Purple Innovation Inc

Previous wording

The following discussion is intended to provide a review of the operating results and financial condition of Purple Innovation, Inc. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”

Current wording

The following discussion is intended to provide a review of the operating results and financial condition of Purple Innovation, Inc. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.” Capitalized terms used in this “Part I. Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations and not otherwise defined shall have the meanings set forth in “Part I. Item. 1 Financial Statements.”

Previous wording

All forward-looking statements included in this Quarterly Report are made only as of the date thereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking statements.

Current wording

All forward-looking statements included in this Quarterly Report are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses (including the discussion under the heading “Outlook for Growth”), and other characterizations of future events or circumstances are forward-looking statements.

Previous wording

Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. At June 30, 2024, Purple Inc. had a 99.8% economic interest in Purple LLC while Class B unit holders had the remaining 0.2%.

Current wording

Our business consists of Purple Inc. and its consolidated subsidiary, Purple LLC. As the sole managing member of Purple LLC, Purple Inc., through its officers and directors, is responsible for all operational and administrative decision making and control of the day-to-day business affairs of Purple LLC without the approval of any other member. At September 30, 2024, Purple Inc. had a 99.8% economic ownership interest in Purple LLC while Class B unit holders had the remaining 0.2%.

Previous wording

In May 2023, we launched our new Premium and Luxe product lineups. This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging. The response to our new products and enhanced brand positioning has been extremely positive. As consumer spending habits have moved away from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 60 as of June 30, 2024. We have also focused on growing our placements with wholesale partners and improving wholesale door productivity. Improving the sales productivity of both our wholesale partners and existing showrooms remains a significant priority and critical component of our strategy to respond to shifting demand patterns. In addition, we are diligently working to improve e-commerce conversion by determining ways to best optimize traffic on our website. Furthermore, we are concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions, continued mix shift towards our Premium and Luxe collections, and manufacturing and supply chain optimization. With the introduction of our new product lineups, we initiated a new marketing campaign which included enhanced brand positioning and increased media investment at the top of the acquisition funnel. During the second quarter of 2024, we began to realize efficiencies with our media investments by targeting specific segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product. We also improved our gross margin in the second quarter of 2024 by driving cost savings through supply chain initiatives and manufacturing efficiency. We have delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with improved delivery reliability. We believe we have set the right course for the next stage of growth for the Company.

Current wording

In May 2023, we launched our new Premium and Luxe product lineups. This launch was supported by enhancements to our in-store presence and refinements to our marketing programs and brand messaging. The response to our new products and enhanced brand positioning was extremely positive. As consumer spending habits have moved away from the COVID era e-commerce spike to brick and mortar buying, we have grown the number of Purple showrooms to 59 as of September 30, 2024. We have also focused on growing our placements with wholesale partners and improving wholesale door productivity. Improving the sales productivity of both our wholesale partners and existing showrooms remains a significant priority and critical component of our strategy to respond to shifting demand patterns. In addition, we are diligently working to improve e-commerce conversion by determining ways to best optimize traffic on our website. Furthermore, we are concentrating efforts on driving gross margin improvement through various methods such as selective pricing actions, continued mix shift towards our Premium and Luxe collections, and manufacturing and supply chain optimization. With the introduction of our new product lineups, we initiated a new marketing campaign which included enhanced brand positioning and increased media investment at the top of the acquisition funnel. During 2024, we have been realizing efficiencies with our media investments by targeting specific segments most likely to purchase Purple and by focusing more effort on those consumers currently in the market for a sleep product. Moreover, we have improved gross margin in the second and third quarters of 2024 by driving cost savings through supply chain initiatives and manufacturing efficiency. We have delivered direct material cost savings from our supplier diversification efforts, improved scrap and yield results from continuous improvements, and our outbound freight costs are reflecting cost improvements along with improved delivery reliability. We believe consolidation of our manufacturing footprint pursuant to our Restructuring Plan is an important step to advance our grid innovation and build momentum to achieve positive operating cash flow and market share growth over the long term.

