ALPINE, Utah, May 7, 2019 /PRNewswire/ -- Purple Innovation, Inc. PRPL ("Purple"), a comfort innovation company known for creating the "World's First No Pressure ™ Mattress," today announced results for the first quarter ended March 31, 2019.
First Quarter Financial Summary (Comparisons versus First Quarter 2018)1
- Net revenue increased 37.7% to $83.6 million, compared to $60.8 million.
- Gross margin was 40.7% compared to 42.5%.
- Operating expenses as a percent of net revenue were 35.0% compared to 48.4%.
- Operating income was $4.8 million compared to an operating loss of $(3.6) million. Adjusted operating income was $5.5 million compared to an adjusted operating loss of $(1.2) million.
- Net loss was $(0.7) million compared to a net loss of $(4.3) million. This first quarter 2019 included a $6.3 million non-cash expense associated with the loss on extinguishment of debt, partially offset by a $1.7 gain from a change in fair value of warrant liabilities.
- EBITDA was $0.9 million compared to $(3.1) million. Adjusted EBITDA was $6.2 million compared to $(0.8) million.
"Our first quarter results, which were highlighted by strong revenue growth and a significant improvement in operating profit, represent a very encouraging start to the year," said Joe Megibow, Chief Executive Officer. "We continue to experience increasing demand for our differentiated product offering, especially through our wholesale channel as the combination of door expansion and strong sell-through is fueling healthy year-over-year gains. At the same time, we've made further progress improving execution throughout the organization. This includes addressing identified inefficiencies in our manufacturing, supply chain and fulfillment processes as well as increasing our marketing effectiveness. Looking ahead, we are focused on building on our recent accomplishments and implementing new initiatives to ensure the Company is best positioned to profitably grow market share and generate increased shareholder value."
First Quarter 2019 Review
First quarter 2019 net revenue increased 37.7% to $83.6 million, compared to $60.8 million in the first quarter of 2018. The increase in net revenue was driven by continued wholesale door expansion combined with higher replenishment orders following strong sell-through.
Gross margin for the first quarter 2019 was 40.7% compared to 42.5% in the year ago period. The decrease was primarily due to a shift in sales mix to more sales with wholesale pricing. First quarter 2019 gross margins exceeded internal expectations driven by leveraging fixed costs on higher production volumes and improved efficiencies within the supply chain process.
Operating expenses were $29.3 million in the first quarter 2019 compared to $29.4 million in the prior year period. As a percent of sales, operating expenses improved to 35.0% compared with 48.4% in the year ago period driven by improved efficiencies in marketing initiatives, a decrease in merger transaction costs, and a shift of approximately $3 million of discretionary marketing investments until later in 2019.
Operating income was $4.8 million, compared to an operating loss of $(3.6) million in the prior year period. Adjusted operating income was $5.5 million compared to an adjusted operating loss of $(1.2) million in first quarter 2018. Adjusted operating income (loss) excludes merger transactions costs, equity incentive compensation, legal fees, interim CFO costs, severance and CEO search costs.
Net loss was $(0.7) million for the first quarter 2019 compared to a net loss of $(4.3) million in the year ago period.
EBITDA for the first quarter 2019 was $0.9 million compared to $(3.1) million in the first quarter 2018. Adjusted EBITDA, which excludes merger transactions costs, debt extinguishment and warrant liability, equity incentive compensation, legal fees, interim CFO costs, severance and CEO search costs, was $6.2 million, compared to adjusted EBITDA of $(0.8) million in the last year period.
Additional Financing
On February 25, 2019, stockholders voted in favor of the Company amending and restating its credit agreement to provide $10.0 million of additional financing.
In conjunction with the amended and restated credit agreement, the Company determined that the amended debt terms resulted in a substantial change in the existing debt terms for the two lenders that participated in both the original and additional financing. As a result, the change in terms for these two lenders are required to be accounted for as an extinguishment of the portion of the original debt agreement related to those lenders. Accordingly, the Company recognized a loss on the extinguishment of a portion of the existing debt of approximately $6.3 million. This non-cash expense is primarily associated with the recognition of related unamortized debt discount and debt issuance costs and recognition of the fair value of the incremental loan warrants issued.
The incremental loan warrants issued in conjunction with the amended and restated credit agreement are classified as liabilities and recorded at fair value on the date of the transaction and subsequently re-measured to fair value at each reporting date with changes in the fair value included in earnings. The change in fair value from the date of the transaction resulted in a non-cash gain in the amount of $1.7 million recorded in earnings for the three months ended March 31, 2019.
Balance Sheet
As of March 31, 2019, the Company had cash and cash equivalents of $12.2 million consistent with the balance at December 31, 2018. Inventories as of March 31, 2019 totaled $25.3 million compared with $22.9 million as of December 31, 2018.
Outlook
For 2019, the Company continues to expect net revenue to range from $350 million to $375 million, an increase of 22% to 31% over 2018, and adjusted EBITDA to be in the range of $3 million to $8 million.
