Purple Innovation (PRPL) 10 Aug 182018 Q2 Earnings call transcript

Greetings, ladies and gentlemen, welcome to Purple Innovation’s Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Brendon Frey of ICR. Please go ahead.

us results. discuss joining quarter Innovation's for earnings XXXX you today Purple to second Thank call Terry today's Watkins, On are Chief and and Financial Mark CEO; Officer. Pearce, Co-Founder, Chairman the at www.purple.com. today's is press A section copy website available of on Purple's of Investor release Relations presentation to this forward-looking would make like statements will you remind I statements. certain that we in are factors materially These affecting a and actual today forward-looking as only of on business. reflect statements company's based may the Purple from differ analysis number expectations Innovation's of judgment and current results not you forward-looking Accordingly, reliance statements. place should undue on these

adjusted these result I'll income, website. EBITDA. that, Form report can of the measures With information, well SEC Pearce. more as in future the events any which on which be For Form statements any the as include and references to financial uncertainties Terry? found and update be second our the to within XX-Q, webcast, Terry SEC forward-looking discussion forward-looking XXXX each or on EBITDA made a our was with on to a well included be our you refer release, our most We non-GAAP disclaimer thorough the disclaimer. of quarter to obligation whether and undertake quarterly regarding financial call that of the as statements call the as non-GAAP we GAAP earnings to can over furnished associated forward-looking do risks filings found in turn of measures statements A measures comparable today such Today's conference reconciliation as release, this not to is reference presentation adjusted the that with as financial X-K, otherwise. alter new will operating to earnings or in

call Thank for me us. you today's Purple’s on joining Mark is CFO, Watkins. With all

quarter of as was which increased range. second high our to above end the of Purple robust for revenue another growth $XX guidance represented period The XX% million,

of new that we points continue with X execution the our channel channel. inch product, our benefiting feature target consumers outlined same successful design. strong X start a Beginning Purple our for of experience market by Purple along a that we a to driven incrementally offering is or the was top completely Polymer performance inch, reach respond at in product, we new strategies and different and X continued personalized marketing, able time, the been mattress choice positively mattress, for Bed, At year. to to With which deep product line have to inch higher direct-to-consumer wider our consumers, top models a Our original demand manufacturing with the line price core and and mattress broader Hyper-Elastic comfort audience of share.

we media social portfolio. other trends continued videos consumers acquire bed-in-a-box the models awareness of new models new marketing mainly As This for on significantly to our focus to on priced marketing, and investments considered given competitive have majority drive digital cost have helped customer recent purchase. anticipated we over the increased in year higher differentiated demand to effectively. digital we're website call we towards our technology. made new the product in this the past to QX, decline spend on the of category, the we programs, the highly discussed the attempt seen our in launch ad our brand in are especially more have May, interest an advertising, cost the platforms a year, Shifting and In increased following of direct conversion the was rate. expected our Considering testing earlier QX also in

of diversifying our our continue the wholesale locations. to sleep we the Turning ended growth overall $XX billion a last expanded with late launching doors market, stream channel we initial year beyond work piece the larger Since of have Mattress to XX operations. and our our and test XXX strategies, through in the capturing quarter Firm towards revenue second

results potential as XXX in-store productive date retailers Firm to with experience. time, to have continue well Mattress a from a with are are plans discussions Purple We locations for added exploring brand leading perspective expansion. total the sell-through both as same we channels. At different in and with pleased We further XX another of very the regarding the for partnerships other wholesale recently

which our warehouse our recently Manufacturing benefits layer higher our More we in our rolling well-positioned an capabilities With costs. initiatives Polymer we and IP them processes our initially and DNA. fourth first that expanded model significantly has see forward. our side, solved issue are the the XXXX, and to around margin enhancing manner. mattresses. to headwind orders focus to proprietary refining our in capacity should by our fully have a to going business. timely core Purple's proprietary part processes important to growth models we clear helps is machine To this chain required further priced system. make provides systems, a behind fulfil I that automation gross new report end manufacturing of on meet manufacturing in Purple’s even from to models, flat the differentiation freight we create quarter with for support resulting current us management This manufacturing With packed new Hyper-Elastic in us, which pleased competency mattress an been and procedures ship and now supply investments our through including our am demand On higher our online of molding increasing number coming our

