleep Better Live Purple marketing campaign in our showrooms and on our website on May 15th, and began the rollout with wholesale partners during the second quarter. Today, at the end of the quarter, less than 50% of our wholesale doors were transitioned, and in the second quarter, and the remaining wholesale partners are set to change over the back half of the year. The Sleep Purple Live Better marketing is achieving two important goals. First, our advertising, organic content website, and support materials clearly communicates the way our proprietary Purple Gel Flex grid delivers three key benefits. Unmatched cooling and temperature regulation, pressure relief, and instant adaptability, all in the name of deep, uninterrupted sleep. Second, the Sleep Better Live Purple campaign linked sleeping on a purple mattress to an active, healthy lifestyle, highlighting the brand's commitment to wellness. Sales improved month over month as the quarter progressed. June was the first full month with our new product in market, and it was the strongest month of the quarter, up 18% compared with the run rate in the first five months of the year. Importantly, consumer response to the new premium and luxe mattresses has been strong out of the gate in our showroom channel, with average selling prices up 10% or better since launch. We also saw traction in the e-commerce channel after several quarters of sequential declines. E-commerce sales stabilized in the second quarter. We've already seen several of our wholesale customers increase the number of slots for our luxury collection based on initial sell-through performance. While still early, these initial signals demonstrate that we are on the right path to sustainable and profitable growth. We've also seen very compelling consumer feedback for the new product lines. Year-to-date, we've connected with 7,500 consumers, including more than 200 in-home use tests. Survey respondents overwhelmingly agreed that Purple provided better pressure relief, temperature regulation, and body contouring support compared to their previous non-Purple mattresses. Overall, testers of our new mattress portfolio indicated that purchase consideration was high, and that was not just from testers who already owned Purple mattresses. We talked to owners of two major mattress brands and nine out of 10 of those consumers said they definitely would or probably would consider a purple mattress for their next purchase. This overwhelmingly positive consumer feedback is some of the strongest I've seen in my 35-year career. It's really an indicator of the clear purple Gelflex grid benefits and the differentiated experience that position us to capture, share, and grow our position amongst a field of largely undifferentiated foam and hybrid competitors. While this industry has a notoriously long purchase cycle, we're intently focused on capitalizing on the growing interest for purple enabled by our new marketing position and fresh new product lineup. While the mattress industry continues to face softness due to forward buying in recent years and inflationary pressures on consumer discretionary spending, we're encouraged by the leading indicators in our business that show the path to premium sleep strategy is the road to growth. Looking at our second quarter performance, net revenue of $121 million was up 11% sequentially from the first quarter and at the low end of our expectations as the speed at which the new strategies gained traction has varied by distribution channel. Showrooms, where we control the presentation and the selling process, is showing the most encouraging results. And although it's still early in the launch, our new marketing campaign is delivering the brand benefits and driving increased traffic to our site, to our showroom, and to our partner stores. The path to premium sleep strategy is working, and it needs to work harder to continue to accelerate our demand. Shifting to results by channel, starting with showrooms, echoing my earlier comments, we're pleased with the early results from the channel, and we have the evidence that our showrooms are delivering the premium experience necessary to support our product launch. In a recent consumer survey, 89% of respondents are more likely to buy after visiting our showrooms, and 85% said they would recommend us to family and friends. Over half of consumers noted that they were very or extremely likely to purchase a purple mattress in the future after visiting one of our showrooms. From a product perspective, our showroom sales team has done a great job trading consumers up into the luxury line of Rejuvenate mattresses, which are priced between $5,500 and $7,500, with approximately 15% of showroom mattress revenue in June coming from the luxury collection. This drove a significant increase in average mattress selling price over the baseline during the important Memorial Day sale period. Additionally, our premium and premium plus adjustable bases are exceeding expectations due to the great value and benefits, especially when paired with a purple mattress. Moving to e-commerce, searches for our brand and total site visits are up dramatically following the launch of the new product and ad campaign. an indication that our new marketing strategy is driving the top of the sales funnel. With interest growing, we're testing how to best optimize the site in order to capitalize on the increased traffic and drive higher conversion rates. This includes personalizing the website and testing both product messaging and assortment offering, while evolving the overall website design to align with the brand's more premium positioning and maximizing each visit's contribution to the business. While we turned our marketing engine back on in mid-May, the planned pullback in spend prior to that weighed on the e-commerce demand during the quarter. We are encouraged that e-commerce sales were flat compared to the previous quarter, marking the first time since Q4 2021 the channel did not experience quarter-over-quarter declines. All e-com major metrics are moving in the right direction, and we expect that the business has flattened out and will return to sustained growth. From a product perspective, we're seeing customers trade up within our new premium collection more than they had previously, driving up the average selling price for the restore collection. Encouragingly, we're selling more lux units online than we estimated for the channel early in the transition. With respect to wholesale, we continue to make timely progress rolling out the new product portfolio to our channel partners. By the end of the second quarter, a little less than half our approximately 3,300 doors were live with our new line of mattresses. As the industry has reported, many retailers reported mixed category results following the Memorial Day holiday. Our new products saw improved velocity from most customers. From a product perspective, we're seeing growing support for our new line, and we're hearing from customers that our new products are outperforming the old. This feedback has given us continued confidence in the rollout and we expect to convert the remaining doors throughout quarter three with the final third of our doors launching in very early Q4. Overall, we're confident that the results from our new path to premium sleep strategy indicate that we've set the right course for PURPLE. We look forward to seeing our top line recovery accelerate as the positive data points from the second quarter have the business pointed for further improvement in the second half of the year. Adding to our confidence is the new debt facility we signed earlier this week, consisting of a $25 million term loan with Caledine Commercial Finance and a revolving facility led by the Bank of Montreal that provides up to $50 million in revolving loans subject to a borrowing base. This facility, which replaces our prior credit agreement led by KeyBank, is less restrictive, including no minimum EBITDA requirement, allowing us more flexibility to invest in accelerating our growth initiatives and increasing market share. Looking ahead, our initial guidance for 2023 assumed that the U.S. mattress market would show signs of stabilizing as the year progressed. Based on the industry trends we're seeing, we're moderating our outlook Bennett will walk you through the specifics shortly, but in short, we're using June and July volumes to project growth going forward and building in continued modest improvements in the month-over-month balance of the year. I'll now turn it over to Bennett, who will review the financials and guidance in more detail. Bennett? Oh, thank you, Rob.