Previous wording

On January 23, 2024, we entered into the Amended and Restated Credit Agreement, which amended and restated the Term Loan Agreement, with the Lenders. The Lenders agreed to assume our obligations under the Term Loan Agreement and agreed to refinance our existing obligations. Pursuant to the Amended and Restated Credit Agreement, we borrowed $61.0 million from the Lenders that was used to repay the $25.0 million of Term Loans outstanding, the $5.0 million of ABL Loans outstanding, loan fees, premiums and expenses incurred in connection with this transaction, and provided net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) equal to approximately $27.0 million. Interest on the new loan is payable each month and the principal outstanding matures and is due on December 31, 2026. We may elect for interest to be capitalized and added to the principal amount. The loan bears interest at a rate equal to (i) the secured overnight financing rate plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, if Purple LLC elects to pay interest in kind to reduce its cash obligations, 10.25% per annum). Any prepayments on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25%, and any prepayments on or after August 7, 2025 are subject to a prepayment penalty of 2.50%. We may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by us to the extent agreed to by the Lenders at their discretion. The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based loan. In connection with our execution of the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the 2023 Agreements were terminated.

Current wording

On January 23, 2024, we entered into the Amended and Restated Credit Agreement, which amended and restated the Term Loan Agreement, with the Lenders. The Lenders agreed to assume our obligations under the Term Loan Agreement and agreed to refinance our existing obligations. Pursuant to the Amended and Restated Credit Agreement, we borrowed $61.0 million from the Lenders that was used to repay the $25.0 million of Term Loans outstanding, the $5.0 million of ABL Loans outstanding, loan fees, premiums and expenses incurred in connection with this transaction and provided net proceeds to us (after payments of outstanding debt, unpaid accrued interest, and expenses) of approximately $27.0 million. Interest on the new loan is payable each month and the principal outstanding matures and is due on December 31, 2026. To reduce cash obligations, we have elected for interest to be capitalized and added to the principal amount. The loan bears interest at a rate equal to (i) the secured overnight financing rate plus 0.10%, with a floor of 3.5% per annum, plus (ii) 8.25% per annum (or, because Purple LLC has elected to pay interest in kind to reduce its cash obligations, 10.25% per annum). Any prepayments of principal on or after August 7, 2024 but before August 7, 2025 are subject to a prepayment penalty of 1.25%, and any prepayments of principal on or after August 7, 2025 are subject to a prepayment penalty of 2.50%. We may request an additional term loan from the Lenders in an aggregate amount not to exceed $19.0 million on terms requested by us to the extent agreed to by the Lenders at their discretion. The Amended and Restated Credit Agreement also removed restrictions and requirements typically associated with an asset-based loan. In connection with our execution of the Amended and Restated Credit Agreement, all obligations under the 2023 Credit Agreements were paid in full and the 2023 Agreements were terminated.

Previous wording

In connection with the Amended and Restated Credit Agreement, we issued Warrants to the Lenders to purchase 20.0 million shares of our Class A common stock. Each Warrant entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per share, subject to adjustment. The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. A holder of the Warrants will not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise. The Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. During the six months ended June 30, 2024, we recognized a loss of $4.9 million in our condensed consolidated statement of operations related to an increase in the fair value of the Warrants outstanding at June 30, 2024.

Current wording

In connection with the Amended and Restated Credit Agreement, we issued Warrants to the Lenders to purchase 20.0 million shares of our Class A common stock. Each Warrant entitles the registered holder to purchase one share of our Class A common stock at a price of $1.50 per share, subject to adjustment. The Warrants will expire on the 10-year anniversary of issuance, or earlier upon redemption. A holder of the Warrants will not have the right to exercise them, to the extent that after giving effect to such exercise, the holder (together with its affiliates) would beneficially own in excess of 49.9% of the shares of Class A common stock outstanding immediately after giving effect to such exercise. The Warrants contain certain provisions that do not meet the criteria for equity classification and therefore were recorded as liabilities. The liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. During the nine months ended September 30, 2024, we recognized a loss of $0.1 million in our condensed consolidated statement of operations related to an increase in the fair value of the Warrants outstanding at September 30, 2024.