Mark floor. announce I'm highly internal for take is and term. long hire some replacement, over new in when that increase place. current capable now taken competitive to a high-growth environment growth Despite continue search and will generate has and typical well-positioned to value a confident will CEO business of the the We challenges that publicly the the profitable succeed shareholder company,

and Thank full we'll you, quarterly and for the Terry. discussing review guidance our quarter our third I'll then begin year. results, by

For prior due revenue the year $XX.X months net marketing XX% revenue to increased was investments. was higher demand The the primarily million, ended compared up for consumer direct XX, million period. three in by June XXXX, $XX.X driven mattresses to increase

benefited wholesale in XX% approximately with the million $XX as in in to the during quarter the gross channel, which higher from new to in the also in compared second mattress revenue. sales XX.X% period XXXX, pack XXXX We continue to up to mattresses of flat our XXXX profit comprised second was margin of of decrease gross April. of were quarter costs through second quarter $XX.X due month total XX% models to same contributions of million in Gross quarter margin dollars XX.X% during of year-over-year the XXXX. partially The the the compared we freight of

it As those had May initially shipping models of reminder, and freight as began the more a rates. packed new flat mattress we but rolling launch, economical post models February at the

expenses revenues by In revenue. result lower dollar gross high the addition as net freight of costs were and higher The drive of company's dollar were marketing million due to brand impact the versus margin margins a product models. increase XXXX $XX.X the lower reducing resulting of demand returns. awareness higher to million $XX.X second relative percent product is a year gross partially in These offset investments expand mattress quarter is returns new to prior headwinds to consumer as This experienced higher of high from we gross margins Operating in for the portfolio. period. net margin the primarily the

the results $X.X income operating quarter XXXX. in and was net the expense items EBITDA million of EBITDA income non-recurring quarter EBITDA, EBITDA million compared Net of of Adjusted of During which an of second quarter $X.X XXXX in income CEO with of operating the to compared just XXXX. range to same I of the $X.X million $X negative XXXX. loss second for quarter $X.X negative to second $X.X for quarter line of the compensation guidance the quarter, adjusted of quarter second million second positive After $X.X which stock-based for in was million, search million quarter adjusted loss we million XXXX. the $X.X an second reported to mentioned, compared versus XXXX. the was was million $X.X our in of the operating adjusted in million of was excludes second in $X.X million costs, loss compared operating quarter adjusting

year $XX.X gross inefficiencies scaled six were to the our production period. of new the compared million comparable margin in driven with year, dollars million in $XX.X $XX.X revenues and meet the the compared first than gross for to experienced results same the in during adjustments expanded quality margin first of quarter in XX.X% million, process second to $XXX.X in six the XXXX. months XXXX compared XXXX. first prior XXXX for of by million to profit the related to XX.X% XXXX were months primarily The we higher mattresses to Gross as period manufacturing the demand XX.X% six decrease QX XX% XX, Turning net ended June in at was to control of during up we up months inventory

half consumer freight investments pressured is in prior These partially XXXX higher $XX.X in also models. the expenses our million of headwinds increase of This versus addition, offset higher the higher were In were $XX.X and to drive million company’s and costs six to the gross demand by for brand products. the new XXXX. marketing margins in returns margin awareness months expand period. Operating first year product during higher first due primarily dollar

as CEO combination costs. search expenses nonrecurring In transaction business one-time to included the and of million addition, Corp, as Partner costs well $X severance with Global operating Acquisition related

During ended period to negative EBITDA loss XXXX. XXXX. compared operating $X.X the quarter to the $X.X positive compared an million EBITDA income was was versus compared XXXX. $X of period in reported the in compared of $X.X $X.X of first six-month comparable in at million was net period XXXX of operating same of period. adjusted XXXX. of was the operating comparable loss million $X.X million million June second months in in for for the an EBITDA of the million the negative to adjusted we million $X.X year $X.X the of XX, period operating income six-month loss Net income Adjusted positive million million of an period XXXX million six to comparable $X.X $X.X in Adjusted prior

sheet. balance our Moving to

cash and of was had $XX.X XXXX. at product and funding due to well the at the then to XXXX, debt centers. XXXX, million as capital at with inventories, that inventories $XX.X compared as totaled June GPAC of new cash for the partially offset the end million million X, at capital $X.X XX, compared products the as on primarily quarter which expenditures. third-party combination the inventory of $XX.X the investments February of million end term models demand end to of was business working XXXX, regional reflecting As by our our at of growing equivalents with increase XX, company expanded and XXXX the an distribution Net of the second line, June The stocking finalized

late materials in to subsequently In QX forecasts up production addition, QX ramped purchases raw and reduced. early and were of were that related revenue

to net and for we be $X million revenue quarter to $XX in to million, be negative and between guidance, $XX million anticipate XXXX positive Turning $X our million. the of third of adjusted EBITDA range to the

we For $XXX an over XX% million, between XX% to $XXX to of the increase revenue be and between net continue full-year, XXXX. and expect million

to EBITDA forecasting take With ready We adjusted to breakeven. approximately are be now XXXX we that questions. Operator? still are

question first Wedbush Seth Please comes go [Operator The Basham Instructions] ahead. from Securities. with

and lot afternoon. a Thanks good

Hi, Seth.

