Purple Innovation, Inc.

Good afternoon and welcome to the Purple Innovation Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Stacey Turnoff, Investor Relations at Edelman Smithfield. Please go ahead.

Thank you for joining Purple Innovation's third 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. Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings for the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted earnings per share. A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. With that, I'll turn the call over to Rob DiMartini, Purple Innovation's Chief Executive Officer.

Thank you, Stacey. Good afternoon, everyone, and thank you for joining us. I'm joined today by our CFO, Todd Bogenson. While the third quarter was difficult from a revenue growth perspective, we are encouraged that volume was approximately flat on a quarter-over-quarter basis. This performance is evidence that we're maintaining strength despite ongoing softness as the housing market continues to struggle, and we are encouraged that our year-to-date results have modestly outperformed the broader industry. Earlier this quarter, we took proactive steps to achieve significant operational efficiencies and position ourselves to capitalize on tailwinds when the industry improves, with both a consolidation of our manufacturing facilities and a corporate restructure. These steps, along with our disciplined approach to pricing, cost savings initiatives, and selective promotional strategies, drove meaningful savings in the quarter with adjusted gross margin improving by 340 basis points year over year to 40.5%, which continues to exceed our 40% year-end target for the second consecutive period. In addition, we're highly encouraged by the progress we've made with the restructuring, which is continuing in line with our expectations. The restructure of our corporate organization is complete and the consolidation of our manufacturing operations is more than halfway through. It's clear that we're delivering significant margin improvement from these efforts. To date, we've completed the realignment of our distribution network, fully transitioned our e-commerce operations, and have transitioned 75% of our wholesale orders to ship out of our Georgia facility. We expect to be fully operational in Georgia manufacturing facility by the end of the year. The supply chain consolidation and corporate restructure is expected to yield annual EBITDA savings of $15 to $20 million starting in 2025, and we plan to have positive cash flow and adjusted EBITDA next year supported by our leaner corporate structure and right-sized manufacturing operations. These savings will allow us to continue investing in innovation and marketing, further supporting our path to premium sleep strategy. Turning to our revenue performance, Q3 sales were down 15% year over year, primarily driven by softness in consumer demand, optimization of our advertising spend, and a tough comparison to our third quarter last year when we launched our path to premium sleep strategy. Within DTC, showrooms continue to have solid performance and were flat year over year, driven primarily by an increase in average selling prices as we continue to upsell customers to higher price models through our path to premium sleeve strategy, despite soft unit demand in the category. Our e-commerce business was down 16% year over year, primarily due to 36% lower advertising spend than third quarter last year when we invested heavily to support our new product and brand launch. This year, we've optimized our advertising to be more efficient and profitable. The year-over-year decrease in ad spend coupled with fewer days on promotion significantly improved the profitability of the channel. Our wholesale channel was down 20% year-over-year as we lapped the launch of our new products into the majority of our partners. However, we are encouraged by the feedback we're receiving from many retailers about the strength of Purple's performance compared to other brands on their floor. Turning to progress of the five strategic initiatives. As a reminder, the initiatives are driving gross margin improvement, improving productivity of existing showroom and wholesale doors, driving e-commerce conversion, improving our marketing effectiveness, and bringing new products and innovation to market. Our first initiative is driving gross margin improvement. We continue to drive cost savings through supplier diversification, plant efficiency gains, and optimized freight scheduling. As part of this initiative, during the quarter, we've begun producing all pillows in-house, further improving profitability. We're also changing vendors that produce certain components of our mattresses, which is now delivering double-digit savings on these items. As a result of our cost savings program, our mattress production is becoming notably more efficient, with a 25% decrease in hours per mattress produced compared to last year. Our showrooms remain a critical driver in our premium brand experience. we continue to generate healthy sales trends and improved profitability across our retail locations through two main strategies. First, we're focusing on pillows as a significant traffic driver, with year-to-date pillow sales up approximately 30%, and most pillows are now carry-out items. Second, we're focusing on the growth of our luxury line, Rejuvenate, to increase both average selling prices and profits. We're seeing the strength of this product, which is supported by our new financing offers, accounting for nearly 30% of mattress revenue in showrooms. On the wholesale side, our partnerships remain solid and we continue to see growth across the higher price point Restore and Rejuvenate collections, which has increased the average selling price for the channel. Our top selling mattress in the wholesale channel is now a Restore Premier, the highest end of our premium collection. We also continue to expand our co-branded advertising relationships, which has led to notable improvement in sales across several major retailers. Next, our third initiative is driving e-commerce conversion, focusing on improving sales and profitability. We recently refreshed our promotional strategy for the Purple Flex, an e-commerce only mattress, focusing on competitive price points and promotional bundles. This unique product engineered at $9.99 for a queen has performed well and has already been selling through at a high rate. We've also made enhancements to our website, focusing on personalization and improving the customer journey from research to purchase. Turning to our strategic initiative, improving marketing effectiveness. In the third quarter, we continued to focus on driving efficiency by investing in profitable advertising. We're also implementing new tools to optimize media spend and drive more orders per dollar spent. This includes better ways to identify individuals coming to our website across various devices and tailoring web experiences to better match specific customer preferences. Finally, let's turn to innovation. Over the past year, we've launched our most innovative product line in history. with nine mattresses across three tiers, including our luxury collection. These differentiated product offerings powered by our proprietary gel grid technology continue to deliver strong satisfaction and engagement from customers. Looking ahead, we plan to roll out new innovation in early 2025 across two-thirds of our product line, which will further enhance our premium positioning. We expect to launch new grid technology and improved aesthetics across our rejuvenate collection and a new essentials line with improved durability and refreshed aesthetics. In addition to mattress innovation, we'll be introducing under bed and top of bed products along with new channel distribution. While we're pleased with our improved profitability, we expect continued pressure on the top line due to industry-wide demand declines. We anticipate finishing the year at the lower end of our guidance for revenue and adjusted EBITDA. However, we remain confident that our restructuring efforts will strengthen our business model over the long term. We believe our path to premium sleep strategy will continue to move the company towards sustained profitable growth at an accelerated pace and will help build the category in the process. Now I'll turn the call over to Todd to discuss our financial performance in more detail.