Previous wording

On June 27, 2024, our Board approved the adoption of the NOL Rights Plan with a stated expiration date of June 30, 2025. The Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately $238 million to reduce potential future federal income tax obligations from becoming substantially limited by future ownership of our Common Stock. Upon adopting the NOL Rights Plan, 0.3 million shares of our authorized shares of preferred stock were designated as Series C Preferred Shares. Pursuant to the NOL Rights Plan, the Board authorized and declared a dividend of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on July 26, 2024. Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage), the Rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan.

Current wording

On June 27, 2024, our Board approved the adoption of the NOL Rights Plan with a stated expiration date of June 30, 2025. The Board approved the NOL Rights Plan to protect stockholder value by attempting to safeguard our ability to use Current NOLs of approximately $238 million to reduce potential future federal income tax obligations from becoming substantially limited by future ownership of our Common Stock. Upon adopting the NOL Rights Plan, 0.3 million shares of our authorized shares of preferred stock were designated as Series C Preferred Shares. Pursuant to the NOL Rights Plan, the Board authorized and declared a dividend of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on July 26, 2024. Upon a stockholder acquiring greater than a 4.9% ownership percentage threshold (or, if a stockholder has beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage), the Rights will become exercisable to significantly dilute any stockholder who violates the ownership limitations of the NOL Rights Plan. The NOL Rights Plan was ratified by the Company’s stockholders at the Special Meeting.

Previous wording

In connection with the NOL Rights Plan, the Board adopted, and recommended that our stockholders approve, the NOL Protective Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage). The NOL Rights Plan and the NOL Protective Charter Amendment will be submitted for stockholder approval at the Special Meeting.

Current wording

In connection with the NOL Rights Plan, the Board adopted, and recommended that our stockholders approve, the NOL Protective Charter Amendment that adds an additional layer of protection to our Current NOLs until June 30, 2025 by voiding any transfer of Common Stock that results in a stockholder acquiring beyond a 4.9% ownership percentage threshold (or, if a stockholder has current beneficial ownership of in excess of 4.9%, then the ownership percentage that is one-half of one percentage point greater than their current beneficial ownership percentage). The NOL Protective Charter Amendment was approved by the Company’s stockholders at the Special Meeting.

Previous wording

Other income totaled $14.6 million for the three months ended June 30, 2024 compared to other expense of $0.3 million for the three months ended June 30, 2023. Other income in 2024 included an $18.7 million gain related to a decrease in the fair value of Warrants outstanding at June 30, 2024, partially offset by $4.2 million of interest expense related to the Related Party Loan associated with the Amended and Restated Credit Agreement.

Current wording

Other income totaled $7.6 million for the three months ended September 30, 2024 compared to other expense of $3.5 million for the three months ended September 30, 2023. Other income in 2024 included $7.3 million associated with proceeds received in July 2024 for the final settlement payment of a previously filed business interruption insurance claim and a $4.8 million gain resulting from a decrease in the fair value of the Warrants outstanding at September 30, 2024. These increases were partially offset by $4.4 million of non-cash interest expense related to the Related Party Loan. In 2023, other expense was primarily due to a $3.1 million loss on extinguishment of debt due to a refinancing.

Previous wording

Net income attributable to Purple Inc. was de minimis for the three months ended June 30, 2024 compared to a net loss of $40.5 million for the three months ended June 30, 2023. The $40.5 million reduction in net loss was primarily due to the $18.7 million gain associated with the decrease in the fair value of the Warrants outstanding at June 30, 2024, the $13.4 million increase in gross profit and the $12.2 million reduction in operating expenses.

