Purple Innovation (NASDAQ:PRPL), the mattress and bedding company, reported a strong third quarter, with revenue up 18.8% from the previous quarter to $140 million, marking the largest quarter-over-quarter gain in three years. Despite a slight year-over-year revenue decrease, the company expressed confidence in its market share growth, driven by its new premium Sleep Better Live Purple marketing campaign and positive response to its new product portfolio. The firm is investing in marketing to drive brand awareness and demand, aiming to achieve positive adjusted EBITDA by the second half of 2024.

Key takeaways from the earnings call:

• Purple Innovation reported Q3 revenue of $140 million, up 18.8% from the previous quarter.
• The company is confident in its premium sleep strategy and expects sequential and year-over-year revenue growth in Q4.
• Purple Innovation aims to achieve positive adjusted EBITDA in the second half of 2024.
• The company is refining its marketing approach and enhancing sell-through in all distribution channels.
• An accounting error has delayed the filing of their third-quarter Form 10-Q until November 14.
• The company expects full-year net revenue in the range of $510 million to $520 million and an adjusted EBITDA loss between $55 million and $65 million.

During the earnings call, the company also revealed that it had filed a Form 12b-25, delaying the filing of their third-quarter Form 10-Q until November 14 due to an accounting error in warranty terms in contracts with wholesale customers. Adjustments to prior period amounts have been made, and the impact on prior periods is being evaluated. The company stated that these liabilities would be recorded as a reduction to revenue in each future period, resulting in a non-cash impact of reducing revenue by approximately 175 to 225 basis points.

Despite industry headwinds, Purple Innovation remains confident in its strategy and expects to achieve sequential and year-over-year revenue growth in Q4. The company plans to improve margins by implementing pricing increases, reducing discounting, improving manufacturing efficiency, and optimizing operating budgets.

CEO Rob DeMartini expressed confidence in the company’s premium sleep strategy despite potential value-conscious consumer behavior in the market. He also mentioned that launch costs and supply chain pressures have impacted gross margin but expects to resolve these issues by the end of the current quarter and return to a starting gross margin rate of around 37%.

In terms of revenue guidance for Q4, the company expects it to be similar to Q3 with operating expenses coming down. They also mentioned that there will be ongoing cash usage, but it will not significantly draw from their revolving credit facility. DeMartini stated that profitability can be achieved at a monthly revenue range of $50 million to $55 million, and they are focused on slot productivity rather than slot count for wholesale customers.

The company also discussed plans for expansion and its focus on premium products. It plans to increase the number of doors by 10% but will be selective to ensure productivity. DeMartini emphasized that Purple’s strategy is to provide premium products and that the company does not need to make a significant pivot. He also mentioned the company’s relationship with Mattress Firm, stating that Purple is focused on the launch and optimistic about its potential with the customer.

In terms of cash position, the company had $26.6 million as of September 30, 2023, compared to $41.8 million at December 31, 2022. They expected a cash burn of over $20 million in the fourth quarter but mentioned having access to a $50 million revolver with the majority still available. In terms of inventory, they anticipated ending the year at a similar level as the third quarter due to increased demand. The company also mentioned taking pricing actions on accessories and pillows, with plans for modest pricing adjustments on mattress models in the future.

The company operates with a significant debt burden and may have trouble making interest payments on its debt. The company’s stock is currently in oversold territory, and it’s quickly burning through cash. Moreover, six analysts have revised their earnings downwards for the upcoming period.

From a data perspective, Purple Innovation has a market capitalization of $86.61M, with a negative P/E ratio of -0.60, implying that the company is not currently profitable. The company’s revenue as of Q2 2023 was $518.65M, but interestingly, it experienced a revenue growth decline of -19.53% in the last twelve months as of Q2 2023. The company’s gross profit margin for the same period was 36.99%.