For the three months ended June 30, 2023, net revenue was $120.9 million. down 16.1% compared to the $144.1 million in the prior year period, and up 10.5% from Q1 of this year. This decrease year over year was primarily due to an ongoing shift in demand for home-related products, inflationary pressure on discretionary consumer spending, forward buying of consumers in recent years, industry standard price reductions from the selling of new mattress floor models to wholesale partners, and increased discounting of discontinued models sold through our direct-to-consumer channels. The increase in net revenue on a sequential basis was driven by an uptick in consumer demand driven by the positive response to our new premium mattresses and higher average selling prices. By channel versus prior year, wholesale net revenue declined 15.5% and direct-to-consumer net revenues declined 16.6%. Within direct-to-consumer, e-commerce declines of 23.1% were partially offset by a 13.5% increase in showroom net revenue driven largely by the net addition of 16 showrooms over the past 12 months. Gross profit dollars were $38.5 million during the second quarter of 2023 compared to $48.8 million during the same period last year, with gross margin at 31.8% versus 33.9% in the second quarter of 2022. Excluding discounts and the impact of transitional costs associated with the new product launch, adjusted gross margin in the current year quarter was 38.6%. These discounts and costs include industry standard price reductions on the selling of new mattress floor models to wholesale partners, coupled with increased discounting of discontinued models sold through our direct-to-consumer channels as we transition to our new premium and luxury product lineup. The 470 basis point improvement year-over-year was driven by the ongoing realization of efficiencies and cost savings put in place during the first half of 2022. Operating expenses were $75.7 million or 62.7% of net revenue in the second quarter of 2023. compared to $60.9 million or 42.3% of net revenue in the prior year period. The increase in operating expenses compared with the prior year period was driven primarily by an increase in legal and professional fees of $8.2 million incurred by the special committee, including a $4 million accrual made in the second quarter of 2023 for the settlement amount owed to Coliseum. Marketing and sales expenses were also higher in the second quarter as management increased advertising spend to align with the launch of our new premium and luxury product lineup. Advertising spend was $20.1 million in the second quarter of this year compared to $18.9 million in the second quarter of last year and $11.7 million in the first quarter of 2023. Net loss attributable to Purple Innovation was $37.5 million for the second quarter of 2023, compared to $8.3 million in the year-ago period. On an adjusted basis, which excludes adjustment for certain non-cash items and other items we do not consider in the evaluation of our ongoing operational performance, including gains from change in our tax receivable agreement income, and the change in valuation of our net deferred tax assets, net loss in the second quarter of 2023 was $21.1 million or 20 cents for diluted share based on an adjusted weighted average diluted share count of 105.1 million. compared to adjusted net loss of $8.8 million or 11 cents per diluted share based on an adjusted weighted average diluted share count of 83.2 million in the prior year period. Adjusted net income has been adjusted to reflect an estimated effective income tax rate of 25.9% for the current year period compared to 31.7% for 2022. EBITDA for the quarter was negative $31.3 million compared to negative $8 million in the second quarter of 2022. Adjusted EBITDA, which excludes certain non-cash and other items we do not consider in the evaluation of our ongoing performance and as detailed in today's earnings release, was negative $18.5 million. Moving to our balance sheet, As of June 30, 2023, the company had cash and cash equivalents of $26.9 million, compared with $41.8 million at December 31, 2022. The decrease was driven primarily by cash used at operations of $38.1 million, capital expenditures of $5.8 million, primarily related to additional investments made in our manufacturing facilities, and the repayment of the full $24.7 million outstanding on the credit facility. This was partially offset by cash provided from net proceeds of $57.2 million received from the public offering completed in February 2023. Inventories at June 30th, 2023 were $78.4 million compared with $73.2 million on December 31st, 2022 in support of the new product launch. Turning now to our current outlook. While we have continued confidence in our new product launch, we are tempering expectations for a full year guidance based on second quarter results and persisting industry softness. For 2023, we now expect net revenue to be in the range of $560 to $590 million and adjusted EBITDA between minus $10 million and break-even. with gross margins on a reported basis in the mid-30% range. Excluding the discounts and transitional costs related to the new product launch we incurred in the second quarter and expect to incur in the third and fourth quarters, gross margins on an adjusted basis for the year are projected to be in the high 30% range. Now, back to Rob for his closing comments.