Webcast and Conference Call Information
Purple Innovation, Inc. will host a live conference call to discuss financial results today, May 7, 2019, at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 425-9470 (domestic) or (201) 389-0878 (international) at 4:25 p.m. ET and provide the Conference ID: 13690608. The conference call will also be available to interested parties through a live webcast at investors.purple.com. Please visit the website at least 15 minutes prior to the start of the call to register and download any necessary software.
About Purple
Purple is an innovative comfort product company that designs and manufactures products to improve people's lives. It designs and manufactures a range of comfort products, including mattresses, pillows, and cushions, using its patented Hyper-Elastic Polymer® material designed to improve comfort. The Company markets and sells its products through its direct-to-consumer online channel, traditional retail partners, and third party online retailers. For more information on Purple, visit purple.com.
Forward Looking Statements
Certain statements made in this release that are not historical facts are "forward looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements include but are not limited to statements about our outlook and expectations for our financial results for the fiscal year ended December 31, 2019, and our ability to create sustained profitability and shareholder value. Statements based on historical data are not intended and should not be understood to indicate the Company's expectations regarding future events. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Factors that could influence the realization of forward-looking statements include the risk factors outlined in the "Risk Factors" section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2019 and our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2019. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Non-GAAP Financial Measures
Adjusted Operating Income (Loss), EBITDA, and Adjusted EBITDA are non-GAAP financial measures that remove the impact of certain non-cash and non-recurring costs. Management believes that the use of such non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. Refer to the attached table for the reconciliation of such non-GAAP financial measures to the most comparable GAAP financial measure.
Investor Contact:
Brendon Frey, ICR
brendon.frey@icrinc.com
203-682-8200
Media Contact:
Alecia Pulman/Mitch Polikoff, ICR
purplePR@icrinc.com
646-277-1200
Purple Innovation, Inc.
For information regarding Purple products, please contact:
Savannah Hobbs
Director of Purple Communications
savannah@purple.com
PURPLE INNOVATION, INC. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In thousands, except par value) | ||||||||
(Unaudited) | ||||||||
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 12,182 | $ | 12,232 | ||||
Accounts receivable, net | 19,689 | 10,241 | ||||||
Inventories, net | 25,341 | 22,940 | ||||||
Prepaid inventory | 592 | 790 | ||||||
Other current assets | 2,375 | 1,494 | ||||||
Total current assets | 60,179 | 47,697 | ||||||
Property and equipment, net | 22,718 | 22,514 | ||||||
Intangible assets, net | 1,538 | 1,493 | ||||||
Other long-term assets | 5 | 5 | ||||||
Total assets | $ | 84,440 | $ | 71,709 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 25,982 | $ | 24,828 | ||||
Accrued sales returns | 5,189 | 5,457 | ||||||
Accrued compensation | 3,154 | 2,691 | ||||||
Customer prepayments | 4,335 | 7,522 | ||||||
Accrued sales tax | 4,438 | 5,538 | ||||||
Other current liabilities | 3,726 | 2,541 | ||||||
Total current liabilities | 46,824 | 48,577 | ||||||
Long-term debt, related-party | 32,821 | 21,411 | ||||||
Warrant liabilities | 3,166 | — | ||||||
Other long-term liabilities, net of current portion | 4,287 | 3,732 | ||||||
Total liabilities | 87,098 | 73,720 | ||||||
Commitments and contingencies | ||||||||
Stockholders' deficit: | ||||||||
Class A common stock; $0.0001 par value, 210,000 shares authorized; 9,731 issued and outstanding at March 31, 2019 and December 31, 2018 | 1 | 1 | ||||||
Class B common stock; $0.0001 par value, 90,000 shares authorized; 44,071 issued and outstanding at March 31, 2019 and December 31, 2018 | 4 | 4 | ||||||
Additional paid-in capital | 3,728 | 3,655 | ||||||
Accumulated deficit | (4,452) | (4,322) | ||||||
Total stockholders' deficit | (719) | (662) | ||||||
Noncontrolling interest | (1,939) | (1,349) | ||||||
Total deficit | (2,658) | (2,011) | ||||||
Total liabilities and stockholders' deficit | $ | 84,440 | $ | 71,709 | ||||
PURPLE INNOVATION, INC. | ||||||||
Condensed Consolidated Statements of Operations | ||||||||
(In thousands, except per share amounts) | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
2019 | 2018 | |||||||
Revenues, net | $ | 83,648 | $ | 60,768 | ||||
Cost of revenues | 49,579 | 34,953 | ||||||
Gross profit | 34,069 | 25,815 | ||||||
Operating expenses: | ||||||||
Marketing and sales | 24,017 | 22,045 | ||||||
General and administrative | 4,565 | 6,853 | ||||||
Research and development | 690 | 511 | ||||||
Total operating expenses | 29,272 | 29,409 | ||||||