Current wording

Net loss attributable to Purple Inc. was $39.2 million for the three months ended September 30, 2024 compared to a net loss of $36.0 million for the three months ended September 30, 2023. The $3.2 million increase in net loss was primarily due to $32.7 million of restructuring, impairment and other related charges associated with the Restructuring Plan, partially offset by a $17.7 million decrease in operating expenses, excluding the impact of restructuring, impairment and other related charges, and a $11.1 million increase in other income.

Previous wording

We believe that we are well positioned to build on our recent trends due to our differentiated product and growing brand strength. We remain focused on five key initiatives to drive sustainable and profitable market share gains:

Current wording

We believe, given our announced cost actions, that we are well positioned to grow our business in this market, that remains challenged. We remain focused on five key initiatives to drive sustainable and profitable market share gains:

Previous wording

Marketing and sales expense decreased $5.0 million, or 10.8%, to $41.4 million for the three months ended June 30, 2024 compared to $46.4 million for the three months ended June 30, 2023. This decrease primarily consisted of a $4.2 million decrease in advertising spending. As a percentage of net revenues, advertising spend was 13.2% in the second quarter of 2024 compared to 17.0% in the second quarter of 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s expanded marketing efforts in the second quarter of 2023 to support the launch of the new Premium and Luxe product lineups in May 2023.

Current wording

Marketing and sales expense decreased $9.9 million, or 18.7%, to $42.9 million for the three months ended September 30, 2024 compared to $52.8 million for the three months ended September 30, 2023. This decrease primarily consisted of a $9.1 million decrease in advertising spending over last year when we invested heavily to support our new product launch. As a percentage of net revenues, advertising spend was 13.7% in the third quarter of 2024 compared to 18.1% in the third quarter of 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s use of expanded marketing efforts in 2023 to support the launch of our new product lineups.

Previous wording

Interest expense totaled $4.2 million for the three months ended June 30, 2024 compared to $0.4 million for the three months ended June 30, 2023. This increase was primarily due to interest incurred on the new $61.0 million loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the second quarter of 2023 was comprised of only debt issuance cost amortization and commitment fees associated with the line of credit under the 2020 Credit Agreement as the related term loan associated with the 2020 Credit Agreement was repaid in full in February 2023.

Current wording

Interest expense totaled $4.4 million for the three months ended September 30, 2024 compared to $0.6 million for the three months ended September 30, 2023. This increase was primarily due to interest incurred on the Related Party Loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the third quarter of 2023 reflected interest incurred on the 2023 Credit Agreements.

Previous wording

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At June 30, 2024, the outstanding Warrants had a fair value of $24.5 million. During the three months ended June 30, 2024, we recognized a gain of $18.7 million in our condensed consolidated statement of operations for the decrease in fair value of the Warrants outstanding at June 30, 2024 as compared to the fair value of the Warrants outstanding at the end of the first quarter of 2024.

Current wording

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. This liability is re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At September 30, 2024, the outstanding Warrants had a fair value of $19.7 million. During the three months ended September 30, 2024, we recognized a gain of $4.8 million for the decrease in fair value of the Warrants outstanding at September 30, 2024 as compared to the fair value of the Warrants outstanding at the end of the second quarter of 2024.

Previous wording

We had income tax expense of $0.1 million for the three months ended June 30, 2024 compared to income tax expense of $0.1 million for the three months ended June 30, 2023. The income tax expense amounts in both the second quarter of 2024 and 2023 were related to various state taxes.

Current wording

We had income tax expense of $0.1 million for the three months ended September 30, 2024 compared to negligible income tax expense for the three months ended September 30, 2023. The income tax expense amounts in both the third quarter of 2024 and 2023 were related to various state taxes.

Previous wording

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was de minimis for the three months ended June 30, 2024 and $0.2 million for the three months ended June 30, 2023.

Current wording

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.1 million for both the three months ended September 30, 2024 and the three months ended September 30, 2023.