question expense, thinking not, came as if in line than how I'm marketing a is expense percent modeled. of expectations around with are going higher about if wondering it sales your and your had managing marketing your was it you first My we forward?

for the question. you Thank

in So it come our than as expectation slightly did well. higher

are separated our that the create in get primary able it because higher for able gross to quarter, coming such we above revenue. to we primarily that was sales the demand relative to to than gross to net not lower are to which came create. the in expectation the It However, the and was revenue net the returns anticipated revenue of we ratio, then our had that driver spend actual

It And for a net than that was higher anticipated. so than but anticipated, than difference as less revenue that a in percent basis is not points why that XXX it us. significantly of made came higher

increasing and color return as your where and now follow-up more rates, are they are some why us can mitigation give and it, you Got on are they your a plans? what

higher have returns been than expected. we So,

trade we models out anticipated You some to as launched new They saw recall QX expected will that in was That time recently At we the returns purchased increase. in consumers mattress return of our possibly models. we February. those. would those

that proposition. some would kind as increased the price value expected be the of to correlation there just also returns; We

So March. returns early in we February and saw in a spike late

down They historical rapidly We higher rate are hundred expected coming down come those are would slowly, would. of thought They that couple They levels. as normal returns a to run rates have than at for points not. they our but we as not returns.

And between rates. higher rates that the those so priced and that overall it impacting really are return we return that is see correlation our models

as So watching forward we look are closely. we it

the are our impact meaning what in, we can as the return roughly the those analysis same saw into next we we We that. we expect in forward quarter that deepening QX in and But so rates that going are return be that try will QX. currently

working then was on capital this I are quarter, thinking turn flow? over, here of question am I wondering the just [indiscernible] is not about balance your working in it Okay, year will terms and how capital of capital you that cash – and then working it last

plan part talking QX in already it decided to our to than of so and our products did increased factors; so impact forecasts on prepared line, reduced of a quarters well growing of process inventory. higher through increase was previous the remarks came we then end biggest our as raised those played capital third-party inventory the it have of we those in in. have for amount as QX early and burn our has QX. due our inventory at affect several in during Those of The obviously that do a been raw we reduce were higher is product the obviously books work But mentioned the expanded in inventories what as when the the levels, were to have higher because works and down as had to we forecast finished that working our demand [indiscernible] as we my centers fulfilment some I purchases the quarter was well, in And phenomenal Production purchases and and profitability. was our subsequently materials in decent our and than goods delivery need.

QX we balance come So over some the levels. of expect to inventory that course down normalized to

capital other I item working The accounts that point is out receivable.

sales and our in has QX. XX% was X% expanded. It in channel of Our wholesale our of QX sales

higher our receivable receivables so And subsequently that is now. right healthy balance accounts we and a do of are welcomed, have

to So quarter, gives those third for the are down cash be burn the color. two items. you plan a in The hopefully that inventory is but enough really going benefit

does. That

are me Let direct standpoint lines doors, Beyond, on receivables one, and your with your are Bath don't along of state strategy, just environment update and Firm, doing your one you see receivables & about bricks Thank the you. of any Bed question competitive as other sneak the channel in going from to retail last considering the healthy, you relationship one wholesale, with expanding progress said Mattress are is and anything thinking That three, given you are the consumer you company. about in to those mortar, well? thinking you any the how two, brands

the question schedule, we So pay there. see Firm now Firm, Mattress Mattress continues on right any about don't their changes to and

the health working rumours pleased senior with of about in public but a the we So and relationship are Firm, we that. been their There good out see have have consistency management. Mattress with

to discussions end of we expansion our our as continue period. test We about come the

are anything far so, as health. standpoint Mattress now systems that from from not and all our on Firm’s as good speculating And we right are standpoint

continue to that we expand. see relationship And continued so

currently to expanding any & mattress selling Bath do have We of online. at Beyond, intention not they our are in it time. that point As this Bed relates

now. opposed are wholesale nature XXXX. come We standpoint, competitive right fruitition looking in promotional the to It anything at very competitive those most other tough. relationships, landscape as likely will and XXXX From impacting is early a to is

from two advertising. I so to. is One just the speak And cost perspectives I there – is that of will guess