Operating income (loss) | 4,797 | (3,594) | ||||||
Interest expense | 1,144 | 702 | ||||||
Other income, net | (229) | (19) | ||||||
Loss on extinguishment of debt | 6,299 | — | ||||||
Change in fair value - warrant liabilities | (1,697) | — | ||||||
Net loss | (720) | (4,277) | ||||||
Net loss attributable to noncontrolling interest | (590) | (2,727) | ||||||
Net loss attributable to Purple Innovation, Inc. | $ | (130) | $ | (1,550) | ||||
Net loss per common share—basic and diluted | $ | (0.02) | $ | (0.18) | ||||
Weighted average common shares outstanding—basic and diluted | 8,437 | 8,389 | ||||||
PURPLE INNOVATION, INC. | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (720) | $ | (4,277) | ||||
Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
Depreciation and amortization | 722 | 456 | ||||||
Non-cash interest | 732 | 154 | ||||||
Loss on extinguishment of debt | 6,299 | — | ||||||
Gain on change in fair value - warrant liabilities | (1,697) | — | ||||||
Stock-based compensation | 73 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | (9,448) | 271 | ||||||
Increase in inventories | (2,401) | (13,234) | ||||||
Increase in prepaid inventory and other assets | (683) | (1,300) | ||||||
Increase (decrease) in accounts payable | 1,179 | (1,235) | ||||||
Decrease in accrued sales returns | (268) | (219) | ||||||
Increase (decrease) in accrued compensation | 463 | (350) | ||||||
Increase (decrease) in customer prepayments | (3,187) | 4,026 | ||||||
Increase in other accrued liabilities | 646 | 133 | ||||||
Net cash used in operating activities | (8,290) | (15,575) | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (932) | (2,645) | ||||||
Investment in intangible assets | (64) | (68) | ||||||
Net cash used in investing activities | (996) | (2,713) | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from the Business Combination | — | 25,912 | ||||||
Proceeds from related-party debt | 10,000 | 24,000 | ||||||
Payments on line of credit | — | (8,000) | ||||||
Payments for debt issuance costs | (758) | (367) | ||||||
Principal payments on capital lease obligations | (6) | (7) | ||||||
Net cash provided by financing activities | 9,236 | 41,538 | ||||||
Net increase (decrease) in cash | (50) | 23,250 | ||||||
Cash, beginning of the period | 12,232 | 3,593 | ||||||
Cash, end of the period | $ | 12,182 | $ | 26,843 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Property and equipment included in accounts payable | $ | 438 | $ | 95 | ||||
Assignment of founder shares and sponsor warrants | $ | — | $ | 4,691 | ||||
Equipment acquired under build-to-suit service agreement | $ | — | $ | 553 | ||||
PURPLE INNOVATION, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In thousands)
Management believes that the use of the following non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments, which we view as a better measure of our operating performance. These non-GAAP financial measures are EBITDA, adjusted EBITDA and adjusted operating income (loss). Other companies may calculate these non-GAAP measures differently than we do. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Reconciliation of GAAP Net Loss to Non-GAAP EBITDA and Adjusted EBITDA
A reconciliation of GAAP net loss to the non-GAAP measures of EBITDA and adjusted EBITDA is provided below. EBITDA represents net income (loss) before interest expense, net other income and depreciation and amortization. Adjusted EBITDA represents EBITDA excluding certain non-cash and non-recurring costs incurred.
Three Months Ended | ||||||||
2019 | 2018 | |||||||
GAAP net loss | $ | (720) | $ | (4,277) | ||||
Interest expense | 1,144 | 702 | ||||||
Other income, net | (229) | (19) | ||||||
Depreciation and amortization | 722 | 456 | ||||||
EBITDA | 917 | (3,138) | ||||||
Adjustments: | ||||||||
Merger transaction costs | — | 2,028 | ||||||
Debt extinguishment and warrant liabilities | 4,602 | — | ||||||
Stock-based compensation expense | 73 | — | ||||||
Legal fees | 141 | 199 | ||||||
Interim CFO costs | 186 | — | ||||||
Severance and executive search costs | 273 | 140 | ||||||
Adjusted EBITDA | $ | 6,192 | $ | (771) | ||||
Reconciliation of GAAP Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Loss)
A reconciliation of GAAP operating income (loss) to the non-GAAP measure of adjusted operating income (loss) is provided below. Adjusted operating income (loss) represents GAAP operating income (loss) excluding certain non-cash and non-recurring costs incurred.
Three Months Ended | ||||||||
2019 | 2018 | |||||||
GAAP operating income (loss) | $ | 4,797 | $ | (3,594) | ||||
Adjustments: | ||||||||
Merger transaction costs | — | 2,028 | ||||||
Stock-based compensation expense | 73 | — | ||||||
Legal fees | 141 | 199 | ||||||
Interim CFO costs | 186 | — | ||||||
Severance and CEO search costs | 273 | 140 | ||||||
Adjusted operating income (loss) | $ | 5,470 | $ | (1,227) | ||||
1 Reconciliations for non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the "RECONCILIATION OF GAAP TO NON-GAAP MEASURES" tables at the end of this press release.
SOURCE Purple Innovation, Inc.
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