Previous wording

Operating Results for the Six Months Ended June 30, 2024 and 2023

Current wording

Operating Results for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Marketing and sales expense decreased $1.7 million, or 2.0%, to $82.8 million for the six months ended June 30, 2024 compared to $84.6 million for the six months ended June 30, 2023. This decrease primarily reflected a $3.1 million decrease in advertising spending, offset in part by a $1.8 million increase in showroom marketing and sales costs attributable to showroom expansion. As a percentage of net revenues, advertising spend was 12.0% in 2024 compared to 14.2% in 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s expanded marketing efforts that began in the second quarter of 2023 to support the launch of our new Premium and Luxe product lineups in May 2023.

Current wording

Marketing and sales expense decreased $11.6 million, or 8.4%, to $125.8 million for the nine months ended September 30, 2024 compared to $137.4 million for the nine months ended September 30, 2023. This decrease primarily reflected a $12.2 million decrease in advertising spending over last year when we invested heavily to support our new product launch. As a percentage of net revenues, advertising spend was 12.5% in 2024 compared to 15.7% in 2023. The lower percentage of revenues reflected the impact of using more efficient advertising techniques in 2024 as compared to management’s use of expanded marketing efforts in 2023 to support the launch of our new product lineups.

Previous wording

Research and development costs increased $1.1 million, or 36.3%, to $4.0 million for the three months ended June 30, 2024 compared to $2.9 million for the three months ended June 30, 2023. This increase was primarily due to the loss incurred on the write off of a project.

Current wording

Research and development costs increased $1.6 million, or 17.5%, to $10.6 million for the nine months ended September 30, 2024 compared to $9.0 million for the nine months ended September 30, 2023. This increase was primarily due to a loss incurred on the write off of a project coupled with increased investment in new research and development initiatives.

Previous wording

Interest expense totaled $8.6 million for the six months ended June 30, 2024 compared to $0.6 million for the six months ended June 30, 2023. This increase was primarily due to interest incurred on the new $61.0 million loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the first six months of 2023 was lower because the term loan associated with the 2020 Credit Agreement was repaid in full in February 2023.

Current wording

Interest expense totaled $13.0 million for the nine months ended September 30, 2024 compared to $1.1 million for the nine months ended September 30, 2023. This increase was primarily due to interest incurred on the Related Party Loan that was entered into in January 2024 to refinance the term loan and revolving line of credit associated with the 2023 Credit Agreements. Interest expense in the first nine months of 2023 was lower in part because the term loan associated with the 2020 Credit Agreement was repaid in full in February 2023 and the 2023 Credit Agreements did not go into effect until August 2023.

Previous wording

Other income increased to $4.4 million for the six months ended June 30, 2024 compared to $0.1 million for the six months ended June 30, 2023. This increase was primarily due to $4.3 million of proceeds received in January 2024 as partial settlement for a previously filed business interruption insurance claim.

Current wording

Other income increased to $11.6 million for the nine months ended September 30, 2024 compared to $0.3 million for the nine months ended September 30, 2023. This increase was due to $4.3 million of proceeds received in January 2024 as partial settlement for a previously filed business interruption insurance claim and $7.3 million of additional proceeds received in July 2024 for the remaining settlement payment due pursuant to the same previously filed business interruption claim.

Previous wording

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. The initial liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is being re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At June 30, 2024, the Warrants had a fair value of $24.5 million. During the six months ended June 30, 2024, we recognized a loss of $4.9 million in our condensed consolidated statement of operations for the increase in fair value of the Warrants outstanding at June 30, 2024 as compared to the fair value of the Warrants on the date of issuance.

Current wording

In January 2024, in connection with the Amended and Restated Credit Agreement, we issued 20.0 million Warrants to the Lenders. These Warrants contain certain provisions that do not meet the criteria for equity classification and therefore are recorded as liabilities. The initial liability for these Warrants was recorded at a fair value of $19.6 million on the date of issuance with the offset included in debt issuance costs. This liability is being re-measured to fair value at each reporting date or exercise date with changes in the fair value included in earnings. At September 30, 2024, the Warrants had a fair value of $19.7 million. During the nine months ended September 30, 2024, we recognized a loss of $0.1 million for the increase in fair value of the Warrants outstanding at September 30, 2024 as compared to the fair value of the Warrants on the date of issuance.

