Purple Innovation, Inc. , a comfort innovation company known for creating the “World’s First No Pressure ™ Mattress,” today announced results for the first quarter ended March 31, 2021.
First Quarter Financial Summary (Comparisons versus First Quarter 2020)1
“Our first quarter results meaningfully exceeded expectations and represent a great start to 2021,” said Joe Megibow, Chief Executive Officer. “We experienced strong demand early in the year, particularly in our digital channel, followed by a sharp acceleration in our wholesale business as the first quarter progressed. The product and marketing strategies we are executing, which showcase the premium nature of our brand and differentiated comfort technologies, continue to set Purple apart from the competition and fuel important market share gains. Importantly, our recent capacity expansion has us well positioned to take advantage of the strong wholesale momentum we are experiencing as brick-and-mortar traffic further approaches pre-pandemic levels and current consumer spending benefits from recent government stimulus.”
Megibow continued, “Looking ahead, our plans are firmly around providing customers with innovative comfort solutions through our omni-channel retail strategy. This includes upgrading our digital capabilities in order to better integrate our multiple product categories and enhance the online shopping experience, accelerating the rollout of Purple showrooms, and strengthening our wholesale relationships. We’ve built a great foundation and we are very excited to leverage the many strengths of our organization to capitalize on the tremendous opportunities that exist for our business.”
First Quarter 2021 Review
First quarter 2021 net revenue increased 52.3% to $186.4 million, compared to $122.4 million in the first quarter of 2020. The increase in net revenue was driven by strong growth for all product lines in both the direct-to-consumer and wholesale channels. For the first quarter of 2021, DTC revenue increased 54.8% and wholesale revenue increased 47.6%.
Gross margin for the first quarter 2021 improved to 46.9% compared to 43.5% in the year ago period. The 340-basis point increase in gross margin year-over-year was primarily attributable to the higher proportion of DTC channel revenue, which carries higher gross margins than the wholesale channel and fixed cost leverage on higher revenue. DTC revenues comprised approximately 67% of net revenue for the quarter, compared with approximately 66% in the same quarter last year.
Operating expenses were 37.9% of net revenue for the first quarter of 2021 compared to 37.3% in the year ago period. The increase in operating expenses as a percent of net revenue was driven primarily by additional administrative costs to support continued accelerated growth, partially offset by efficiencies in marketing and selling costs. For the first quarter 2021, marketing and sales expense as a percent of net revenue decreased to 29.2% compared with 30.0% last year due to leverage on higher net revenue and more efficient marketing spend, partially offset by additional marketing spend to increase brand awareness and the addition of company-owned showrooms.
Operating income increased 125.3% to $16.9 million for the first quarter 2021 compared to operating income of $7.5 million in the prior year period.
Net income was $20.9 million for the first quarter 2021 compared to a net income of $28.0 million in the year ago period. As previously disclosed, the Company recently determined that its outstanding warrants should be accounted for as liabilities and recorded at fair value on the date of the transaction and subsequently re-measured to fair value at each reporting date. For the three months ended March 31, 2021 and 2020, the Company recognized non-cash gains of $9.1 million and $21.6 million, respectively, associated with the change in fair value of warrant liabilities.
Adjusted net income, which excludes adjustments for certain non-cash items and other items the Company does not consider in the evaluation of ongoing operational performance, including gains associated with the change in fair value of warrant liabilities, was $12.0 million, or $0.17 per diluted share, compared to $4.6 million, or $0.08 per diluted share in the prior year period. Adjusted net income has also been adjusted to reflect an estimated effective income tax rate of 26.4% for the current year period and 25.4% for the comparable prior year period.
EBITDA for the first quarter 2021 was $27.8 million compared to $30.8 million in the first quarter 2020. Adjusted EBITDA, which excludes the adjustment for non-cash gain associated with the change in fair value of warrant liabilities, Tax Receivable Agreement expense, new production facility start-up costs, non-cash stock-based compensation, legal fees, executive search costs, severance, showroom opening costs, product reserve and COVID-19 related expenses, was $22.8 million, an increase of 115% compared to Adjusted EBITDA of $10.6 million in the prior year period.
As of March 31, 2021, the Company had cash and cash equivalents of $103.8 million compared to $123.0 million as of December 31, 2020. The decrease was driven by capital expenditures of $12.3 million primarily related to manufacturing capacity expansion and showroom expansion and cash used in operations of $9.4 million due mainly to an increase in accounts receivable and a reduction in accounts payable. Inventories as of March 31, 2021 totaled $63.3 million compared with $65.7 million as of December 31, 2020.
Based on first quarter results, the Company is raising its 2021 outlook. It now expects full year 2021 net revenue to be between $860 million and $900 million, up from its previous range of $840 million to $880 million. The new range represents an increase of 33% to 39% over 2020 results. Considering the first quarter results and recent trends indicating an even greater channel mix shift toward wholesale in the second quarter, adjusted EBITDA is now expected to be between $95 million and $105 million, up from its previous range of $90 million to $100 million.
The Company continues to expect capital expenditures for 2021 to be in the range of $45 to $50 million consisting primarily of approximately $20 million for the continued buildout of the Georgia manufacturing facility and $19 million related to the acceleration of showroom expansion, as well as expansion of wholesale displays and additional equipment for production and innovation facilities in Utah.
For the second quarter of 2021, the Company expects net revenue to be between $200 million to $210 million and adjusted EBITDA between $21 million and $25 million.
Conference Call and Webcast Information
Purple Innovation, Inc. will host a live conference call to discuss financial results today, May 17, 2021 at 8:30 a.m. Eastern Time. To access the call dial (877) 425-9470 (domestic) or (201) 389-0878 (international) and provide the Conference ID: 13719816. The call is also being webcast and can be accessed on the investor relations section of the Company’s website, investors.purple.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company’s website for 30 days.
Purple is a digitally-native vertical brand with a mission to help people feel and live better through innovative comfort solutions. We design and manufacture a variety of innovative, premium, branded comfort products, including mattresses, pillows, cushions, frames, sheets and more. Our products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology, Hyper-Elastic Polymer®, underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products. We market and sell our products through our direct-to-consumer online channels, traditional retail partners, third-party online retailers and our owned retail showrooms. For more information on Purple, visit purple.com.