Purple Innovation, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Purple Innovation second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow after the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. It is now my pleasure to introduce your host, Cody McAllister of ICR. Please go ahead, sir.

Thank you for joining Purple Innovation's second quarter 2024 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 second quarter 2024 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 gross margin, 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 DeMartini, Purple Innovation's Chief Executive Officer.

Thank you, Cody. Good afternoon, everyone. With me on the call today, as usual, is our CFO, Todd Bogenson. We're also joined this afternoon by Chief Operations Officer Eric Hainer. While our volume remained challenged in the second quarter, we're encouraged by the overall performance. We're making real strides in becoming cash flow positive and delivering improved profitability in what continues to be a very challenging market. We remain focused on the things within our control and are managing our costs, continuing our investments in innovation and marketing, and ensuring our company's business model is more durable and suited for the market we expect to remain challenging for the balance of the year and maybe beyond. Our adjusted EBITDA improvements in the second quarter are driven by a focus on better sourcing and improved supply chain operations. and we expect to maintain these gains over time. As a result of the progress we've seen, we're reaffirming our adjusted EBITDA outlook for 2024. However, given the deteriorating industry trends that led to a shortfall in our second quarter revenue, we're lowering our top line guidance range by $50 million. We remain confident in our longer term market opportunity for purple, and our second quarter performance reinforces our belief that our path to premium sleep strategy is moving the company towards our goal of sustained profitable growth. On today's call, I'll share some highlights of our second quarter performance, followed by an update on the progress of our five strategic initiatives, of which Eric will discuss the manufacturing and supply initiatives that his team has been implementing and the success of their efforts to improve gross margins. Lastly, Todd will discuss our quarterly financial performance and our updated 2024 full year guidance outlook in more detail. Q2 marked our third consecutive quarter of year over year top line expansion with total sales up 2% in the period. While we continue to navigate a challenging sales environment, we're seeing encouraging signs that our new products and new brand messaging continue to gain traction with consumers and capture market share. That said, we continue to see variation in performance by channel. Direct-to-consumer revenues in total were down with showroom gains offset by e-commerce softness, while our wholesale channel experienced growth. Showroom revenues increased 10.6% driven by an increase in average selling prices from both strategic price adjustments earlier this year and a sizable mix shift into our higher-priced Luxe collection from our Essentials and Premium collections. Importantly, we observed a consistent month-over-month increase in mattress average selling prices, indicating strong and growing consumer acceptance of our new product offerings and showrooms. Over half of our showroom locations open more than 12 months had positive sales in the quarter. In our e-commerce channel, revenue was down 5.7% for the second quarter as our efforts to improve personalization and streamline the website have taken longer than initially expected. Encouragingly, e-commerce gross margins improved meaningfully year over year, helped by price increases, lower discounting, and a range of initiatives to lower product costs while maintaining quality. We also were more efficient with our media while still supporting omni channel traffic. Meanwhile, the partnerships we've cultivated with our retailers to expand and showcase our premium assortment led to a 7.2% year over year increase in wholesale channel net revenue. This performance was highlighted by solid growth in our top accounts, as well as doors we've added since last year. As we look to the back half of 2024, we remain focused on five key initiatives to drive sustainable and profitable growth, which are, first, prioritizing productivity in our existing wholesale and showroom doors. Second, improving our marketing effectiveness. Third, driving e-commerce conversions. Fourth, bringing new product and innovations to the market. And fifth, driving gross margin improvement through manufacturing and supply chain optimization, which Eric will discuss shortly. First, we're prioritizing the productivity of our existing wholesale and showroom doors. In our wholesale channel, we continue to improve the quality of our partnerships and expanded our co-op advertising relationships with several key accounts. Looking ahead, we're continuing to invest and expect to launch more marketing partnerships in the future, which should drive door productivity. In our showroom channel, as we previously discussed, we're focusing on increasing the productivity and profitability of our existing fleet. The work we're doing includes establishing a more focused selling environment with new demand driving tactics, such as mattress carryout services and increased in-store pillow inventory. Additionally, we rolled out a new consumer financing partnership at the end of May that more closely aligns with industry standards. The new financing should help drive customers to trade up and increase attachment rates of accessories. Along with these top line enhancements, we continue to improve showroom operating costs through labor and other store expense optimization activities that are enhancing profitability. Second is improving our marketing effectiveness our marketing will support profitable growth in two ways by enhancing creative and by improving media efficiency. In terms of enhancing creative the premium branding we launched last year in connection with our new product offerings. has been outperforming the previous branding and we believe there's potential to further evolve the marketing creative to attract more consumers. Purple Marketing grabbed attention, educated, entertained, drove curiosity, and inspired sharing, and we believe there's opportunity to bring more of those elements into our premium branding. Next, we're focusing on media efficiency through deeper understanding of our customers, their media usage, and their shopping behavior. We're directing spend to underpenetrated high sales potential geographies. adjusting the cadence of our ad spend to align with consumer demand periods, and shifting some of our upper funnel spend closer to key wholesale distribution points. Additionally, we recently moved digital media management back in-house to increase agility and performance. Our third initiative is driving e-commerce conversion. As we discussed on our last earnings call, our focus in Q1 was on improving e-commerce profitability. And in Q2, we turned our attention to driving conversion improvements through personalization and streamlining of the website. We've not seen meaningful results yet, and we continue to focus on these efforts. Fourth, we remain committed to bringing new products and innovation to market. As a company born from innovation, we believe that to engage customers, we need differentiated, and effective product benefits that reward customers when they train up. Our path to premium sleep strategy is working and is allowing us to weather these difficult times. We'll continue to invest in innovation to help grow the category and get more people sleeping well. Our customer research and low return rates indicate this direction is sound. Our research and development initiatives are generating new and more cost-effective technologies and intellectual property, which not only helps demonstrate our commitment to leadership in the sleep category, but positions Purple for the next stage of growth. We expect multiple new product launches across our major product categories over the next 12 to 18 months as we continue to drive our path to premium sleep strategy and look forward to furthering Purple's position as the premier sleep innovator. I'll now turn the call over to Eric to discuss with you our fifth key initiative.