Previous wording

In January 2024, we entered into the Amended and Restated Credit Agreement that terminated and paid off our 2023 Credit Agreements. This termination was accounted for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2024. In February 2023, we entered into a fifth amendment to the since terminated 2020 Credit Agreement and repaid in full the outstanding balance of the related term loan plus accrued interest. This amendment was accounted for as an extinguishment of debt and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2023.

Current wording

Loss on extinguishment of debt totaled $3.4 million for the nine months ended September 30, 2024 compared to $4.3 million for the nine months ended September 30, 2023. In January 2024, we entered into the Amended and Restated Credit Agreement that terminated and paid off our 2023 Credit Agreements. This termination was accounted for as an extinguishment of debt and $3.4 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2024. In February 2023, we accounted for an amendment to the 2020 Credit Agreement as an extinguishment of debt and $1.2 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt in 2023. In connection with the execution of the 2023 Credit Agreements in August 2023, the Company terminated its 2020 Credit Agreement. While the Company had no outstanding borrowings under the 2020 Credit Agreement at that time, the termination was accounted for as an extinguishment of debt during the third quarter of 2023 and $3.1 million of unamortized debt issuance costs were recorded as loss on extinguishment of debt.

Previous wording

We had income tax expense of $0.1 million for the six months ended June 30, 2024 compared to income tax expense of $0.1 million for the six months ended June 30, 2023. The income tax expense amounts in both 2024 and 2023 were related to various state taxes.

Current wording

We had income tax expense of $0.2 million for the nine months ended September 30, 2024 compared to income tax expense of $0.2 million for the nine months ended September 30, 2023. The income tax expense amounts in both 2024 and 2023 were related to various state taxes.

Previous wording

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

We calculate net income or loss attributable to noncontrolling interests on a quarterly basis using their weighted average ownership percentage. Net loss attributed to noncontrolling interests was $0.2 million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated Credit Agreement and proceeds received from offerings of our equity capital. Principal uses of funds consist of capital expenditures, working capital needs, and operating lease payment obligations. In accordance with the Amended and Restated Credit Agreement, we have elected to pay interest in kind on our new loan to reduce cash obligations. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations. Our cash and cash equivalents and working capital positions were $23.4 million and $39.5 million, respectively, as of June 30, 2024 compared to $26.9 million and $30.8 million, respectively, as of December 31, 2023. Cash used for capital expenditures totaled $5.3 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. Our capital expenditures in 2024 have primarily consisted of additional investments made in our manufacturing operations and showroom facilities. Additional details about our Amended and Restated Credit Agreement are described above under “Recent Developments in our Business – Debt Financing.”

Current wording

Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand, supplemented with borrowings made pursuant to our Amended and Restated Credit Agreement and proceeds received from offerings of our equity capital. Principal uses of funds consist of capital expenditures, working capital needs and operating lease payment obligations. In accordance with the Amended and Restated Credit Agreement, we have elected to pay interest in kind on our new loan to reduce cash obligations. Our working capital needs depend largely upon the timing of cash receipts from product sales, payments to vendors and others, changes in inventories, and operating lease payment obligations. Our cash and cash equivalents and working capital positions were $23.4 million and $28.7 million, respectively, as of September 30, 2024 compared to $26.9 million and $30.8 million, respectively, as of December 31, 2023. Cash used for capital expenditures totaled $6.4 million and $9.4 million for the nine months ended September 30, 2024 and 2023, respectively. Our capital expenditures in 2024 have primarily consisted of additional investments made in our manufacturing operations and showroom facilities. Additional details about our Amended and Restated Credit Agreement are described above under “Recent Developments in our Business – Debt Financing.”