QX seen On to QX. year-over-year have the similar saw increases. trends to seen and similar in basis, what have a rise of we continue We cost advertising at we

through We have been managing that.

will We roughly able provide manage that we through confident year. to that we breakeven continue be can to business for are so the that

our We ensure achieve advertising continue to in channels cost the we into that acquire and this appropriate other to expanding the we can to customer. are are year. of confident that ability CPMs to do And remainder our over

those. into one out expansion announced branching competitors being seen some of mortar, recently Casper into have own We and their stores. They brick

we table, some own our not on on and will now is focus our the the Our and There take XXXX, expanding focus partnerships. in strategy that and in right channel. to stores that future wouldn't obviously we partnerships is is for potential works the retail current but retail really off

very you Thank much.

from James. The Bobby ahead. Instructions] next [Operator Griffin question Raymond with comes Please go

Mark and afternoon Good you taking my for Terry, and thank questions.

Bobby. Hi,

So maybe and it Mark are I in hoping, expectations was walk of embedded just us kind through the XQ guidance? margin you XQ on full-year the for you seeing gross can

we So, a now the issue. QX Obviously hiccups. That have flat behind in Those the had had margin half do favorable We We slightly continue to some us. versus packing of gross what the improve. is we we inefficiencies anticipate some second there. year seen in first more had half. in

some the will efficiencies And improvements so materials from in we expect direct we to improve. that standpoints, manufacturing those our the continue see will two and

high the bring full the to the in low XX% year That gross beyond range year somewhere expecting the to forecasted the we some we we do of to that are seeing full range year be margin return second the that into originally for and pressure will XX% really range. feel rates above XX%. what though, half such for With XX% higher had we are the of

low restate, selling XX% will wholesale to have where depend that lower impacts to That at XX% – anticipated range. exactly But XX% gross to our a mix be be on when range QX high these just is margin as also wholesale are largest how that lands. strong our by will quarter do largely influenced as we we is prices. So

depending would is influence that of our So expansion also current that. channel on the forecast. our wholesale But

on Okay, the of parse it change you model or original just just the has end the return preferences like would there a returns to been meaningful bed? they you any consumer’s if to data on want the to from see are upgrade higher some able and and model function to then is the into said

So, some have we data. do decent

and We still not are is it stages. of early digesting still return to our that in the to substantially terms changed the ability original mattress react But rates. in has

Okay Do see and or both little last you can Terry, role? comment the announced? maybe be role once is is are taking wound down – how new maybe that you to of for that plan new to you is that into the and going I on is of me kind a management on place guess see and just kind of you helpful CEO from is this you but replacing structure CEO COO going the – guys be the

Well, five search our is old. CEO months

We candidates. great lot have a of interviewed

let it conclude. we down still when we narrowed – will have to We have just are you We interviewing. we some, know but

deserves leader, and getting We are a because being through right selective now we charge. with are in me very great Purple

great If his that own COO. they philosophy out one new but my be in CEO here, the but of team. gets gets On hand CEO should in the pick it will should am he department, operations level the – is restructuring below I a I the COO, before put new

CEO will And his him so we for a we bring COO. and let own hunting are

go, Mark. am – appreciate I sorry. I Okay. ahead

team we in COO. just are have And the was nicely filling I they mention, to a strong below very now. very built right right going

make brought some group on we from place I protected addition steps operations a advice we think are In it, our consultant in right that I leadership provide sure in that we have to just and the have standpoint. and Terry to do taking

We are in right well now. area doing very that

the the appreciate my back the you Best color all I to you. questions. of Thank answered half year. luck and guys of

Thanks, Bobby.

turn [Operator CEO, session. concludes any Pearce, I the closing Instructions] to the remarks. to Terry conference question-and-answer over would This back like for

Thank want you. participating. I Purple healthy. just for thank everyone to is

We those pain, but are that we are addressing ahead and staying growing problems fast are of fight. we the involves and

you I for everyone's attending So, Thank calling interest appreciate in. and today.

This concludes today's conference call.

day. you may participating Thank your You lines. have disconnect for pleasant and a