Previous wording

Based on our current projections, which includes the remaining $7.3 million settlement amount received in July 2024 pursuant to a previously filed business interruption claim, we believe our cash on hand, expected cash to be generated from our operations and up to $19.0 million additional cash available under our Amended and Restated Credit Agreement, will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12 months. In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue our growth strategies. Such actions could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees. In addition, we may be forced to restructure our obligations to creditors, pursue work-out options or other protective measures. We may also need to seek additional funding sources including new debt from subordinated lenders or equity capital. However, such additional debt or equity capital may not be available on terms favorable to us or at all. Our ability to raise additional debt financing would require the consent of the Lenders.

Current wording

Based on our current projections, we believe our cash on hand, expected cash to be generated from our operations and up to $19.0 million additional cash available under our Amended and Restated Credit Agreement on terms requested by us to the extent agreed to by the Lenders at their discretion, will be sufficient to meet our working capital requirements and cover anticipated capital expenditures for the next 12 months. Also, in August 2024, we announced our Restructuring Plan. We believe consolidation of our manufacturing footprint is an important step to advance our grid innovation and build momentum to achieve positive operating cash flow and market share growth over the long term. In the event our cash flow from operations or other sources of financing are less than anticipated, we believe we will be able to fund operating expenses based on our ability to scale back operations, reduce marketing spend, and postpone or discontinue our growth strategies. Such actions could result in slower growth or no growth, and we may lose key suppliers, be unable to timely satisfy customer orders, and be unable to retain all of our employees. In addition, we may be forced to restructure our obligations to creditors, pursue work-out options or other protective measures. We may also need to seek additional funding sources including new debt from subordinated lenders or equity capital. However, such additional debt or equity capital may not be available on terms favorable to us or at all. Our ability to raise additional debt financing would require the consent of the Lenders.

Previous wording

Cash Flows for the Six Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Current wording

Cash Flows for the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Previous wording

The following summarizes our cash flows for the six months ended June 30, 2024 and 2023 as reported in our condensed consolidated statements of cash flows (in thousands):

Current wording

The following summarizes our cash flows for the nine months ended September 30, 2024 and 2023 as reported in our condensed consolidated statements of cash flows (in thousands):

Previous wording

Cash used in investing activities reflected capital expenditures of $5.2 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures in the first six months of 2024 primarily consisted of additional investments made in our manufacturing operations and showroom facilities.

Current wording

Cash used in investing activities reflected capital expenditures of $6.4 million and $9.4 million for the nine months ended September 30, 2024 and 2023, respectively. Capital expenditures in the first nine months of 2024 primarily consisted of additional investments made in our manufacturing operations and showroom facilities.

Previous wording

Cash provided by financing activities was $27.5 million during the six months ended June 30, 2024 compared to $29.1 million during the six months ended June 30, 2023. Financing activities during the first six months of 2024 included $61.0 million of proceeds received from the Related Party Loan under the Amended and Restated Credit Agreement, offset in part by a $25.0 million payment to pay off the Term Loans from the 2023 Credit Agreement, a $5.0 million payment to pay off the ABL Loans from the 2023 Credit Agreement, and payments of $3.5 million for debt issuance costs associated with entering into the Amended and Restated Credit Agreement.

Current wording

Cash provided by financing activities was $27.5 million during the nine months ended September 30, 2024 compared to $50.8 million during the nine months ended September 30, 2023. Financing activities during the first nine months of 2024 included $61.0 million of proceeds received from the Related Party Loan under the Amended and Restated Credit Agreement, offset in part by a $25.0 million payment to pay off the Term Loans from the 2023 Credit Agreement, a $5.0 million payment to pay off the ABL Loans from the 2023 Credit Agreement, and payments of $3.5 million for debt issuance costs associated with entering into the Amended and Restated Credit Agreement.

Previous wording

Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K and Form 10-K/A, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website.

Current wording

Our website address is www.purple.com. We make available free of charge on the Investor Relations portion of our website, investors.purple.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on our website.